The financial sector, especially banks with dollar-denominated debt, is under pressure as the weaker rupee raises repayment costs, while energy stocks are affected by high oil prices.

The Reserve Bank of India has taken a pragmatic approach by allowing the rupee to depreciate, maintaining inflation stability through selective intervention and higher gold import duties, with potential for further rate cuts in 2025.

Foreign portfolio investors pulled out over $4 billion from Indian markets in July 2025, following an $11 billion withdrawal in the previous quarter, mainly driven by the strong dollar and a widening current account deficit of 2.5% of GDP.

As of July 17, 2025, the rupee stands at 85.848 against the dollar, reflecting a 3.07% appreciation over the past year but still significantly weaker compared to pre-2024 levels.

Export-oriented sectors like IT and pharmaceuticals are benefiting from the weaker rupee, with companies such as Tata Consultancy Services and Dr. Reddy's Laboratories seeing increased dollar revenues.

Conversely, import-dependent sectors such as textiles and automobiles are facing challenges due to higher costs for machinery and raw materials, impacting profitability for firms like Tata Motors and Mahindra & Mahindra.

Investors are encouraged to hedge currency risk using strategies like forward contracts and options, with current forward rates at 85.62 to manage exposure effectively.

The Indian rupee has depreciated due to capital outflows, the dominance of the U.S. dollar, and structural economic issues, leading investors to adjust their strategies amid increased volatility.

Sector rotation is advised, focusing on export-heavy industries like IT, pharmaceuticals, renewables, and oil-hedged firms to capitalize on the opportunities created by the currency's depreciation.

In conclusion, proactive portfolio management, including currency hedging and strategic sector rotation, is essential for navigating the challenges of the weakening rupee.