The Indian Rupee has witnessed a steep decline against the US Dollar in 2025, losing around 6% of its value following the imposition of tariffs on India by the Trump administration. Financial experts unanimously state that a sustained recovery for the Indian National Rupee (INR) is unlikely until a concrete India-US trade deal is signed. This currency weakness has been accompanied by aggressive selling from Foreign Institutional Investors (FIIs) in the equity markets, creating a dual challenge for the Indian economy.
The Stock Market's Surprising Resilience
Despite the headwinds, the Indian stock market has displayed notable stability. The benchmark Nifty 50 index has been trading in a tight band, primarily between 25,250 and 26,300 points for an extended period. Recently, with optimistic signals emerging from officials on both sides regarding the trade deal, the index has been hovering at the higher end of this range, between 25,700 and 26,300. This stark contrast between a falling currency and a range-bound stock market raises a critical question about the underlying dynamics of India's financial markets.
Why the Divergence Between Rupee and Stocks?
Ponmudi R, CEO of Enrich Money, provides a clear explanation for this phenomenon. He points out that the debate around USD/INR potentially nearing the 100 level in 2026 is now a serious macroeconomic discussion. This pressure on the rupee, he clarifies, is not due to India losing growth momentum. India remains one of the world's fastest-growing large economies with resilient domestic consumption and healthy corporate balance sheets.
The core issue lies in market structure. "The currency market doesn't enjoy the same balance theory that is available for the Indian stock market today," Ponmudi R states. He explains that in equities, any correction attracts domestic buyers—retail investors, mutual funds, and long-term allocators—who absorb selling pressure, ensuring two-way liquidity and preventing sharp, one-sided moves.
In contrast, the currency derivatives market has seen liquidity dry up. "Following regulatory changes in 2024 that restricted participation... a large section of liquidity providers exited the market," he notes. Retail traders and arbitrageurs who ensured efficient price discovery are gone, leaving the market thin, one-sided, and increasingly dependent on Reserve Bank of India (RBI) intervention.
Policy Actions and External Pressures
Avinash Gorakshkar, a SEBI-registered fundamental equity analyst, highlights proactive government steps that have aided the stock market but not the currency. Recent rationalisation of GST and SEBI's move to cut mutual fund expense ratios have injected liquidity, helping domestic funds counter FII selling. FIIs have been net sellers since July 2025, creating persistent USD outflows that directly pressure the rupee.
Gorakshkar adds that the delay in the India-US trade deal hampers the RBI's ability to manage external triggers like Trump's tariffs and global trade war challenges. The central bank initially allowed the rupee to depreciate past 91 against the USD to aid exporters, but had to intervene aggressively by selling dollars on a recent Tuesday, providing the rupee temporary relief in the last two sessions.
Disclaimer: This story is for educational purposes only. The views and recommendations are those of individual analysts or broking companies. Investors are advised to consult certified experts before making any investment decisions.
