The rupee fell to 53.10 at 11.30 am IST, soon after the reports flashed, falling 38 paise from Friday's close.
The Indian currency has been constantly gaining ground in the last few weeks after the government initiated a slew of reform measures including permitting FDI in key sectors and increasing diesel prices.
In fact, the Indian currency has been one of the best performing currency in recent times and so has its stock markets. A downgrade in its sovereign rating by S&P could have serious implications on the currency, which could drop sharply.
In April, S&P had cut India's rating outlook to negative from stable, citing the slow pace of fiscal consolidation, the worsening external sector situation, inflationary pressures and the sluggish pace of economic growth, nudging it closer to a "junk" rating.