Double Trouble for Stocks and Forex: What's Next for the Indian Rupee?

At the same time, the Indian stock market has also experienced significant declines. As of the close on the 6th, both the NIFTY50 and SENSEX indices dropped more than 1.5%. The SENSEX30 index fell by 1.59%, with most constituent stocks recording losses, and 20 individual stocks saw declines of over 1%.

Reasons Behind the Fall of the Indian Rupee

The ongoing outflow of foreign capital from Indian equities has intensified the selling pressure in the market. According to statistics, since January 2025, foreign investors have sold Indian stocks worth ₹42.85 billion. Meanwhile, the market is in the midst of earnings season, increasing uncertainty, especially with disappointing performances from banking stocks and large-cap companies, which has led to cautious investor sentiment.

One of the main reasons for the rupee's depreciation is the continued strength of the US dollar. The US economy has performed better than expected, particularly in the labor market and inflationary pressures, coupled with strong economic growth, which has led the Federal Reserve to take a more cautious stance on rate cuts. Although the Fed lowered rates again this month, it has indicated that future rate cuts will be slower, causing the US dollar index to reach a new high in over two years.

Additionally, President Trump's protectionist trade policies have further supported the dollar. Tariff policies have increased inflation expectations, restrictions on illegal immigration have pushed up wages, and expansionary fiscal policies have intensified inflationary pressures—all of which have bolstered the strength of the dollar. Since the beginning of 2024, the US dollar index has risen by more than 7%, on track for its best performance since 2015. Meanwhile, the weak economic performance of the Eurozone and Japan, the European Central Bank's continued rate cuts, and Japan's slow pace of interest rate hikes have increased pressure on the euro and the yen.

The Indian rupee is likely to continue facing depreciation pressures, especially given the lack of improvement in the global economic outlook. The Indian government and central bank may need to implement a series of policy measures to slow the outflow of capital and stabilize the rupee's exchange rate. At the same time, as India's economic growth slows and the external environment changes, the future direction of the rupee will increasingly depend on adjustments in domestic economic policies and shifts in the international market.