A fall in the rupee is great news for exporters – right? Wrong. Indian exporters face a double-whammy. The real pain point for exporters isn’t just the US tariff shock, it is also what’s happening in the markets they’re now pivoting to.

As India redirects shipments from the US to Europe, the UK and Australia, the rupee has quietly strengthened against exactly these currencies, turning the search for alternative markets challenging in terms of profitability.

With the rupee getting stronger against other currencies, Indian products now cost more for buyers in Europe, the UK, and Australia. "Exporters receive fewer rupees for every Euro, Pound, or Australian Dollar earned, while companies must hedge or raise prices or profit margins shrink. This is a concern because these markets have become more important after the drop in US demand," said Colin Shah, MD, Kama Jewelry.

The irony is sharp: even as the rupee sinks to record lows against the US dollar, boosting export competitiveness at a time when tariff woes make Indian exports unattractive, it has appreciated against the euro, pound and Australian dollar, which are the very currencies tied to India’s fallback buyers. For exporters who are battling both weak global demand and higher tariffs, this cross-currency divergence has caused a major hit to margins.

A lot of this stems from broad dollar strength and Europe-UK specific weakness, analysts said. And while USDINR volatility dominates headlines, the moves in EURINR, GBPINR and AUDINR are where the some serious damage is accumulating.

The exporters most exposed to the tariff shift, gems & jewellery and textiles and garments, are discovering that alternative markets are not only smaller in scale, but now also more expensive to serve.

Currency moves

The Indian rupee has sunk to lifetime lows against the U.S. dollar, barrelling past the 89-mark that investors expected the Reserve Bank of India to defend. The ongoing trade tensions and imposition of lofty tariffs with the U.S. has weakened the domestic currency. However, it has reclaimed some ground against the euro, the British pound, and the Chinese renminbi.

"The rupee’s contrasting behaviour across currencies stems from broad dollar strength and Europe-UK specific weakness," Kunal Sodhani. Head of Treasury, Shinhan Bank India explained.

"Additionally, the trade deal talk between the U.S. and India has not achieved any breakthrough, which is also souring the sentiment surrounding the rupee. We have seen FIIs sustain selling in the Indian equity market, leading to capital outflows and a weaker INR," noted Bhavik Patel, senior analyst, Tradebulls Securities.

India, which was getting cheap discounted crude oil from Russia, has to buy now from other sources after sanctions of Russia’s two major refineries. Since India will have to pay for higher oil prices, it will increase additional demand for USD, further weakening the rupee.

Additionally, the USDINR pair has seen some weakening as the dollar strengthened. "The US dollar has surged on higher Treasury yields and safe-haven flows, putting pressure on most emerging-market currencies, including the INR," said Sodhani.

On the other hand, the EURINR or GBPINR have not seen much depreciation, as the euro and pound have also seen weakness. Rising inflation, higher defence allocations, trade volatility, and policy uncertainties have weighed on the euro and pound.

Patel added that higher tariffs from the U.S. (50 percent on Indian goods) are beginning to weigh on the economy, as India is struggling to find alternative markets to replace the export volumes previously shipped to the US.

"This could add further pressure on both the economy and the rupee. Unless tariffs are brought closer to 19 percent, in line with other Asian peers and competitors, the scope for the INR to appreciate against the USD remains limited," he said.

Exporters feeling the pinch

Indian exporters, especially in the gems and jewellery and textile segments, are feeling the pinch. As the tariff rates dampen the demand sentiment, exports are falling sharply.

While the stronger dollar poses as a benefit to exporters, it is not enough to offset the muted volumes. Further, other markets such as Europe and China are also seeing weakened demand due to slower economic growth, high interest rates, and cautious consumer spending. The currency in these markets has also fallen against the rupee, denting exporters' margins even further.

In the month of October, according to data released by the Gems and Jewellery Export Promotion Council, the gross exports of gems and jewellery have fallen 27 percent from Rs 26,237 crore in the same month of the previous year to Rs 19,173 crore.

"Shipments to the U.S., the country's biggest market, have dropped sharply since the tariff was introduced. Jewellery made from gold and other precious metals fell by 71.1 percent. This is one of the toughest years for the industry," said Colin Shah, MD, Kama Jewelry.

Shah added that with the US market slowing, exporters are quickly shifting to other regions. "Other growing markets are Hong Kong, the UK, Saudi Arabia, Australia, Malaysia, Oman, and France, but none of these can compare with the scale of the US."

Textiles and garments are suffering too. While Indian textile and apparel exports in CY25 are expected to decline, a significant decline in exports to the USA is expected in CY26, potentially reducing overall textile exports by 9-10 percent to ~$30 billion, according to CareEdge Ratings.

According to ICRA, as competing nations are benefiting from the differential tariffs, apparel exporters from India have been at a disadvantageous position. "Most of the exporters are seen absorbing a part of the incremental tariffs and accordingly are likely to witness compression on the margins in H2 FY2026," said K Srikumar, Senior Vice President & Co- Group Head, ICRA.

ICRA also noted that the exporters are looking at other newer markets. But given the long validation times for the product and plant by customers, immediate geographical shift in client base is unlikely. Further, with currency woes, new markets are looking more and more unattractive for Indian exporters.

Exporters' strategies to hedge

The exporters are using several strategies to shield themselves: Hedging through forward contracts to lock in exchange rates; adjusting pricing to capture currency movements, and are procuring raw materials in currencies that match their export markets to reduce mismatch risks.

"We need to monitor how the U.S. trade-tariff decisions evolve, because they can influence currencies and investor behaviour," noted Colin Shah. Most analysts concurred, adding that the boost to Indian exporters, along with the currency, will come from the finalisation of the trade deal with the U.S.

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