INR reset likely after ‘Liberation Day’; fair value seen near 89 if trade deal goes through, says Aditya Birla’s Kaustubh Gupta

Kaustubh Gupta, Co-Head of Fixed Income at Aditya Birla Sun Life AMC

• Global tariff shocks caused Indian rupee to shift from overvalued to undervalued.
• Rupee fell 4.75 percent in 2025, remains Asia's worst performer
• Inflation expected at 4.5 percent in FY27, above RBI's Q2FY27 projection

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The Indian rupee has undergone a sharp reset after the so-called “Liberation Day” tariff shock, moving from years of structural overvaluation to a phase of outright undervaluation, as markets reprice India’s external risks amid a changing global trade order, said Kaustubh Gupta, Co-Head of Fixed Income at Aditya Birla Sun Life AMC.

He added that for nearly a decade, the rupee traded at a 3-4 percent premium on REER basis, supported by productivity gains, India’s ability to absorb large capital inflows, and a conscious policy effort to compress the current account deficit from the 3-4 percent of GDP levels seen in 2013. That framework, however, has begun to fray as the global tariff regime hardens.

Expectations that India would be relatively insulated under a Trump presidency were overturned after the US imposed tariffs even on close allies such as Japan and NATO members, he said.

“We are assuming that in next 3 months we have trade deal in our hand I will assume that rupee will be nearer to its fair valuation which is at 89 buck as we speak today,” Gupta said.

Indian rupee has been under pressure since the US imposed tariffs on the most countries, including India, which led to outflows of funds from the equities and debt. In the depreciation cycle, the local currency even crossed the psychological mark of 91/USD, which prompted the Reserve Bank of India (RBI) to intervene in the spot market heavily to curb sharp volatility.

In the absence of a trade agreement, however, headwinds are expected to persist. Policymakers may have little choice but to allow the rupee to remain under-appreciated to cushion the economy against higher tariffs and weak external demand. Capital flows remain the second and equally important variable, Gupta said.

Indian rupee has remained the worst performing currency in Asia, with depreciation of 4.75 percent in 2025. The depreciation still continued so far in 2026, with a fall of 0.10 percent, according to the Bloomberg data.

Currently, the domestic currency is trading at 89.9675 against the US dollar during the afternoon trade on Wednesday amid weaker dollar and falling crude oil prices.

Further, on the inflation front, Gupta expects it to remain at 4.5 percent in FY27. This is 50 basis points higher than the RBI’s projection for Q2FY27 of 4.00 percent.

“We are still expecting to be 4-4.5 percent is of course one is base effect and the second part is that the certainty of good monsoon this year is lot lesser given the climatic conditions that the global is entering into what it was last year. So taking these two accounts we have of the view that food inflation is closer to 4 to 4.5 percent,” Gupta said.