Image Source : PIXABAY The stock market may experience volatility because of fall in the Rupee against US dollar.
The rupee witnessed a range-bound trade and depreciated 5 paise to 86.76 against the US dollar in initial deals on Monday, weighed down by significant foreign fund outflows and a negative trend in domestic equities.
Forex traders said the Indian rupee is trading with a negative bias as foreign banks went on a dollar-buying spree and importers scrambled to secure dollars, as they feared further depreciation amid global uncertainty.
According to Pranit Arora, Founder and CEO, Univest, the Indian Rupee has been facing significant pressure in recent days, reaching record lows due to a combination of global and domestic factors.
Here are the five key reasons behind its decline:
Global Trade Uncertainty – Market volatility has increased due to concerns over potential US tariffs, weakening emerging market currencies like the rupee.
Declining Inflation & Interest Rate Expectations – India’s inflation fell to a five-month low (4.31 per cent in Jan 2025), raising expectations of further RBI rate cuts, which could reduce the rupee’s strength.
Slowing Economic Growth – Signs of economic slowdown in India have dampened investor confidence, increasing speculation of additional monetary easing that could impact the rupee.
Capital Outflows – Foreign investors have been pulling funds from Indian markets due to global uncertainties and more attractive returns in the US, contributing to rupee depreciation.
Strengthening US Dollar – Rising U.S. inflation and the likelihood of further Federal Reserve rate hikes have strengthened the dollar, exerting downward pressure on the rupee.
How will the depreciation in the Rupee impact investors
According to Arora, the depreciation of the Indian Rupee has significant implications for retail investors because when the rupee weakens, the cost of imports, including crude oil, electronics, and essential commodities, rises, leading to higher inflation and reducing consumers’ purchasing power.
“This, in turn, increases household expenses, affecting savings and investment potential. Investors with exposure to foreign assets, such as US stocks, global mutual funds, or overseas real estate, will find their investments more expensive, while expenses for foreign education, travel, and remittances also become costlier. The stock market may experience volatility, with sectors reliant on imports, such as automobiles, aviation, and electronics, facing pressure due to higher input costs,” he added.
However, export-driven industries like IT, pharmaceuticals, and textiles may benefit from a weaker rupee, as their revenues in foreign currencies translate into higher earnings in India.
