Rupee weakness in 2025

Source: tradingview.com

This slide has been driven by persistent foreign portfolio outflows, a widening current account deficit due to high oil imports, and the strength of the USD amid elevated US interest rates. Compared to regional peers, the INR has shown greater vulnerability in 2025. The slide has been more pronounced relative to the AUD, falling close to 12% after spending the previous 5 years in a tight trading range between Rs. 52-58 to 1 AUD.

However, India’s oil import bill remains circumspect due to the weak price of oil. Forex reserves remain close to its all-time high at US$688bn, despite recent use by the RBI to support the currency. The CAD-to-GDP has risen to 1.3% but is still well-off its 5% level in 2012-2013 when the country was considered part of the “fragile-five”. One of the issues has been gold-imports (given rising prices) – knowing the love Indian’s have for the yellow metal. 

An interesting aside is the extraordinary rise in wealth of Indian households due to rising gold and equity prices.

Implications for Australian Investors

For Australian investors in Indian equities, INR weakness has created both challenges and opportunities:

• Returns Pressure: Equity gains in rupee terms are diluted when converted back to AUD, reducing short-term portfolio performance.

• Currency Risk: Volatility in INR adds uncertainty to investment outcomes, requiring careful risk management.

• Entry Opportunity: Depreciation has lowered the effective cost of Indian assets in AUD terms, creating a potential entry point for long-term investors.

Strategic Outlook for 2026

Looking ahead, INR weakness may set the stage for stronger returns:

• Valuation Advantage: Depressed currency levels make Indian equities more attractively priced for foreign investors.

• Structural Growth: India’s corporate earnings trajectory, driven by consumption, infrastructure, and digital transformation, remains intact.

• Potential Rebound: If global commodity prices stabilize and capital inflows return, INR could strengthen, potentially amplifying returns for those who enter at current levels.

Benefits for Indian Companies

While INR depreciation poses challenges for import-heavy sectors, it offers clear advantages for exporters:

• Enhanced Competitiveness: IT services, pharmaceuticals, textiles, and auto component manufacturers benefit as their USD revenues translate into higher INR earnings.

• Global Demand Alignment: A weaker rupee makes Indian goods and services more cost-effective globally, reinforcing India’s role in outsourcing and manufacturing supply chains.

• Cash Flow Strength: Export-oriented firms enjoy stronger rupee-denominated profits, supporting reinvestment and expansion.

Conclusion

INR weakness in 2025 has pressured foreign investor returns but simultaneously created a strategic opening. 

For Australian investors, the currency’s decline offers a potential entry point into Indian equities heading into 2026, while Indian exporters stand to gain from rising global competitiveness. 

The balance of risks and opportunities suggests that INR depreciation, though challenging in the short term, may ultimately reinforce India’s long-term growth story.