The Indian rupee plunged to a historic low of ₹89.49 against the U.S. dollar on Friday, driven by a surge in domestic demand for dollars. Such sharp currency weakness typically sparks a temporary risk-off sentiment in equity markets, as concerns mount over higher imported inflation, rising input costs, and pressure on import-dependent sectors. What surprised traders this week, however, was the magnitude of the fall against an otherwise stable global backdrop. According to CR Forex Advisors, global cues were largely flat, crude prices were steady, and other emerging-market currencies showed no stress, making the rupee’s drop stand out. They noted that “thin dollar supply and aggressive buying created a liquidity gap,” and the Reserve Bank of India’s apparent step-back from defending the 88.80 level triggered stop-loss orders, exaggerating the move.
The decline impacts equity sentiment, particularly in midcap and small-cap stocks where valuations and leverage are higher. Rahul Kalantari of Mehta Equities said FIIs often turn cautious during such episodes, as dollar-adjusted returns shrink and volatility rises. Sectors reliant on imports, such as aviation, consumer durables, and electronics, face immediate margin pressures, while power utilities and capital goods firms may also be affected. Conversely, exporters in textiles, pharmaceuticals, gems and jewellery, IT, chemicals, and auto ancillaries stand to benefit from stronger dollar revenues.
Despite the short-term jitters, some experts, including V K Vijayakumar of Geojit, believe the rupee’s fall may not significantly hurt markets, particularly as valuations have cooled and global AI trade weakness could attract FIIs back to India. Analysts expect the currency to stabilise over the next three to four quarters if crude prices soften, the dollar eases, the RBI continues managing volatility, and potential India-US trade deals reduce the trade deficit. Overall, while rupee weakness creates selective sectoral winners and losers, India’s structural story remains intact, and any equity market corrections are likely to be shallow.
