For the below let's assume domestic currency is ₹ and foreign capital is in \$
Foreign Capital Inflow => ₹ Appreciates (Because of more \$)
But consider this,
Foreign Capital Inflow => More ₹ in circulation (Since \$ have to be exchanged into ₹ before actually using in India) => More Inflation => ₹ Depreciation
What is wrong in this second reasoning?