The Indian rupee has been under pressure in recent weeks, sliding to record lows against the US dollar. However, despite the decline, experts believe that the worst of the weakness may already be behind us.
Macro Fundamentals
Chris Wood of Jefferies notes that the Indian stock market has delivered its weakest relative performance in nearly three decades in 2025, reflecting both a cyclical earnings slowdown and a sharp depreciation in the rupee. However, Wood believes that the macro fundamentals argue that the worst of the weakness may already be behind.
Currency Crisis Unlikely
The Indian rupee has depreciated about 5.3% against the US dollar so far in 2025, breaking the psychologically important 90-per-dollar level in December. However, Jefferies highlights that India's current account deficit for FY26 is forecast at just 0.6% of GDP, close to a 20-year low. At the same time, foreign exchange reserves stood at a healthy $687 billion as of December 5, equivalent to around 11 months of import cover.
Four Reasons for Calm
Jefferies' India research team believes that the rupee's recent slide has stirred anxiety, but the reaction has been disproportionate to the underlying macro picture. The brokerage lists four key reasons why there is no need to panic:
- Rupee deeply undervalued: The rupee has weakened about 5% against the dollar in 2025, even as the dollar index has fallen around 9% over the same period.
- Current account risks remain contained: Exports rose 4% year-on-year in the three months after US tariffs were imposed, while strong November shipments helped cut the trade deficit by 23% year-on-year to a five-month low.
- Capital outflows, but strong buffers: While net FDI has been weak due to private equity exits and large IPOs, gross FDI inflows remain healthy, rising 13% year-on-year to $81 billion in FY25.
- Stability, not a spiral: Jefferies' base case is for the rupee to stabilise in the 90–91 range against the dollar over the next six to 12 months, backed by low inflation, manageable fiscal and current account positions, and strong reserve buffers.
Near-Term Risks
Despite a constructive medium-term outlook, Wood flags several near-term risks for the rupee, including 50% tariffs from the US, which could widen the trade deficit further. Capital flows also remain a challenge, with foreign investors selling $17.8 billion of Indian equities this year.
Remember, this is a perspective, not a prediction. It's essential to do your own research and consult with certified experts before making any investment decisions.