- Rupee hit an all‑time low of 91.97/USD but IT and pharma indexes barely moved.
- Tariff negotiations are the new dominant risk, eclipsing the classic currency‑boost effect.
- Foreign investors have dumped over ₹3,100 cr in IT and healthcare stocks this year.
- Valuations remain high – IT and pharma trade near 30× earnings despite modest dollar‑growth.
- AI‑driven margin pressure and a weakening dollar against other currencies dilute the rupee advantage.
You missed the warning sign that a weaker rupee alone won’t guarantee a rally. The missing piece is tariff uncertainty, and it’s already reshaping the risk‑reward balance for India’s export‑heavy sectors.
Why the Rupee’s Weakness Isn’t Fueling IT & Pharma Gains
Since the rupee began its 7.1% slide from April 2025, the Nifty IT index nudged up only 5% and Nifty Pharma 3%, while the broader Nifty jumped almost 8%. In earlier cycles a softer rupee inflated dollar‑denominated revenues, prompting sharp short‑term rallies. This time the upside is muted because two opposing forces are at work.
First, the U.S. dollar itself has lost ground against many peer currencies, meaning the relative boost to export earnings is smaller than the headline‑number suggests. Second, the looming tariff deal between India and the United States introduces a “tariff risk premium” that investors are pricing in, effectively capping the upside.
Tariff Uncertainty: The Silent Killer for Export‑Heavy Stocks
Analysts warn that without clarity on the pending tariff negotiations, export‑oriented IT and pharma firms face a cloud of doubt. Even if dollar revenues rise, the possibility of new duties on software services or pharmaceutical products can erode profit margins and delay contract renewals. U R Bhat of Alphaniti summed it up: “Until investors have clarity on the tariff front, there is limited room for upside in these sectors.”
For IT firms, potential tariffs on cloud‑based services could make Indian offerings less price‑competitive against global peers. For pharma, any duty on active pharmaceutical ingredients (APIs) or finished dosage forms would directly hit the bottom line of exporters like Cipla and Dr Reddy’s, which have already seen a sharp decline in U.S. trade volumes.
Historical Lens: What 2013‑15 Pharma Rally Teaches Us
During the 2013‑15 cycle, a weaker rupee was a clear catalyst for Indian pharma stocks. Companies with a heavy reliance on U.S. sales saw earnings surge as each rupee bought more dollars. Fund manager Ketan Gujarathi recalls that period as a “golden window” for pharma earnings growth, with several stocks appreciating double‑digit percentages.
Fast forward to 2025, and the environment is fundamentally different. The same currency depreciation is now partially offset by a global dollar weakness, and the tariff cloud adds a new layer of risk that did not exist a decade ago. The lesson is that currency alone is not a reliable lever; the macro‑policy backdrop can overturn the expected benefit.
Margin Pressure From AI Adoption and Global Currency Movements
Indian IT firms are aggressively investing in artificial‑intelligence tools to boost productivity. While the promise is higher efficiency, the reality is a short‑term hit to operating margins as expensive AI platforms are rolled out. Kumar Rakesh of BNP Paribas notes that these margin pressures are being partly offset by the rupee’s depreciation, but the offset is incomplete.
Moreover, the dollar’s slide against other major currencies (euro, yen, pound) means that the “currency tailwind” is not as strong as in past cycles. The net effect is a narrower margin improvement than the headline rupee move would imply.
Valuation Stress: High Multiples Meet Modest Growth
Even after the market correction from 2024 peaks, Indian pharma stocks are still trading around 30× earnings, a level many value‑focused investors consider expensive. Vikas Gupta of OmniScience Capital points out that the sector delivered only 6‑8% dollar‑denominated earnings growth, which translates to 10‑12% in rupee terms once the currency effect is added. When you pair modest growth with lofty multiples, the risk‑reward equation tilts toward the downside.
IT stocks face a similar story. While earnings upgrades are on the horizon, the starting point is already elevated. The key determinant of future multiples will be whether companies can sustain margin expansion amid AI spend and potential tariff hits.
Investor Playbook: Bull vs. Bear Scenarios
- Bull Case: Tariff talks conclude with a favorable outcome for Indian exporters, AI investments begin to deliver productivity gains, and the rupee stabilises above 90/USD. In this environment, IT earnings could see a 12‑15% upside in rupee terms, and pharma could benefit from a rebound in U.S. sales, pushing valuations toward a more justified 25‑28× earnings range.
- Bear Case: Tariff negotiations stall or result in higher duties, foreign investors continue net selling, and the dollar’s weakness persists, further diluting the rupee advantage. Margin pressure from AI spend intensifies, leading to earnings contraction. Under these conditions, the IT and pharma indexes could underperform the broader market, with potential declines of 8‑12% over the next six months.
Bottom line: The rupee’s record low is no longer a free lunch for export‑driven Indian stocks. Tariff uncertainty, foreign outflows, and valuation compression have created a more complex landscape. Savvy investors should focus on companies with diversified revenue streams, strong balance sheets, and clear pathways to offset margin pressure before committing capital.