The brokerage added that it was slow in downgrading India, but if the rupee continues to slide, the Indian economy would continue to underperform.
Meanwhile, also lowered its target for India's benchmark index to 18,900 from 20,800, citing increasing uncertainty after the rupee's slide despite the Reserve Bank of India's measures to prop it up since the middle of July.
The target cut on the Sensex stands at 10% from former values and it closed at 18,246 on Tuesday, down 0.34%.
Foreign institutional investors (FIIs) sold shares worth a net Rs. 680.08 crore on Tuesday, as per provisional data from the stock exchanges, agencies said.
The steady pullback of funds by FIIs from India following the expected withdrawal of a cheap money policy in the US is the key reason behind the rupee's fall.