Jefferies: Indian Rupee Likely Bottomed Out Amidst Macroeconomic Strength, Strong Domestic Flows

Economy

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Updated on 16 Nov 2025, 10:56 am

Jefferies' latest GREED & fear note indicates that the Indian rupee has likely found a stable point after months of depreciation, suggesting it has bottomed out. The currency has been the weakest performer among major emerging market currencies year-to-date in 2025, falling by 3.4% to trade near Rs 88.7 against the US dollar.

Key factors supporting this stabilization include strong macroeconomic fundamentals. India's current account deficit has fallen to a 20-year low of 0.5% of GDP, and foreign exchange reserves remain robust at $690 billion, providing approximately 11 months of import cover. The firm also noted firm credit momentum with accelerating bank lending growth and supportive foreign direct investment (FDI) trends.

On the equity front, despite significant foreign portfolio investor (FPI) outflows of $16.2 billion in 2025, which has impacted India's relative stock market performance, robust domestic inflows have more than compensated. Equity mutual funds recorded substantial net inflows, and overall domestic equity inflows have consistently absorbed foreign selling pressure.

Jefferies also introduced the concept of India as a "reverse AI trade." This suggests that if the global rally in AI-focused stocks cools down, India, with its less concentrated exposure to AI, could potentially outperform markets like Taiwan, South Korea, and China, which currently dominate the MSCI Emerging Markets Index.

Impact This development signals potential currency stability, which can aid in managing import costs and inflation. The strong domestic investment inflow into equities provides a buffer against foreign investor sentiment, helping to support market valuations. The "reverse AI trade" thesis offers investors a contrarian perspective on global tech investment opportunities.

Rating: 8/10

Difficult Terms: Depreciation: A decrease in the value of a currency relative to another currency. Emerging Market Peers: Countries with developing economies that are considered attractive for investment, such as India, Brazil, and China. GREED & fear: A market analysis publication by Jefferies providing investment insights. Current Account Deficit (CAD): The difference between a country's earnings from exports and its spending on imports of goods, services, and transfers. A deficit means spending exceeds earnings. Foreign Exchange Reserves: Assets held by a country's central bank in foreign currencies, used for international transactions and monetary policy. Import Cover: The duration, in months, that a country's foreign exchange reserves can cover its import expenses. Foreign Portfolio Investors (FPIs): Investors who purchase securities like stocks and bonds in a foreign country without taking ownership or control of the business. MSCI Emerging Markets Index: A stock market index that tracks the performance of equities in emerging market countries globally. Equity Mutual Funds: Investment funds that pool money from many investors to purchase stocks. Net Inflows: The total amount of money invested into a fund or market, minus the amount withdrawn. Foreign Direct Investment (FDI): An investment made by a company or individual in one country into business interests located in another country, involving a lasting interest and control. Artificial Intelligence (AI): Technology that mimics human intelligence to perform tasks such as learning, problem-solving, and decision-making. "Reverse AI Trade": A strategy or market view where investors bet on assets that benefit when AI-related assets underperform, suggesting that countries with lower AI exposure might perform better if the AI market cools.