In a major economic setback, the Indian Rupee registered its steepest fall in recent months, crashing to an unprecedented all-time low of 89.7 against the US Dollar on Friday. This sharp decline has triggered alarm across financial markets, raising concerns over India’s economic stability, foreign investor sentiment, and the country’s rising import burden.

According to market data, the rupee crossed the 89 mark for the first time in history and continued to weaken rapidly throughout the day. The currency touched levels of 89.1, 89.3, 89.4, 89.6 and finally plunged to a fresh low of 89.715 within hours. Traders noted that the rupee’s fall was unusually sharp, with over 1 percent depreciation in a single session, a rare and troubling development for any major currency.

Currency markets typically move gradually, but the rupee’s sudden slide has been described as a “steepest three-month drop” as per market observers. Charts tracking the USD-INR pair show aggressive upward movement in the dollar, reflecting India’s currency weakening sharply in comparison.

India, being a net importer, remains extremely vulnerable to a stronger US dollar. Most global trade transactions, including essential commodities and raw materials, are settled in USD. A weaker rupee means India will now have to spend significantly more on imports. For instance, an item that earlier required Rs 80 to purchase $1 will now require nearly Rs 90 or more if the currency continues its downward trend. This increases the country’s overall import bill, widening the trade deficit further.

The rise of the US dollar also affects India’s crude oil purchases. Although India sources a portion of its crude from Russia, a large share of global energy trade still operates in dollars, increasing pressure on domestic inflation.

Foreign Institutional Investors (FIIs), who were showing initial signs of returning to Indian markets, reacted sharply to the currency collapse. FIIs turned heavy sellers again, offloading over Rs 1,700 crore in equities today. With the rupee falling rapidly, short-term FII flows are expected to remain weak.

The reason is straightforward: currency depreciation directly eats into foreign investors’ returns. For example, if an investor enters India when the exchange rate is 80 per dollar and exits at 90, even with a 100 percent gain in equities, the final returns fall dramatically once converted back into dollars. A 100 percent return at Rs 80 becomes only 78 percent when the rupee touches 90, due to exchange losses. On top of this, FIIs are also subject to capital gains tax in India, further reducing their net profits.

Analysts say this combination of currency depreciation and high taxation makes FIIs hesitant to stay invested. Some market watchers have even suggested that the government consider reducing or removing capital gains taxes on FII investments in the upcoming budget to stabilise foreign flows.

Economists warn that the rupee’s continuous decline will affect both the Indian economy and stock markets. A falling rupee makes imports costlier, increases inflationary pressure, impacts corporate earnings for import-dependent sectors, and makes it tougher for the government to manage the fiscal deficit.

To protect the falling rupee, the Reserve Bank of India (RBI) is expected to use its forex reserves and sell US dollars in the market. This provides temporary relief by increasing dollar supply and reducing pressure on the currency. However, this is not a long-term solution. For sustainable appreciation of the rupee, India must boost exports, reduce import dependency, and strengthen global demand for the Indian currency.

The stock market could also experience negative sentiment on Monday if the rupee continues to decline. Some sectors, particularly those dependent on imports, may face additional pressure. However, certain export-oriented companies could benefit from a weaker rupee, as their dollar earnings translate into higher revenue in rupee terms.

If the rupee continues falling, experts believe that some companies—such as IT exporters, textile exporters, pharma exporters and specialty chemical firms—could see gains. On the other hand, import-heavy sectors such as aviation, oil marketing, electronics manufacturing and auto ancillaries could face substantial cost pressures.

A separate detailed analysis on which stocks benefit and which suffer from a falling rupee can be prepared if required.

As the rupee hits a historic low, concerns deepen over India’s economic stability, foreign fund flows, and inflation outlook. While temporary measures may slow the fall, long-term structural improvements in exports and domestic production are essential to stabilise the currency and support sustainable economic growth.

Disclaimer:
This article is for informational and educational purposes only. It is not financial advice or investment guidance. Market data, currency levels, and FII figures mentioned are based on publicly available information at the time of writing and may change. Readers are advised to consult their financial advisor or conduct their own research before making any investment decisions. The author and the website are not responsible for any financial losses that may arise from the use of the information provided.