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The rupee closed at a record low of 95.29 on Tuesday as foreign institutional investors (FIIs) continued to sell and crude prices stayed above $100 per barrel. Costlier oil is pushing up India’s import bill, while weak foreign inflows are limiting any recovery, said market participants.
The rupee will see a meaningful recovery only once Brent crude falls below $100 and capital flows turn supportive again, market experts said, adding that against some emerging market peers, the rupee is beginning to look undervalued.
Yet, the overall bias remains weak, with the rupee consistently facing selling pressure on rebounds.
“In the near term, 94.70 is likely to act as resistance, while 95.50 is seen as immediate support, with markets closely tracking US non-farm payrolls and unemployment data this week for further direction," said Jateen Trivedi, vice-president and research analyst for commodity and currency at LKP Securities.
Over the past year, the rupee has weakened by nearly 11%, with over 4% of that decline coming since the war broke out.
Even as earnings improve and nominal growth normalizes, the rupee remains under pressure from higher crude prices this year and continued FPI selling after last year's trade tensions, said Harsh Gupta Madhusudan, fund manager, PIPE, Ionic Asset.
The last one to two years have been the perfect storm for India with gold imports remaining strong, India not having any clear AI play, and post-2024 elections macro tightness filtering through with a lag, which is now being reversed. Hence, the triple sale across rupee, rates and risk assets, he explained.
“An under-appreciated reason for FPI selling and INR weakness on the margin has been strong domestic flows without an equivalent supply of paper. And the rupee level matters because global investors benchmark their returns in dollar terms,” he said.
Rupee stability matters because it acts as a critical anchor for both capital flows and macro stability, explained Trivedi of LKP Securities.
A stable currency improves confidence for foreign investors by protecting dollar returns, but beyond that, it directly impacts inflation, fiscal health, and corporate margins, especially in an economy reliant on imports, he added. According to Trivedi, the recent slide is not just a currency weakness, but also a reflection of global risk aversion and India’s import dependency.
He feels that a sharp depreciation can push up fuel costs, widen deficits, and force tighter monetary conditions, making it a broader economic health indicator rather than just a market variable.
Devarsh Vakil, head of Prime Research, HDFC Securities, added that a stable currency helps keep imported inflation in check, protects companies from rising costs on dollar debt, and gives businesses the certainty they need to plan long-term investments.
He thinks that the sharp fall in the Indian rupee points to rising imported inflation and potential capital outflows, as global investors shift toward the safety of the US dollar. A mix of high crude oil prices, heavy foreign selling, and a shrinking interest rate gap between the RBI and the Fed is driving this decline. As a result, imports are getting costlier, while India’s foreign exchange reserves are coming under pressure, he believes.
“We must compare any currency to its peers to see how the currency is behaving,” said Vakil of HDFC Securities.
While the rupee has weakened significantly against the greenback, its Real Effective Exchange Rate (REER) tells a more balanced story of competitiveness against major trading partners, even showing a trend towards undervaluation that may favour Indian exporters, he said.
Simply put, even though the rupee looks weak against the dollar, REER shows the bigger picture of how competitive India really is in global trade. If REER indicates undervaluation, it means Indian goods are relatively cheaper compared to goods from other countries, which can boost exports. So, the key point is, the rupee may seem weak in isolation, but on a trade-weighted, inflation-adjusted basis, it could actually be helping India stay competitive globally.
Market participants say the rupee should be viewed in a global context -- if its fall mirrors that of other emerging market currencies, it reflects broad dollar strength rather than domestic weakness.
“However, if the rupee underperforms peers, it signals India-specific stress such as higher import costs or capital outflows. So, the right lens is a mix of both - absolute movement for domestic impact and relative movement for global positioning,” said Trivedi of LKP Securities.
Dipti has spent nearly a decade happily knee-deep in the fast-moving, occasionally nerve-wracking, and always fascinating world of stock markets, tracking everything from sharp sell-offs to surprise rallies, and the narratives that drive them. She began her journalism journey at Informist, sharpened her market instincts at CNBC Digital and Moneycontrol, and is now charting new territory with Mint. Here, she is exploring new ground, bringing together sharp analysis, on-ground insights, and a keen eye for what really moves markets.<br><br>Before stepping into journalism, Dipti studied law and worked with a solicitor firm for close to three years, an experience that gave her a strong foundation in analytical thinking, contracts, and corporate structures. But the pull of markets and storytelling proved stronger, prompting a switch from law to journalism.<br><br>She writes about stocks and investments, but that’s only part of the story. Dipti also teams up with market experts to turn complex trends into sharp, easy-to-understand videos, occasionally peeks at deals and acquisitions, and regularly picks the brains of industry leaders. Somewhere between earnings calls, market swings, and boardroom chatter, she’s always looking for the next story that explains what’s really moving the markets.
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