Rupee falls after RBI measures. What is in store for Dalal Street investors?

The Indian rupee jolted markets on Wednesday after the Reserve Bank of India (RBI) intervened aggressively to arrest a one-way slide, triggering a sharp intraday reversal that reflected how fragile sentiment has become.

The rupee touched an intra-day high of 89.75 per dollar from close to 91 and touched around 90.28, even as foreign inflows, trade-deal uncertainty and policy cues kept investors guessing about the road ahead.

Bankers said the central bank sold the dollar heavily in the spot and non-deliverable forward (NDF) markets, reflecting its interventions in October and November that prevented continued devaluation. The move came after the rupee underperformed Asian peers, weakening 1.8% from December to Tuesday while most regional currencies were flat or slightly higher.

Trade was volatile on Wednesday, with crude prices supported by uncertainty over the India-US trade deal and continued overseas selling.

Flow, not fundamentals, in the driver’s seat

On a practical level, foreign portfolio investor (FPI) flows are calling the shots, Bank of Baroda said, adding that FPIs were net sellers in nine of the first 11 trading days of December. “If they are pulling back, one should wait for a trigger for a turnaround, which could be a deal,” the bank said, adding that expectations of a possible deal by March 2026 could keep the rupee volatile in the interim. The bank flagged that the dollar index remained below 100, normally supportive of emerging-market currencies, which isolated the rupee’s weakness.

Bank of Baroda also pointed to relative equity performance as a factor in diverting flows. While major global indices have posted strong gains over the past year, India’s benchmark has lagged behind, fueling perceptions among some investors that valuations need earnings to catch up. Trade-balance fears, he said, are less credible given November’s better data, while the RBI’s reserve path suggests the dollar was built up earlier and released through selling as policy priorities evolved.

Balance of payments stress

Mirre Asset Mutual Fund framed the recent slide as a balance-of-payments story amplified by policy and external shocks. It said the USD/INR break of 90 followed a confluence of weak FPI and FDI inflows, changing FX intervention strategies and trade-deal uncertainty. The balance of payments deficit is tracking at minus $22 billion in FYTD26 from November, the largest historically due to a sharp slowdown in capital inflows.

While the current account deficit remains subdued at around 0.8% of GDP in the first half of FY26, Mira warned that comfort is wearing thin as gold imports rise and tariff tensions start to bite. Exports to the US on tariff-affected items have fallen sharply since September, he said, hit by strong services and remittance flows. On policy, Meera noted that RBI dollar sales in FYTD26 were much lower than last year’s pace, reflecting a more measured approach despite reserves remaining adequate.

What should investors do now?

Market participants urged investors to look away from the noise. “With the rupee slipping to 91.075 per dollar, Indian investors should focus on disciplined investing rather than reacting on fear amid currency weakness and volatile stock markets,” said Ross Maxwell, Global Strategy Operations Lead, VT Markets.

Maxwell advised prioritizing companies with strong balance sheets and using systematic investing to navigate volatility while holding gold as a hedge. Export-oriented sectors such as IT services, pharmaceuticals and select engineering exporters generally see margin support during devaluations, he said, while caution is required in import-dependent businesses.

Sachin Savrikar, founder and managing partner of Earth India, said the rupee’s record low was “primarily driven by global factors rather than India-specific concerns,” noting that some peers posted comparable or larger declines.

“In comparison, the rupee’s movement has been relatively tame,” Savrikar said, adding that a weaker currency improves exporters’ competitiveness and FDI should remain largely unaffected by near-term volatility. Looking ahead, he expects the rupee to stabilize in 2026 as global financial conditions ease and capital flows normalize.

For Dalal Street, Wednesday’s intervention served as a reminder: The RBI will act to prevent disorderly moves, but it is not defending a level. FPIs are still selling- FIIs on December 16 sold around Rs. 2,382 crore of equity offloaded – The trajectory of the rupee will depend on the flow, policy cues and progress on trade talks. Volatility, investors are told, is not a sign to retreat, but a test of discipline.

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