The rupee is falling and your investment portfolio is bleeding red. India may be a fundamentally strong growth story, but for now your investments may be flashing negative returns. As the impact of the US-Iran conflict rips through an economy dependent on fuel imports, the currency has seen a rapid fall requiring RBI’s frequent interventions.Is the rupee’s fall eating into your investment returns? What should investors do to protect their portfolio in the current scenario? The first thing to understand is that fundamentally, a falling rupee does not have a direct impact on your investments.However, it indirectly affects the performance of your investments through its effect on economy, growth, inflation and more. A weaker rupee increases the cost of imports, which can increase inflation and impact interest rate policy. For a retail investor, the impact depends on what they own and why the rupee is weakening in the first place.
How falling rupee can impact your portfolio
As Nirav R Karkera, Head of Research, W by Groww, explains, for domestic equities, the effect is not uniform. Export-oriented companies, IT services, pharma and other businesses with dollar revenues may see some benefit. Import-heavy sectors, companies with dollar costs, or businesses carrying foreign currency debt may come under pressure. A weaker rupee can also make Indian equities less attractive for FPIs because their dollar returns get diluted, and that can add to volatility when global risk appetite is already weak. For fixed income, the main channel is inflation and interest rates, Karkera says. If rupee weakness feeds into imported inflation through oil, commodities or other inputs, it can limit the RBI’s room to cut rates and make long-duration debt more vulnerable.
So what should you do?
There are multiple lessons that one can derive for portfolio allocation and diversification amid global economic turmoil. Experts and financial planners that TOI spoke to had some common tips to share:Continue SIPs, Don’t Chase Currency MovesExperts believe that one of the biggest mistakes investors make is taking drastic portfolio decisions after the rupee has already fallen. Instead of panic driven reactions, keep calm, stay invested for the long-term. Don’t ignore goldGold acts as a portfolio insulator in such times. With falling rupee, gold has historically acted as a hedge during periods of currency weakness, inflation and geopolitical uncertainty. Simply put, when the rupee weakens, domestic gold prices often receive an additional boost from currency movements. Experts advise taking the digital route – ETFs, mutual funds rather than physical gold.Nirav R Karkera explains that gold tends to be a more direct beneficiary in rupee terms because domestic gold prices reflect both global gold prices and the exchange rate. In the current environment, gold is also being supported by global risk aversion and central-bank diversification. That said, gold should still be treated as a portfolio hedge, not as a return guarantee, Karkera tells TOI.But, Mukesh Kumawat, Director, Anand Rathi Wealth Limited strikes a note of caution. During these uncertain times, gold has traditionally acted as a safe asset during these uncertain times, however, with speculative activity, it has turned into a volatile asset in recent times. Hence, while gold is an important portfolio diversifier, it should not be treated as the primary wealth grower.
Own some global assets like US stocksWhat a falling rupee does is that it automatically boosts the value of overseas investments when converted back into rupees. Investors can look to allocate a portion of their equity exposure to international funds, ETFs or global stocks. For example, US-focused funds can provide a natural currency hedge, say experts.Rohit Shah, Financial Planner tells TOI that for most long‑term investors, 15–25% in international assets is a reasonable range. The exact number should depend on goals (like overseas education or retirement), risk profile and overall portfolio size. “This allocation is best built gradually over time, rather than in one big shift after a sharp rupee move. The idea is not to bet against India, but to ensure part of the wealth is in hard currencies and global businesses,” he tells TOI.Nirav Karkera cautions: International exposure should first be seen as diversification, and only then as a currency hedge. International equities and dollar assets can benefit from rupee depreciation when translated back into rupee, but investors should remember that currency gains can be offset if the underlying asset performs poorly. So, the rupee is an important variable, but it should not become the only reason to invest.
Export-Import dynamics – Look for companies that benefit from fall of rupeeBe it the IT services, pharmaceuticals or others – exports facing sectors turn beneficiaries of a falling rupee. A significant share of their revenue comes from overseas markets and is earned in foreign currency.On the other hand sectors that face pressures due to import dependency may be avoided, say experts. Higher import costs can affect profitability if companies cannot pass on the increase.“A weaker rupee usually helps assets linked to the dollar. Overseas equity funds can also gain in rupee terms. On the other side, many Indian companies face higher input costs on imports, which can hurt margins and sentiment. Over time, export‑oriented businesses may gain competitiveness, while import‑heavy sectors can struggle. Rupee weakness over decades is quite normal; the key is planning around it, not trying to predict every move,” says Rohit Shah.Mukesh Kumawat says that when it comes to equity, export-oriented sectors such as IT, pharmaceuticals and specialty chemicals may benefit from higher rupee earnings, while import-oriented sectors may face margin pressure due to rising input costs. Debt instruments, ETFs in focusDebt instruments are not directly affected by rupee depreciation, however, a weaker rupee can contribute to higher inflation, which may lead to near term higher interest rates and bond yields. This can create near-term volatility in long-duration debt funds, says Mukesh Kumawat.“On the other hand, overseas funds like international funds/ETFs can benefit the investors, with the appreciation of foreign currencies against the rupee & underlying asset performance,” he says.Maintain Adequate Emergency SavingsA weak rupee can fuel inflation by increasing the cost of imported goods, fuel and travel. So, it may be prudent to have some emergency funds handy. At the same time, as experts have suggested – it’s important to review your foreign currency liabilities such as overseas education plans, foreign-currency loans, and international travel commitments.
The fundamental investment lesson
Analysts and experts are clear on one aspect: a falling rupee should not be seen as a standalone investment signal. Investors should consider that currency movements are often driven by temporary factors such as geopolitical events, oil price fluctuations, capital flows and global risk sentiment.
“If we see the historical data of currency movements during geopolitical conflicts it is usually limited and temporary, across major conflicts since 1990, the rupee’s median depreciation during war periods was about 3 to 4% and in extreme cases such as the Libya Civil War, the rupee weakened by about 10%, but it eventually recovered and over time, it will be driven by domestic macroeconomic fundamentals such as economic growth, inflation, capital flows, foreign exchange reserves and policy actions than by geopolitical events alone,” says Mukesh Kumawat of Anand Rathi Wealth Limited.“Investors are suggested to avoid making investment decisions based on short-term trends and instead, it’s recommended to start building a strategy-based portfolio by diversifying 80:20 across equity & debt and for equity exposure, investing across active diversified equity funds helps to get exposure across the sectors, segments, and reduces the concentration risk associated with any single segment performance, and helps to ride across the market cycles,” he adds.Experts urge investors to resist panic driven investment decisions. “A much weaker rupee will hit overseas education and travel costs the most, so those goals may need higher allocations. Domestic equity returns could be muted or volatile for some time. It’s a good idea to review asset allocation, stress‑test your plan for flat or falling markets, and check if you have enough “dry powder” in safer assets to handle shocks and also deploy calmly when opportunities arise,” says Rohit Shah, financial planner.While acknowledging that a move to 100 for rupee would be psychologically important, Nirav Karkera said it should not trigger panic portfolio decisions.“The first step is to understand why the rupee is weakening. If the move is driven by a stronger dollar, oil prices, geopolitical risks or temporary FPI outflows, the portfolio response will be different from a situation where the weakness is driven by domestic macro stress. The cause matters more than just the rate,” Karkera tells TOI.For now, investors should focus on portfolio preparedness rather than prediction. That means keeping adequate liquidity, avoiding excessive concentration in long-duration debt, maintaining some allocation to gold as a hedge, and using international assets only where they fit the long-term asset allocation, he adds.“Investors with known dollar expenses should not wait for the last minute. They should consider gradually funding those needs through a planned and staggered approach. Investors with only rupee liabilities should not rush into dollar assets purely because the currency is approaching a round number,” he advises.(Disclaimer: Recommendations and views on the stock market, other asset classes or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India.)
