Rupee hits 96 against USD: How can falling currency impact your investments and how to protect them?

On 20 May 2026, the Indian rupee (INR) hit an all-time low of ₹96.96 against the US dollar (USD). While the INR has depreciated by an average of 4-5% annually against the USD, the fall in the last one year has been much higher. Over the last one year, the INR has depreciated from around ₹85 to around ₹96, resulting in a depreciation of more than 12%. In this article, we will examine how rupee depreciation impacts your investments and how you can guard your investment portfolio.

Impact of a falling rupee on equity investments

A depreciating rupee leads to costlier imports. Crude oil is one of India’s biggest imports. Costlier crude oil imports make transportation of goods and people more expensive, thereby increasing inflation. If inflation rises above 4% — the Reserve Bank of India (RBI)’s target — and stays higher for a longer period, the central bank will have to hike interest rates.

Higher interest rates will make borrowing costlier for corporates, resulting in a higher interest payout. Higher interest costs will reduce corporate profitability. Higher interest costs can make some projects, such as roadways, power projects, and other infrastructure projects with a higher debt component, unviable. If the company is unable to service its debt obligations, the project may become a non-performing asset (NPA). All these can hurt the share prices of listed companies operating such projects. Lower share prices can adversely impact the returns from direct equity investments and mutual funds investing in these companies.

At the individual level, banks will pass on higher interest rates to their borrowers by increasing rates on floating-rate home loans and other loans. Also, new loans (personal, vehicle, home loans, etc.) will come with higher interest rates. With borrowing becoming costly, borrowers may either reduce the size of their new loans or drop them altogether.

With demand for new loans declining, the growth of banks and NBFCs will be adversely affected, impacting their profitability. Also, higher interest rates can make it difficult for existing borrowers to service EMIs on floating-rate loans, thereby increasing NPAs. All these can adversely impact the share prices of listed banks and NBFCs.

In this manner, a falling rupee can lead to higher inflation, which in turn can raise interest rates. Higher interest rates are usually not good for stock markets, as they impact the profitability of banks and other corporates. Thus, a falling rupee can adversely affect returns from direct equity investments and equity mutual funds.

Impact of a falling rupee on debt investments

A depreciating rupee puts pressure on the government’s fiscal deficit and G-sec bond yields. Over the last one year, yields on the 10-year government bonds (G-secs) have risen from around 6.25% to around 7.00%.

The G-sec yields and bond prices have an inverse relationship. Over the last one year, as G-sec yields have been climbing, the bond prices have been falling. A decline in bond prices adversely impacts the returns of bond investors. Similarly, a fall in bond prices adversely affects the NAV of bond funds, thus impacting the returns of bond fund investors.

As per the Value Research website, the one-year average returns for the long duration funds category are -2.35%, and for the gilt funds category are -0.48% (as of 31 May 2026). Thus, a falling rupee has impacted G-sec bond yields, resulting in lower returns for gilt bondholders and gilt bond fund investors.

How to protect your investment portfolio from a falling rupee?

To protect your overall investment portfolio from a falling rupee, you can diversify into international investments. International investments in US dollars benefit from a falling rupee. Over the last one year, while the Indian stock markets have been subdued, some international stock markets have done very well.

In the US, the broader S&P 500 Index has delivered around 25% returns (in US dollar terms) over the last one year. For Indian investors, after accounting for the depreciation of the Indian rupee, returns in Indian rupee terms will be even higher. Similarly, the IT-heavy NASDAQ 100 Index has delivered 40% returns (in US dollar terms) in the last one year. For Indian investors, after accounting for the depreciation of the Indian rupee, the returns in Indian rupee terms will be even higher.

Apart from the US, the stock markets of countries such as South Korea, Taiwan, Vietnam, and Brazil have performed exceptionally well with returns of more than 50% in the last one year. Similarly, stock markets in countries such as Japan, China, and the Eurozone have also performed well over the last one year.

Some of the AMCs that offer international mutual funds for investing include the following:

1. PGIM India Global Equity Opportunities Fund
2. Edelweiss Emerging Market Opportunities Equity Offshore Fund
3. Edelweiss Europe Dynamic Equity Offshore Fund
4. Franklin Asian Equity Fund
5. Franklin US Opportunities Equity Active Fund
6. Edelweiss Greater China Equity Off-shore Fund
7. Edelweiss US Technology Equity Fund

The above are only some of the international mutual funds available to Indian investors. The list shows how investors can invest in international equities by region (Europe, Asia, or the world), country-specific (the US, China), sector (technology), theme (emerging markets), etc.

Benefits of investing in international equities

Some of the benefits of investing in international equities include the following:

1. They benefit from the depreciation of the Indian rupee.
2. Investors get access to global companies that operate in India but are listed outside India. For example, companies like Apple, Alphabet (Google), Meta (Facebook), etc.
3. They provide diversification against country-specific risk.
4. They provide access to companies that benefit from specific themes, such as semiconductors, AI, etc., which are currently favourites among investors across the globe.

While Indian equities are currently subdued, stock markets in some countries are booming. The major stock indices in some countries have hit 52-week highs, or multi-year highs, or even lifetime highs. If you would like to invest in international mutual funds, consult your financial advisor for appropriate recommendations.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached on LinkedIn.