Indian Rupee Falls to 83.45 Against Dollar, Weighing on Equity Market Momentum

The Indian rupee plunged to a new low of 83.45 against the U.S. dollar on December 15, 2025, marking its weakest level since early 2023. This move, driven by a surge in crude oil prices and heightened global risk aversion, has undermined recent gains in the benchmark Nifty 50, which had risen 8.2% in November and December. Market participants now question whether the domestic equity rally can endure amid deteriorating external conditions. The rupee's depreciation reflects growing pressure on India’s current account, which widened to 2.8% of GDP in the third quarter of 2025, up from 2.1% in the same period a year earlier. Rising import costs—particularly for crude oil, which averaged $87.50 per barrel in December—have strained the balance of payments. The Reserve Bank of India reported that foreign portfolio investors pulled out $4.3 billion from Indian equities in December, reversing earlier inflows and deepening the currency’s slide. Despite strong corporate earnings and improved earnings visibility in sectors like IT and pharma, the rupee’s weakening has introduced a material drag on investor sentiment. The cost of servicing external debt has increased by 14% year-on-year, and inflation expectations have climbed, with the core consumer price index rising to 5.4% in November—above the RBI’s 4% target. These factors have prompted speculation that the central bank may delay interest rate cuts planned for early 2026. The impact is being felt across market segments: large-cap stocks have underperformed, with the Nifty IT index declining 3.1% in the past week, while mid- and small-cap indices have seen capital outflows totaling $1.8 billion since mid-December. Investors are now reassessing risk exposure, with hedging costs for dollar-denominated assets rising sharply.