The Indian rupee breached the 91-per-dollar mark on December 16, hitting a fresh all-time low against the US dollar. The sharp currency weakness, coupled with tightening domestic liquidity, is now weighing heavily on overall market sentiment—impacting not just foreign investors but also domestic participants.
What initially appeared to be a currency and bond market challenge is now spilling over into equities, triggering caution across asset classes. Foreign investors are increasingly wary of currency risk, while local investors are unsettled by rising liquidity stress and sticky yields.
Rupee Weakness Seen as Structural, Not Cyclical
According to Systematix Institutional Equities, the rupee’s 6.6 percent depreciation in 2025 is not a short-term cyclical move. Instead, it reflects the culmination of a decade-long managed depreciation, which has eroded nearly 90 percent of the rupee’s value since 2012.
The brokerage noted that structural weaknesses, diminishing RBI intervention capacity, and a protectionist global environment are reshaping currency dynamics. As a result, India may be entering a new regime of 6–7 percent annual rupee depreciation, potentially pushing USD/INR towards the 100 level over the next 12–24 months.
Impact on Equity Markets: Selective Bets Over Broad Rally
A weaker rupee, combined with elevated bond yields and modest earnings growth, is expected to result in muted equity market returns. Analysts believe this environment will favour selective sectoral exposure rather than broad-based gains.
Sectors Likely to Benefit from Rupee Depreciation
- Information Technology (IT)
- Pharmaceuticals
- Automobiles
- Metals
These sectors benefit from export-linked revenues and improved margins when the rupee weakens.
Sectors Under Pressure
- Banking
- Public Sector Enterprises (PSUs)
- Oil & Gas
- Energy
- Infrastructure
These segments face margin pressure due to higher input costs, currency-linked liabilities, and tighter financial conditions.
Market Outlook
With currency volatility intensifying and liquidity conditions tightening, the rupee’s slide past 91 has become a key macro risk for Indian markets. Until stability returns to the forex and bond markets, equities may remain range-bound with heightened volatility.
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