India's Rupee Headed for 94 Despite Trade Deal: What Investors Need to Know

The Trade Deal That Couldn't Save the Rupee

Trump and Modi shook hands, markets cheered, but economists aren't buying the optimism. Despite the fanfare around the US-India trade agreement, multiple analysts now predict the rupee will slide to 94 against the dollar this year—a 10% decline from current levels around 85.

Why such pessimism when tariff relief should theoretically boost India's economy? The answer lies beneath the political theater: India's structural economic challenges remain largely untouched.

The Numbers Don't Lie

The rupee was among Asia's worst-performing currencies last year, and the fundamentals suggest more pain ahead. Foreign portfolio outflows continue to pressure the currency, while India's current account deficit shows no signs of meaningful improvement.

Consider the foreign investment picture: while Bain Capital just secured approval for joint control of Indian lender Manappuram, such deals are becoming increasingly rare. India's plan to raise foreign investment caps for public banks sounds promising on paper, but actual investor interest tells a different story.

Meanwhile, the government is throwing money at various initiatives—a record defense budget to boost air force capabilities, $166 million for critical mineral recycling modernization. But can spending alone fix deeper structural issues?

What This Means for Global Investors

For international investors, this creates a complex risk-reward equation. A weaker rupee makes Indian exports more competitive globally, potentially boosting corporate earnings for export-oriented companies. But it also means foreign investors face currency headwinds on their India positions.

The timing is particularly challenging given global uncertainty around trade policies and emerging market flows. While some Indian consumer firms are lifting their outlook on improving urban demand, currency depreciation could quickly erode those gains for foreign shareholders.

The Bigger Picture: Politics vs Economics

The disconnect between political achievements and market realities highlights a broader question about emerging markets. Trade agreements can remove barriers and improve sentiment, but they can't immediately fix balance of payments issues or restore foreign investor confidence.

India's central bank has held rates steady after the tariff relief, signaling cautious optimism. Yet with the rupee's trajectory pointing downward, monetary policy alone may not be enough to stem the decline.