It was a cool December morning in Chennai. There was a nip in the air but the three friends sitting on the terrace of the restaurant, overlooking the sea, did not seem to mind.

They were deep in conversation, even as the wintry sun sent sparking lights on the waves.

Soumya, Vishy and Vasu, close buddies through school and college, had moved apart as their careers took them to different cities. Soumya had stayed back in Chennai to manage her family’s print media business. Vishy, was a successful investment manager working out of New York. Vasu, who had the nickname of ‘prof’ even in school, had completed a doctorate in economics and was working with a think-tank in Delhi.

Taking a large bite of the Mysore masala dosa, Vishy said, “How I have missed this authentic South-Indian food in New York. So, what’s up with you guys? How’s business, Soumya?”

Soumya put down her glass of orange juice. “I wish I could tell you that everything is great. But that wouldn’t be true. We are going through a rough patch right now with the cost of imported newsprint shooting higher, thanks to this rupee, which keeps sliding. Our margins are under great pressure.”

“Yeah, I am aware that the Indian rupee put up a dismal show in 2025,” said Vishy, “I read that it’s down around 4.5 per cent against the US dollar and is one of the worst performing emerging market currencies. Importers like you must be feeling the pinch.”

Soumya reached for a golden fried medu vada. “Yeah, the government’s inability to push through the trade deal with the US has hurt our exports and economy. No wonder foreign investors like you are fleeing the country, taking the rupee down with them”.

“The worst part is, I don’t see any light at the end of the tunnel. The rupee is continuing to look weak in 2026 too,” she added with a glum look.

Vasu, who had been engrossed in watching the waves while sipping his filter coffee, smiled. “I think the pessimism about the rupee is overdone guys. In fact, I think the rupee should not be depreciating at all. It should actually be appreciating.”

“How can you say that? The FPIs are continuing to sell. Isn’t that bad,” Soumya asked.

“FPIs have net sold equities worth ₹1.66 lakh crore in 2025, but this is based on perception that the absence of a trade deal with the US will hurt Indian companies and stocks,” said Vasu. “The reality is that a very small part of the listed stock universe is impacted by higher tariffs. Indian companies have reported strong revenue and profit growth in the first six months of 2025-26. The correction in stock prices last year has also moderated the valuation in many pockets of the stock market.”

“True. Foreign investors were rushing to China, South Korea, Taiwan, etc., last year,” said Vishy, busy with his bowl of mini-idlis floating in sambhar, glistening with ghee on top. “The lure of AI stocks led them there. But if the AI bubble bursts, Indian stocks will be a good hedge.”

“Once they realise their folly, they can return. Let’s not forget that FPIs had purchased Indian debt worth ₹58,348 crore last year, ,” added Vasu.

“But what about the impact of the additional tariff on the economy, exports, trade balance? Isn’t that a negative for the rupee,” asked Soumya.

“Once again, it’s a matter of false perception,” said Vasu. “Total exports between April and November 2025 are up around 5 per cent and the exports to the US jumped 29 per cent in November. The impact of tariff is unlikely to be material for two reasons. One, exports to the US account for only 18 per cent of India’s total exports. Two, major items such as mobile handsets and drugs and pharmaceuticals are not subject to the additional tariff.”

Having finished their breakfast, the friends decided to take a stroll on the beach.

“What do you mean by saying that the rupee ought to be appreciating and not depreciating,” asked Vishy, turning towards Vasu, as they walked along the sea.

“Well, there are several factors that are supportive to the rupee at this point,” said Vasu. The dollar has been very weak since 2025 with the dollar index down 10 per cent last year due to the aggressive rate cuts by the US Fed. This has resulted in all the other currencies appreciating against the dollar. The rupee should have done the same.”

“Another factor that influences the rupee’s movement is crude oil prices, since India meets over 80 per cent of its domestic requirements through imports. Crude oil prices are down over 27 per cent in 2025. This would have typically helped in strengthening the rupee.”

“Finally, the domestic economy is in fine fettle, growing at over 7 per cent, inflation is cooling down, consumption has been buoyant thanks to fiscal measures such as income tax and GST rate cuts, corporate earnings are good. These factors should draw both FDI as well as foreign portfolio investors, when the tide turns,” concluded Vasu.

“Going by what you are saying, the rupee should not have been weak at all. Then why is it sliding like this? This is very confusing,” Soumya lamented.

“There is one final factor that is influencing the rupee — forex trading in the dollar-rupee contracts. Traders look for currency pairs which appear weak and take short positions or sell positions in them. They will keep pushing the prices lower because their short positions become profitable as the currency declines. Many of these traders are operating out of other countries such as Singapore, Dubai, Luxembourg etc,” explained Vasu.

“But why is the RBI not selling dollar and helping the rupee?” asked Soumya.

“Well, the RBI is intervening at regular intervals. But it appears to be allowing the rupee to slide intentionally, to help exporters hurt by the US tariffs?”

“That is so unfair! What about us importers? Why do the government and the RBI not care about us,” continued Soumya.

“The government perhaps wants you to become atmanirbhar and start sourcing newsprint from domestic sources,” said Vishy, joining in the banter. “Well anyway, thanks for all the gyaan on the rupee, prof.”

“At least you have assured me that there is nothing drastically wrong with the rupee and have given me hope that it will begin appreciating soon. Thanks so much for that,” said Soumya, waving goodbye.

Published on January 9, 2026