The Indian rupee recorded its steepest drop in about two months on Tuesday, with traders blaming custodial outflows amid the volatility in equities ahead of the domestic budget and the U.S. Federal Reserve's meeting.

The rupee fell to 81.92 per dollar, having slipped to the 82-handle during the session for the first time since Jan. 10. The currency declined 0.51% on the day, its biggest one-day loss since Dec. 6.

For the month, the currency rose around 1%, but underperformed most of its Asian emerging market peers.

Traders said the rupee's sharp decline on the day was largely due to custodial outflows, plus stop losses being triggered once the dollar index jumped in late afternoon trade.

Investors remained nervy due to volatile Indian equities as the Adani Group's rout continued to weigh. Foreign outflows from stocks have topped $1.5 billion since the U.S.-based short-seller Hindenburg's report on the group.

"The next level to watch this week is 82.50. However, USD/INR may face small resistance at 82.10", said Dilip Parmar, a research analyst at HDFC Securities.

The amalgamation of all the risk events, plus the pre-budget economic survey saying the rupee faces pressure from risks of further Fed rate hikes, pushed the currency lower, Parmar added.

India's Union budget is due on Wednesday, in which the focus will be on the government's fiscal consolidation path.

Later that day, during U.S. trading hours, the Fed will announce its monetary policy decision.

While a 25-basis-point hike is widely expected, a key marker would be how the central bank's officials respond to markets pricing in rate cuts later this year.

Asian emerging market currencies and stocks declined as the dollar index climbed ahead of the crucial Fed meeting, which will be followed by central bank meetings in Europe and England on Thursday. (Reporting by Anushka Trivedi; Editing by Savio D'Souza)