The rupee fell to a record low of 95.74 against the US dollar on Wednesday, extending a prolonged weakening trend that has accelerated amid surging crude oil prices, foreign investor outflows and growing stress on India’s external balances.
The latest pressure has largely come from the sharp rise in global energy prices following the escalation of the US-Iran conflict. Brent crude prices have jumped nearly 50% since the war erupted in late February, worsening concerns around India’s import bill and inflation outlook.
India imports more than 80% of its crude oil requirements, making the rupee particularly vulnerable during periods of sustained energy price shocks.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said the pace of depreciation has become worrying.
“This year began with rupee at 90 to the dollar. Since then it has steadily depreciated to the present level of 95.7 to the dollar. If crude remains elevated for an extended period, rupee will move to 100,” Vijayakumar said.
He pointed to sustained selling by foreign portfolio investors as another major pressure point for the Indian currency. “Money is moving into markets like the US, Japan, South Korea and Taiwan which are doing very well. So long as the outperformance of these markets and the underperformance of India continues, FPIs will continue to sell, which, in turn, will further drag the rupee down,” he said.The rupee’s weakness is already beginning to reshape investor thinking across sectors.
A sharply weaker currency generally raises imported inflation because India pays more for commodities such as crude oil, chemicals, electronics and industrial raw materials. That eventually feeds into transportation costs, manufacturing expenses and household consumption.
Economists have already started revising inflation and growth forecasts higher and lower respectively as energy prices remain elevated.
A weaker rupee also complicates policymaking for the Reserve Bank of India. Markets have started pricing in the possibility of interest rate hikes to defend the currency and contain inflation pressures. Though RBI Governor Sanjay Malhotra recently said monetary policy can look through temporary supply shocks, he also indicated that authorities may need to respond if inflation becomes entrenched.
For equity markets, the implications are uneven. Sectors dependent on imports are expected to face the biggest pressure. Companies with high exposure to crude derivatives, imported components or foreign currency liabilities could see margin compression.
Khushi Mistry, Research Analyst at Bonanza Portfolio, said sectors such as aviation, oil marketing companies, automobiles and consumer durables are among the most vulnerable.
“A weaker rupee substantially increases India’s import bill particularly for crude oil, electronics and industrial raw materials. This furthermore fuels imported inflation and puts pressure on household spending,” she said.
She added that continued currency weakness could trigger further foreign institutional investor outflows and increase volatility in equity markets. The broader market concern is that India’s macroeconomic balances may deteriorate if the rupee weakens too rapidly.
Arpit Jain, Joint MD at Arihant Capital Markets, said a move toward Rs 100 per dollar would not be positive for the economy despite some sector-specific beneficiaries.
“India remains a larger importer than exporter overall, and a sharply weaker rupee could widen both the fiscal and current account deficits, which may hurt the economy much more,” Jain said.
Still, not all sectors lose when the rupee weakens. Export-oriented businesses generally benefit because their dollar revenues become more valuable when converted into rupees. IT services, pharmaceuticals, textiles and selected manufacturing exporters are expected to see earnings support from currency depreciation.
Vijayakumar believes pharmaceutical companies could emerge as relative outperformers if the rupee weakens further. “Pharmaceuticals will be a safe bet since the demand for pharmaceuticals is inelastic and this export sector will benefit from rupee depreciation. Textiles will also benefit,” he said.
However, he warned that the IT sector may not fully benefit despite dollar revenues because of ongoing uncertainty around artificial intelligence-led disruptions and spending shifts in global technology markets.
Jain also cautioned that even sectors often viewed as natural beneficiaries of a weaker currency may not gain uniformly. “Many companies continue to import APIs and raw materials from overseas, which offsets part of the currency advantage,” he said.
For investors, analysts say stock selection becomes far more important in such an environment. Mistry said investors should focus on businesses with strong balance sheets, pricing power and global revenue exposure while avoiding highly leveraged and import-dependent companies.
The direction of crude oil prices and foreign capital flows will remain critical in deciding whether the rupee eventually breaches the Rs 100 mark.
Vijayakumar said two developments could reverse the trend — a fall in crude prices if the Strait of Hormuz situation stabilises, or an end to the global AI-driven investment frenzy that has attracted foreign money into markets such as the US and Taiwan.
Until then, the pressure on the rupee appears unlikely to ease meaningfully, leaving investors increasingly forced to prepare for a world where Rs 100 to the dollar may no longer be viewed as an outlier scenario.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)