In the past few months India has seen a sharp rupee fall, huge foreign investor sell‑offs, and a puzzling market dip even though the overall economy looks solid. Here’s what’s happening and why it matters for you.
Currency shock: rupee vs euro
The rupee is about 15% weaker against the euro this year. While the headline number against the US dollar looks like a modest 4.5% loss, the dollar itself has fallen nearly 10% against most currencies, making the rupee’s move look much worse when measured against the euro and other major currencies.
Massive FII selling
Foreign institutional investors (FIIs) have sold roughly $44 bn of Indian stocks in the last 15 months. This includes $18‑19 bn sold in the calendar year and another $18 bn sold in October‑November of last year. Such a scale of outflow is rare in Indian market history.
Broader market pain
While the Nifty and Sensex hover near record highs, almost half of the broader market stocks are down 40‑50%, some returning to 2023 levels. In rupee terms the market gave a 9% gain this year, but in dollar terms the return is only in the low single digits, far below the 20%+ gains seen in many global markets.
Bond market surprise
Even after the RBI cut rates by 125 basis points and added liquidity, the 10‑year government bond yield has climbed back to 6.6‑6.7%, almost where it started. The rise is linked to the weak rupee and FII selling in the bond market.
Policy reforms giving a boost
Despite these shocks, India’s macro fundamentals remain strong—low deficits, solid reserves, good growth, and manageable inflation. The government is also pushing several reforms, such as:
- GST 2.0 updates
- New labour codes
- 100% FDI allowed in insurance
- Private sector entry into nuclear power
- New coal auction bill
- Oil & gas exploration changes
- More free‑trade agreements
These steps could lift long‑term growth potential.
What could happen in 2026?
- AI trade slowdown: Money flowing into AI may ease, giving India a chance to attract AI‑related capital as a diversification theme.
- Rupee steadies or appreciates: The real effective exchange rate suggests the rupee is undervalued, leaving room for a 2‑3% rise.
- Potential US‑India trade deal: If a bilateral agreement materialises early 2026, it could further support the rupee and foreign inflows.
- FII return: A stronger rupee and clearer trade outlook may bring foreign investors back, but the rally may be a mix of value and momentum.
Where are the opportunities?
With many stocks down heavily, investors can look for value in sectors such as renewable energy, auto components, precision engineering, and pharma/CDMO. Careful bottom‑up stock picking could pay off.
Bottom line
The market mood is sour right now, but the underlying numbers – strong growth, ongoing reforms, and a potentially stronger rupee – tell a different story. Keep an eye on the policy developments and be ready to act when the market mood shifts.
Remember, this is just an outlook, not a prediction. Do your own research and consider your risk tolerance before making any investment decisions.