Disappointing GDP growth numbers along with concerns over US-China trade war and continued outflows of foreign funds from the country's equity market weakened the Indian rupee to 72.40 mark against the US dollar.
The rupee which opened at 72 to a US dollar from its last Friday's close of 71.41 depreciated to 72.40 on the back of massive foreign fund outflows.
"Lower GDP numbers at 5 per cent, CNH touching new lows of 7.20 led to the rupee weakness. Pair opened at 72 and depreciated to 72.40 on back of massive equity fall in Nifty," said Sajal Gupta, Head, Forex and Rates, Edelweiss Securities.
"US and China's hard stance added fears to the market participants. RBI too did not intervene much on back of other currencies weakening against the US Dollar."
Geojit Financial Services' Chief Market Strategist Anand James said: "Rupee, already under pressure from strong dollar amidst Brexit worries, received a major jolt as June quarter's GDP reading fell to 5 per cent."
"This was further exacerbated by dismal August auto sales even as markets gave a thumbs down to PSB mergers, thereby raising worries of further rupee selling, as the FII exodus from equities continues. Inflows are coming in the form of bonds, anticipating more rate cuts, but they remain less compared to the outflows."
On Tuesday, foreign investors sold-off Rs 2,016.20 crore on the BSE, NSE and MSEI in the capital market segment.
Besides, the two main stock exchanges were also impacted due to the weak growth numbers. This resulted in a bruising sell-off in the markets on Tuesday, erasing 770 points from the S&P BSE Sensex.
Growth-sensitive stocks, state-run banks and manufacturing companies contributed most to the fall.
The benchmark Sensex fell by 769.88 points or 2.06 per cent at 36,562.91 before falling as much as 36,466.01. The broader NSE Nifty50 declined by 225.35 points or 2.04 per cent lower at 10,797.90.
According to Vaqarjaved Khan, Research Analyst with Angel Broking, the rupee is likely to depreciate towards 73.5 by the end of September 2019, "if the trade war escalates further between US and China and outflows from Indian equity market continues".