Does a Falling Rupee Hurt Indian Stocks? The Data Say “Not Really” 02Dec2025
(The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)
There have been concerns among financial market participants in India about the falling rupee, especially against the US dollar. Year-to-date, he US dollar has gained 4.5 per cent in relation to Indian rupee. Conversely, rupee lost 4.3 per cent of its value versus the dollar.
Today, the rupee touched 90 against the dollar before closing at 89.97. Foreign portfolio investors (FPIs) have been pulling money from Indian equity market this year putting pressure on rupee. Despite heavy RBI forex intervention, rupee has declined this year.
In the current financial year, RBI net sold US dollars worth USD 21.7 billion to defend the rupee.
The uncertainty surrounding a favourable trade deal with the US is causing problems for rupee. The 50% US tariffs, imposed by US president Trump, on Indian goods has complicated matters with exports to the US declining sharply in the past five months. Export growth is weak overall.
The uncertainty compounded further by the unfair demand of the Trump administration of the US insisting India end its crude oil purchases from Russia. India has been importing crude oil at cheaper rates from Russia, protecting its national interests and rightly so, since the outbreak of Russia-Ukraine war in Mar2022.
Foreign Direct Investment (FDI) flows into India have declined over the past three to four years. In the current financial year, there seems to be some rebound as per latest RBI data released a few days ago.
Global risk aversion and India's elevated trade deficit / current account deficit too have contributed to rupee weakness.
However, Indian economy overall is well placed for good economic growth in the next two years. CPI inflation is under control. Economic growth is robust as per official numbers despite International Monetary Fund (IMF) expressing its concerns on data accuracy of India GDP numbers.
Reserve Bank of India (RBI) has reduced interest rates substantially this year. GST tax cuts were effected in Sep2025. Income tax rates too have come down in the Feb2025 Union Budget. These are expected to boost domestic consumption, though high household debt is a concern.
Dollar Rupee Exchange Rate Dynamics and Nifty 50 Drivers
The relationship between the USD–INR exchange rate and Nifty 50 Total Returns Index (TRI) looks simple on the surface, but the reality is far more nuanced. Many investors assume that if the rupee weakens, Indian equities should fall, or that a stronger rupee must translate into better stock market performance.
But when you look at the data and the mechanics behind both markets, the link turns out to be surprisingly loose (see chart below for data from 2010 to 2025).
A good starting point is understanding that the USD–INR exchange rate is influenced mostly by global forces. The Federal Reserve’s interest rate policy, global risk appetite, crude oil prices, geopolitical tensions, the degree of RBI intervention in foreign exchange market and foreign portfolio investor flows all push and pull the rupee.
Many of these drivers have very little to do with India’s internal economic performance or corporate earnings. Sometimes the rupee weakens sharply even when India’s growth outlook is perfectly healthy, simply because global investors are rushing into the US dollar as a safe haven.
On the other hand, Nifty 50 TRI is driven primarily by domestic fundamentals. Corporate earnings growth, government reforms, domestic liquidity from Indian mutual funds and pension funds, credit cycles and sector-specific stories play a far larger role than global currency movements.
Any way, a variety of factors influence asset prices and currency movements. It's naive to attribute their movements to one or two factors alone.
The share of domestic investors in Indian equities (see blog on ownership trends) has risen dramatically in the past decade, which means the stock indices are no longer as dependent on foreign money as it used to be.
There are also structural differences inside the Nifty 50 index itself. Export-heavy sectors like IT services and pharmaceuticals actually benefit from a weaker rupee because their overseas revenues translate into higher profits in rupee terms.
But banks, consumer companies and infrastructure players do not share this benefit. When the rupee moves, the impact is uneven across the index; the gainers and losers may often cancel each other out. That dampens any clean-cut correlation at the index level.
This is why, when you look at long-run data, the correlation between Nifty 50 TRI and USD–INR movements is not only weak but also inconsistent. In some years the rupee weakens and the Nifty shoots up, usually because domestic fundamentals are strong or liquidity is abundant.
In other years the rupee strengthens and equities also rally, usually when foreign investors are returning after a risk-off period. And occasionally, both move in opposite directions. The pattern shifts depending on whether global or domestic forces are in the driver's seat in that particular year.
Another complication is that both Nifty and USD–INR move every minute, but investors often look at annual returns. When you compress 250 trading days of volatility into a single yearly figure, you hide the short-term relationships that might exist during moments of stress or exuberance.
For instance, during global risk-off episodes, the rupee tends to weaken sharply while the Nifty may correct at the same time—but this may last only a few months or quarters and completely disappear in the final annual numbers.
Perhaps the most important point is that India’s markets have matured. A decade ago, rupee movements and foreign investor flows had a strong influence on market direction.
Today, thanks to steady domestic inflows through EPFO investments, large growth in retail investors' demat accounts and retail monthly flows into mutual funds, India is less vulnerable to sudden FPI withdrawals. The rupee may weaken, but that doesn’t automatically trigger a sustained equity selloff the way it once did.
So what does all this mean for an everyday investor trying to make sense of the USD–INR and the stock market? It means that trying to predict Nifty levels based on currency movements is a shaky strategy.
The two markets touch each other at specific moments—especially during crises or when global rates change—but they do not march together in any predictable long-term rhythm.
Take for example, the year 2011: The INR underwent a huge depreciation, with the dollar gaining 18.9 per cent for the year. And Nifty 50 lost 23.8 per cent. The year 2011 was plagued by policy paralysis on the part of the UPA government, high inflation rates, slowing economic growth, steep rupee fall and interest rate increases by RBI.
The rupee is more indicative of global conditions; the Nifty is more likely reflective of Indian corporate health and overall domestic economic conditions.
Understanding both helps, but treating them as tightly linked can create misleading expectations. A weakening rupee is not the end of the world for the stock market, and a strengthening rupee is not a guarantee of a bull run.
Investors are better off focusing on corporate earnings, valuations, domestic liquidity and economic policy rather than trying to read too much into day-to-day currency swings. In the long run, markets reward earnings power more than exchange rate volatility.
Observations from the below chart
Looking at the 16-year observations, the relationship between NIFTY 50 TRI and USD-INR movement does not show a strong or stable correlation—neither consistently positive nor negative.
Years when INR weakened mildly (USD gained) and NIFTY 50 rose:
There are many years where INR weakens yet Nifty rises, suggesting no negative correlation. For instance, in 2020, USD gained 2.5% (rupee fell), but Nifty 50 delivered a total return (including dividends) as high as 16.1%. And in 2016, USD gained 2.5%, but Nifty 50 return was just 4.4%.
| Year | USD % gain vs INR | NIFTY 50 TRI % | Comment |
| 2021 | 1.7 | 25.6 | Both strong |
| 2020 | 2.5 | 16.1 | Covid recovery, FPI inflows |
| 2019 | 2.1 | 13.5 | Both up |
| 2016 | 2.5 | 4.4 | Mild positive |
| 2012 | 2.9 | 29.4 | Both strong |
Years when INR fell sharply (USD gained) and still Nifty 50 delivered decent returns
Take 2025 for example, even though dollar appreciated 4.5% (sharp 4.3% rupee fall) year to date, Nifty 50 still managed a total return of 12.1% indicating low correlation between USD-INR movement and Nifty. That Nifty 50 underperformed other emerging markets in 2025 is a different issue.
In 2022, USD rose by 11.4% vs INR (due mainly to global uncertainty surrounding Russia-Ukraine war, a strong dollar and the US Fed raising interest rates sharply), but still Nifty 50 ended with a positive return of 5.7%. And in 2018 and 2013 too, the same phenomenon repeated (see chart below).
Years when USD fell (INR strengthened) but NIFTY rose
In 2017, dollar depreciated 5.9% versus rupee, but still Nifty 50 delivered robust returns of 30.3%. And in year 2010 too, Nifty 50 delivered double-digit gains though rupee gained (USD fell). And those two years (2010 and 2017) are perfect examples of why the Nifty–rupee relationship is weak and inconsistent.
A stronger rupee does not automatically drag the Nifty down, because the Nifty’s performance is dominated by domestic fundamentals and sector mix, not just exchange rate movements.
Overall, no reliable correlation exists between NIFTY 50 TRI and USD-INR exchange rate movement.
Neither positive nor negative correlations hold consistently over time.
Chart showing Nifty 50 calendar year returns versus USD-INR yearly gain / loss (data for India gold price and USD gold price are included as additional information) >
Data from 2010 to 2016 >
USD-INR yearly gain / loss
Exchange rate yearly gain / loss
US dollar - Indian rupee yearly gain / loss
Shortcomings of the above analysis
One important limitation to keep in mind is that the dataset often used for this comparison—roughly 16 years of annual Nifty TRI and USD–INR changes—is simply too small to draw firm statistical conclusions. Sixteen points of annual data can easily be distorted by a few unusual years, like global crises or pandemic recoveries.
When
the sample is this tiny, it’s hard to tell whether a pattern is real or
just a product of chance. Markets move every day, currencies move every
hour, but an annual snapshot compresses all that activity into just one
number per year.
Another issue is that India’s market structure,
investor base and economic environment have changed dramatically over
those 16 years. Domestic mutual fund flows today are far stronger than
they were in the period 2010 to 2016.
The Nifty’s sector weights have shifted, with banks and other financials playing a much bigger role than export-heavy sectors. The RBI’s approach to currency management has also evolved.
When you mix together data from such different eras (regime change), any correlation you calculate becomes less meaningful because the underlying ecosystem isn’t consistent. This makes the “sample” not just small, but structurally uneven—another reason to treat long-term annual comparisons with caution.
One could have drawn more powerful conclusions had one used monthly data of Nifty and rupee stretching over 25 years or even longer, but that is outside the scope of this educational / informative article for the general reader.
What could help the rupee gain or stabilise versus the dollar?
Any future announcement of an India-US trade deal, where the tariffs are likely to be cut to 25% or even 20%, is likely a positive for rupee.
The talks between the US and Russia seem to be positive to end the Russia-Ukraine war, according to the media reports. The end of the war could lead to a stable rupee.
However, the market is expecting a repo rate cut by RBI during the coming MPC (monetary policy committee) next Friday. It remains to be seen how the rupee will react to the rate cut, because rate cuts generally put pressure on domestic currency, assuming other things remain the same.
If the Indian government were to implement any bold economic reforms (a remote possibility in my humble opinion), Indian rupee may strengthen in the immediate period.
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Disclosure: I've got a vested interest in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.
Disclaimer: The analysis and
opinion provided here are only for information purposes and should not be construed
as investment advice. Investors should consult their own financial advisers
before making any investments. The author is a CFA Charterholder with a vested
interest in financial markets.
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