Since January 2025, the Rupee has depreciated by ~9%. INR was amongst the weakest currencies in Asia during May 2026 when it weakened to 96.96. The currency has faced headwinds over the last ~2 years: expensive equity valuations, India not being in the AI theme, tariff challenges, uncertainty due to the impact of agentic AI on India's $160 billion software exports, high energy prices due to geopolitical tensions, and tepid net FDI over the past two years.
Above all, the narrow interest rate differentials vis-a-vis the US and expectations of INR depreciation have led to greater importer hedging (importer leads) and subdued exporter hedging (exporter lags). Indian equity markets witnessed FPI outflows of ~$30 billion, in addition to ~$19 billion from last year.
