Rupee weakness clouds outlook for FPI flows; earnings revival key

Corporate earnings growth is estimated to be in high single digits for this fiscal and in mid-teens for the next two financial years

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The sharp depreciation of the rupee against the US dollar is expected to keep foreign portfolio investor (FPI) flows under pressure, with a revival in corporate earnings and progress on a trade deal with the US seen as crucial for any sustained reversal in outflows.

 

The rupee breached the 90-mark for the first time on Wednesday, touching a record low of 90.30 before settling at 90.19. Analysts attributed the weakness to soft exports, hit by US trade tariffs of up to 50 per cent on several Indian goods, and persistent FPI selling.

 

Experts said the rupee weakness clouds the near-term outlook for FPI flows. However, India’s strong macro will help cushion the blow. Furthermore, they said the rupee weakness will not lead to any revision in the earnings growth forecasts.

 

“From a sentiment perspective there is going to be impact but from an earnings perspective there are not too many segments where there’ll be long term impact. Exporters generally will gain but importers will also be protected somewhat by their forward contracts. The rupee weakness may play out differently for different sectors but from an overall earnings perspective it’s not going to have a significant impact,” said Harsha Upadhyay, chief investment officer, Kotak Mahindra Asset Management Company.

 

Corporate earnings growth is estimated to be in high single digits for this financial year and in mid-teens for the next two financial years.

 

“Depreciating currency is generally negative for FPI flows,” said Jyotivardhan Jaipuria, founder and managing director of Valentis Advisors.

 

“We are hoping the earnings cycle will turn. We are expecting double-digit growth from the December quarter onwards. If earnings don’t come through, that could upset flows. A trade deal with the US could also be a major positive,” he added.

 

Jaipuria expects 2026 to be a better year for flows, noting that global investors are now significantly underweight India after 15 months of sustained selling.

 

FPIs have been heavy net sellers since October 2024, weighed down by declining corporate profitability, questions over stretched valuations, and lingering uncertainty around the US–India trade negotiations.

 

Exits by private equity investors through initial public offerings (IPOs) have further added to the pressure. In 2025 so far, FPIs have pulled out ~1.5 trillion from Indian equities.

 

Analysts said foreign investors may not return in a hurry as currency volatility threatens to erode potential gains.

 

A favourable trade agreement, analysts said, would lift sentiment and may help FPIs return as valuations have moderated after this year’s correction.