Why the Rupee is Falling and What it Means for Indian Stocks

The Indian rupee back in the news. It has declined to almost 90 to a dollar at the time of writing.

The headlines in the financial news these days have all highlighted this decline and attempted to explain it.

Historically, a declining rupee would not surprise anyone. Indians expected the currency to fall between 5% and 10% to the US dollar nearly every year. In fact, Indians would be surprised if the currency appreciated.

However, over the last few years, things had improved a little bit. Since October 2022 to July 2025, the rupee declined marginally from 83 to 85.

The rate of decline was nowhere as fast as it used to be in the past. In fact, the rupee has been one of the strongest emerging market currencies over the last few years.

However, since early July 2025, the rupee seems to have got back to its old ways. The decline from 85 to nearly 90 has taken only 5 months.

USDINR - Last 15 Days

In fact, the rupee is at a new all-time low and is now the worst performing currency in Asia.

So, what explains this decline?

The US dollar's decline seems to be over

Ever since Trump returned as US President, the US dollar has been weak.

This is because of genuine, legitimate concern that Trump's tariff policies would result in permanently slower growth of the US economy.

This combined with a major spending package that was approved as a part of the US budget left the markets worried about the health of the US economy.

Money was flowing out of the US as the economy was no longer being considered as stable.

All this had resulted in a weak dollar with the dollar index falling from 110 to 97 in just six months.

However, things have changed now.

The dollar has stabilised. The dollar index moved back above 100 in November 2025 and has been trading near that level since.

This is because of Trump cutting back on his extreme stance on tariffs. The US has done trade deals with many countries thereby avoiding full blown trade wars. The US economy has remained stable due to this, which in turn has resulted in a stable dollar.

Thus, the main reason for the rupee's relative stability recently has ended. This is partly the reason why the rupee has got back to its old ways of declining against the dollar.

Trade deal impact

India is the only major economy in the world that the US has not done a trade deal with. As talks have reached an advanced stage, the market is nervous about the final details.

If the final deal with the US were to hurt the Indian economy in some way, the Indian government might announce some kind of spending package to offset the impact. The recent GST cuts were a response to Trump's tariffs.

Higher spending could result is a higher fiscal deficit which is negative for the currency.

The RBI factor

Historically, whenever the rupee would decline sharply against the dollar, the RBI would intervene in the forex market stabilise the currency.

This time, the RBI seems to be holding back on any major intervention.

This is not to say that the RBI is letting the rupee depreciate. However, India's central bank does not seem to in an aggressive mood to halt the decline.

Having said that, there have been reports in the financial media that RBI may have sold dollars to stop the rupee from hitting 90. If that's the case, it remains to be seen if the RBI will continue to do so and if it will be successful.

Also, there is a big monetary policy meeting coming up this week. The market expects the RBI to cut interest rates.

Lower interest rates are bearish for the local currency and the forex market is responding in advance.

Impact on the stock market

A weak rupee has negative consequences for the Indian economy.

The biggest concern is called 'imported inflation'.

India is a net importing country. This means import more that we export. As the US dollar is the world's reserve currency, it's also the world main invoicing currency for goods and services. If the rupee gets weaker against the dollar, the cost of all our imports goes up.

Investors in the stock market will need to be aware of this. There will be winners and losers in the economy due to a depreciating rupee in the short term.

The winners would be exporters. They can either pocket the extra earnings as higher margins or offer higher discounts to global customers to increase market share.

The losers would be importers. They would either have to absorb the currency depreciation in the form of lower margins or would have to raise prices, which would hurt their sales volume.

However, in the long term, the underlying fundamentals of the companies will be the deciding factor of stock market returns, and not currency movements.

Thus, long term investors who have picked fundamentally strong stocks at reasonable valuations don't have much too worry about when it comes to a falling rupee.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...