Rupee Becomes Worst-Performing EM Currency in 2025; Falls 3.4% to 88.7 per Dollar

The rupee has been seeing fluctuations against the US dollar continuously. It has been the worst performer among major emerging market (EM) currencies so far this year. The rupee has fallen 3.4% against the dollar so far this year, trading at 88.7, said Jefferies in its Greed and Fear report. 2025 has been the worst year for the rupee's performance.

Jefferies said, citing its Indian experts, that the rupee will keep falling and is on course for the 89 level. In fact, downside risks have reduced after a long period of decline. The RBI continues to sell US dollars to arrest the slide of rupee. India's foreign exchange reserves amount to $690 billion now, adequate to fund 11 months of imports. On September 27, 2024, the country held a record foreign exchange reserve of $704.8 billion.

The report on the Indian stock market states that foreign institutional investors (FIIs) have sold a record $16.2 billion so far this year. This has led to a 27% decline in the Indian market's performance compared to the MSCI (Morgan Stanley Capital International) Emerging Markets Index. However, domestic institutional investors have invested more than FIIs, which has helped protect the Indian market from a major decline.

The report highlights India's position in the global Artificial Intelligence (AI) cycle. According to it, India has fallen into the category of "reverse AI trade" among emerging stock markets. This means that the Indian stock market is underperforming and the rupee is weakening. Jefferies stated that if AI trade in the global market suddenly declines, India could perform better. Meanwhile, AI-dominated markets like Taiwan, Korea, and China will remain under pressure. These three countries currently contribute 61.8% to the MSCI Emerging Markets Index, while India's market share is 15.3%.

According to the report, the country's current account deficit (CAD) has fallen to a 20-year low of 0.5% of GDP. India's macroeconomic outlook also remains strong. Bank lending growth increased to 11.5% in October from 9% in May this year.

Net inflows into equity mutual funds reached $3.6 billion (₹321 billion) in October 2025 and $42 billion (₹3.7 lakh crore) in the first 10 months of this year. Including other domestic sources, equity mutual funds saw an average monthly inflow of $7.4 billion in the first nine months of this year.