Rupee’s Retreat: Charting India’s Investment Horizon

As many of you plan your next foreign trip or fund overseas education, the Indian rupee’s relentless slide against the U.S. dollar is hitting wallets hard. Its recent plunge to a record low has sparked concerns about India’s economic resilience. Far from a fleeting dip, this depreciation, set against a backdrop of global currency volatility, demands a deeper look at its roots and its ripple effects on our investment landscape.[EasyDNNnews:PaidContentStart]

In 2025, the rupee has fallen by almost 3.8 per cent despite a weakening dollar index, which has dropped nearly 10 per cent in the same period from 107 to 97. While the rupee’s fall is relatively less severe compared to countries like Argentina and Turkey, it has contributed to India’s market underperformance. The Indian stock market has returned just 4 per cent this year, significantly lagging behind global markets. In contrast, commodities such as gold and silver have seen impressive rallies, drawing investor interest away from equities.

The primary cause of the rupee’s weakness is the outflow of foreign funds. Over the past year, India has witnessed an outflow of more than $45 billion, making it one of the least favoured emerging markets for foreign investment. This flight of capital has compounded the currency’s challenges, as the lack of foreign inflows places India’s equity market at a disadvantage compared to global peers.

The foreign outflows have been a significant driver of the rupee’s fall, even as our macro-economic numbers remain quite stable. India’s current account deficit stands at a historic low of less than 1 per cent, which provides a buffer against external shocks. This is a marked improvement from previous crises when India’s deficit exceeded 5 per cent.

As for how low the rupee can go, I believe it may hover between `87 and `89 over the short term, with potential for appreciation by the end of the fiscal year. Long-term performance of the rupee against the USD shows that it depreciates by an average of three per cent in a year and we have already dropped by four per cent. While the rupee’s decline is concerning, I believe it is not a cause for alarm. The RBI’s recent policy shift has been to allow for more flexibility in the currency’s movement rather than actively defending the rupee at all costs, which we saw with earlier RBI governors. This more pragmatic approach aims to ensure that the rupee’s movement does not stifle India’s long-term growth potential.

The weak rupee is not all negative. It acts as a natural tariff wall, making imports more expensive and giving a competitive edge to domestic industries. Sectors like steel have benefited from the increased cost of imports, and domestic manufacturing is becoming more attractive, which is reflected in the recent performance of metal stocks.

Additionally, a weaker rupee helps bolster domestic remittances and creates a more favourable environment for foreign investment. As the RBI continues its cautious interventions, it ensures that India’s economy is not overly impacted by currency fluctuations. The focus is instead on maintaining growth through domestic consumption.

At DSIJ, we see the rupee’s depreciation as a strategic opportunity for savvy investors rather than a red flag. With the RBI’s balanced stewardship and India’s resilient fundamentals, this phase underscores the value of diversification and sector-specific plays. Metals and manufacturing stocks, already showing strength, merit closer attention as import substitution gains traction. For hedging against volatility, allocate to gold and silver, which have outperformed equities this year. Avoid overexposure to import-heavy industries, and stay vigilant on DII ">FII flows for early signs of reversal. In the long run, India’s growth story remains intact—position your portfolio to ride the rebound, and remember, disciplined investing in quality stocks during dips has historically delivered superior returns. Stay invested, stay informed.

RAJESH V PADODE
Managing Director & Editor

[EasyDNNnews:PaidContentEnd] [EasyDNNnews:UnPaidContentStart]

[EasyDNNnews:UnPaidContentEnd]