Indian investors are increasingly urged to consider global exposure in their portfolios as the rupee continues its long-term depreciation against the dollar. Since the 1991 liberalisation, the rupee has depreciated at a compound annual rate of approximately 5%, with recent stress factors exacerbating this trend.
The rupee's depreciation is driven by three key catalysts: high oil import dependency, significant foreign portfolio investor (FPI) outflows, and a persistent inflation differential with the US. India imports 88% of its crude oil, and recent spikes in Brent crude prices have increased the current account pressure. Meanwhile, FPIs have withdrawn Rs 2.2 lakh crore from Indian equities in 2026, marking the worst outflow since 1992. Additionally, India's Consumer Price Index (CPI) has consistently run above the US CPI, contributing to the rupee's decline.
These catalysts are not short-lived. India's oil dependence requires long-term infrastructure solutions, while FPI flows are subject to global risk appetites and valuation shifts. The inflation differential is expected to persist unless India's productivity gains outpace those of the US. The Reserve Bank of India (RBI) has indicated that while the rupee appears undervalued, rate hikes to defend the currency are not currently planned.
For Indian investors, a diversified portfolio with dollar-denominated assets can offer a hedge against rupee depreciation. Over a decade, even a flat-returning US asset can yield a 1.4x return in INR terms due to currency depreciation. Historically, the S&P 500 has delivered comparable returns to the Nifty 50 in INR terms, but with different risk profiles.
A strategic allocation of 20 to 30% to US equities via the Liberalised Remittance Scheme (LRS) is recommended. This can be achieved through low-cost index ETFs and direct stocks, providing a structural response to the rupee's depreciation trend.
Background
The rupee's depreciation has been a consistent trend since India's economic liberalisation in 1991. This trend has been driven by structural factors such as oil import dependency and inflation differentials, which have persisted over decades.
As the rupee continues to face depreciation pressures, Indian investors should monitor global market conditions and consider diversifying their portfolios to mitigate currency risk. The ongoing economic conditions suggest that global exposure remains a prudent strategy.
