The Indian rupee opened at an all-time low on December 3, slipping past the 90-per-dollar threshold as persistent foreign portfolio investor (FPI) outflows and stalled trade talks with the US intensified pressure on the currency.
The drop came despite a softer dollar index, underlining the severity of domestic capital flow concerns, currency traders said.
The rupee has fallen around 5% so far this year, putting it on course for its steepest annual decline since 2022 and making it the worst-performing Asian currency in 2024.
INR’s slide shows divergence between strong domestic growth and external pressures
The currency’s slide has highlighted a growing disconnect between India’s robust domestic economic performance and its weak external backdrop.
India’s GDP growth has remained stronger than expected, but economists say punitive US tariffs, heavy equity selling, and slowing foreign direct investment are overshadowing those gains.
“Until there is a trade deal, this is the sort of economic adjustment that India requires,” said Dhiraj Nim, FX strategist at ANZ.
The bank expects the rupee to weaken to 91.30 by the end of next year, assuming tariff conditions remain unchanged, and warned the level could be reached earlier if outflows persist.
Technical levels suggest the currency remains under strain.
“USD/INR is expected to trade between 88.90 and 90.20. The 88.80–89.00 band continues to act as a firm support zone. A clean break below 89 would be the first real sign that the rupee is finally ready to pull back and gather strength,” said Amit Pabari, managing director at CR Forex Advisors.
Heavy FPI selling and slowing FDI compound concerns
India has been one of the hardest-hit markets globally in terms of portfolio outflows, with foreign investors selling about $17 billion worth of equities so far this year.
The pressure has been amplified by weakening foreign direct investment trends.
While gross inflows reached $6.6 billion in September, large exits from the IPO market have driven net outflows as private equity and venture capital firms booked profits.
Net FDI remained negative for a second straight month in September, driven by higher outward investments and repatriation flows, the Reserve Bank of India said in its latest bulletin.
On the trade front, a combination of steep US tariffs and a sharp increase in gold imports pushed India’s merchandise trade deficit to a record high in October.
At the same time, dollar inflows from corporate external borrowings and non-resident deposit accounts have slowed, shrinking one of the buffers typically supporting the rupee.
“Left on its own, the Indian rupee is a shock absorber for the economy, and an automatic stabiliser for external finances,” HSBC economists wrote in a note.
They added that a gradually weakening currency remains the most effective buffer against high tariffs.
Market sentiment softens as currency depreciation weighs
Indian equity benchmarks opened weaker, retreating further from all-time highs earlier in the week.
The Nifty 50 fell below 26,000, while the Sensex dropped nearly 200 points, as investors grew concerned about the currency’s trajectory and the Reserve Bank of India’s decision to refrain from stepping in to support the rupee.
“A real concern now, which has contributed to the slow drifting down of the market, is the continued depreciation in the rupee and fears of further depreciation since the RBI is not intervening to support the rupee,” said Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
He said this anxiety is prompting foreign investors to sell despite improving corporate earnings and a strong GDP rebound.
Market participants expect the rupee’s decline to stabilise once the India-US trade deal is finalised, potentially later this month.
“A lot, however, will depend on the details of the tariffs to be imposed on India as part of the deal,” Vijayakumar added.
Adopt a defensive stance, and protect capital, say analysts
Analysts say India’s underperformance has been accentuated by booming equity markets elsewhere, particularly those linked to the artificial intelligence supply chain.
“We’re really standing out not just in terms of the absolute performance in local currency terms, but also the rupee,” said Pratik Gupta, CEO and co-head of Kotak Institutional Equities.
The weak rupee has also reduced foreign returns. With the rupee down nearly 5% this year, the Nifty’s 10% rise translates to only around 5% in dollar terms.
In comparison, the MSCI Emerging Markets Index has gained 24–25%, while South Korea’s benchmark is up roughly 70%.
Gupta said investors should adopt a more defensive stance in this environment, preferring domestic-focused sectors such as large-cap banks, non-banking financial companies, aviation, hotels, telecom, and select pharmaceuticals.
“This is a time when you sort of have to protect your capital, not worry about the return on capital as much.”
He noted that larger companies remain better placed to weather a slowdown in growth.
Kotak expects Nifty earnings to grow 8.5–9% this year, which Gupta said does not justify prevailing valuations.
India still trades at a 60% premium to the MSCI EM Index even after a year of relative underperformance.
As global investors await clarity on India’s trade negotiations with Washington, the rupee’s long-awaited stabilisation may depend as much on geopolitics as on economic fundamentals.
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