After facing heavy selling in the first three months of 2026, the Indian rupee has bounced back marginally. The currency had earlier slipped sharply, breaching the 95 per US dollar mark following a flare-up in crude oil prices and massive selloff by foreign portfolio investors (FPIs) amid the raging West Asia conflict and fears of widening current account deficit.
The has emerged as one of the weakest performers among major global currencies during the period.
Recently, the rupee has drawn support from the , which forced lenders to sell dollars in the local market.
That said, it continues to trade above the 92 level and down over 3% year-to-date versus the greenback. For the last one year, the rupee has been down over 7%, signaling declining value of the Indian currency.
For Non-Resident Indian (NRI) investors, this currency move has direct implications for portfolio returns, especially at a time when equity market performance remains fragile and global macro uncertainty persists.
Currency weakness and NRI portfolio impact
A depreciating rupee creates a mixed outcome for NRI investors.
On one hand, it enhances purchasing power in India, making equities, debt, and real assets appear relatively cheaper in dollar terms. On the other hand, it introduces repatriation risk, where currency losses can offset gains when investments are converted back into US dollars.
Even modest gains in Indian markets can be significantly reduced in dollar terms if currency weakness persists. “This risk remains one of the major drivers behind FII selling in Indian markets through this period, given that prolonged depreciation can substantially eat into returns at the point of repatriation,” said Dr Ravi Singh – Chief Research Officer (Research) – Master Capital Services.
Foreign investor behaviour remains closely linked not just to earnings expectations, but also to currency stability. A weaker rupee reduces dollar-adjusted returns, making India less attractive in relative terms versus other emerging markets during stress periods.
Debt investments: Often overlooked FX risk
Many NRIs traditionally allocate capital to Indian debt instruments, attracted by relatively higher and stable yields compared to developed markets.
However, this segment is not immune to currency risk. “During stress periods, as the current war scenario, a steep rupee depreciation can sharply erode those returns, reinforcing that debt also carries risk, which is often understated by investors,” Singh said.
Dual opportunity emerging for NRIs?
Meanwhile, N ArunaGiri, CEO of TrustLine Holdings, believes the current environment presents opportunities for NRI investors to bet on both the Indian rupee and the equity markets.
“For NRI investors, the current phase presents an interesting opportunity to look at Indian equities. The potential upside is not limited to equities alone, but extends to the currency as well. In our view, both have seen an element of overstretched selling in the recent phase.”
The Indian stock market has remained lower in 2026 so far. The benchmark Sensex has declined 9%, and its broader counterpart, Nifty 50 has declined 8% YTD. The indices have failed to offer any meaningful returns to investors in nearly two years.
On the currency front, while the rupee has seen some recovery following regulatory measures to curb speculative positioning, it continues to remain undervalued on a REER (Real Effective Exchange Rate) basis, said the expert. Since the rupee remains meaningfully below its long-term equilibrium range, ArunaGiri said it is indicative of potential for appreciation as macro conditions normalise, particularly with easing geopolitical tensions in West Asia.
A similar dynamic is visible in equities. “Any constructive resolution or de-escalation in the West Asia conflict is likely to ease selling pressure and trigger a reversal in market sentiment, as evidenced by the sharp bounce following the recent ceasefire announcement,” he opined.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.