Rupee Collapses! Foreign Investors Ditch India – What It Means for YOUR Money & Market!

Rupee Hits Historic Low, Rattling Foreign Investment

The Indian rupee has touched an all-time low against the US dollar, prompting concerns over foreign portfolio investor (FPI) flows. Experts suggest that a revival in corporate earnings and progress on a trade deal with the United States are essential for any sustained reversal in these outflows.

Rupee's Record Depreciation

On Wednesday, the rupee breached the 90-mark for the first time, reaching a record low of 90.30 before settling at 90.19 against the US dollar. Analysts attribute this significant weakness to soft exports, which have been impacted by US trade tariffs of up to 50 percent on several Indian goods, and persistent selling by FPIs.

Impact on FPI Flows

This currency depreciation is expected to keep FPI flows under pressure in the near term. Harsha Upadhyay, Chief Investment Officer at Kotak Mahindra Asset Management Company, commented that while there will be a sentiment impact, the effect on corporate earnings is unlikely to be significant for most sectors. He noted that exporters generally benefit, while importers are somewhat protected by their forward contracts.

Stable Corporate Earnings Outlook

Despite the rupee's weakness, the outlook for corporate earnings growth is projected to remain stable. Forecasts indicate high single-digit growth for the current financial year and mid-teen growth for the next two fiscal years. This resilience in earnings is a key factor in cushioning the potential blow from currency volatility.

Key Factors for FPI Return

Jyotivardhan Jaipuria, Founder and Managing Director of Valentis Advisors, stated that a depreciating currency is generally negative for FPI flows. He emphasized the expectation of an earnings cycle turnaround, with double-digit growth anticipated from the December quarter onwards. A trade deal with the US is also seen as a major positive catalyst that could significantly improve investor sentiment.

Sustained FPI Selling

Foreign portfolio investors have been substantial net sellers in Indian equities since October 2024. This sustained outflow is attributed to declining corporate profitability, concerns over stretched valuations, and lingering uncertainty around US-India trade negotiations. Exits by private equity investors through initial public offerings (IPOs) have further added to the selling pressure. In 2025 alone, FPIs have withdrawn approximately ₹1.5 trillion from Indian equities.

Future Expectations

Analysts suggest that currency volatility might deter foreign investors, as it risks eroding potential gains. However, a favorable trade agreement could lift sentiment, and moderating valuations after the recent market correction may create an attractive entry point for FPIs to return to the Indian market.

Impact

• The weakening rupee can increase volatility in the Indian stock market, making foreign investors more cautious.
• Indian exporters may benefit from higher revenue in rupee terms, while importers could face increased costs for goods and raw materials.
• Sustained FPI outflows can limit capital availability for Indian businesses, potentially impacting investment and growth.
• A resolution of trade issues with the US could significantly boost investor confidence and lead to capital inflows.
• Impact Rating: 8

Difficult Terms Explained

• Foreign Portfolio Investor (FPI): An investor, such as a mutual fund or exchange-traded fund, that buys securities in a foreign country without gaining direct control over the management of the company.
• Depreciation: A decrease in the value of a currency relative to another currency.
• Trade Tariffs: Taxes imposed on imported goods by a country's government, typically to protect domestic industries.
• Forward Contracts: Legal agreements to buy or sell a particular currency at a predetermined exchange rate on a specified future date, used for hedging against currency risk.
• Macroeconomics: The branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole.
• Valuations: The process of determining the current worth of an asset or a company.
• Initial Public Offering (IPO): The process by which a private company can become public by selling its shares to the public for the first time.