Experts decode rupee's weakness and outline equity strategy for India vs Asia

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At previous close, the Sensex was down -436.41 points (-0.51 percent) at 84,666.28, and the Nifty was down -120.90 points (-0.47 percent) at 25,839.65

The Indian rupee is charting a divergent path from global currency trends, hitting fresh lows even as the dollar index weakens, a phenomenon attributed primarily to significant foreign capital outflows from the nation's bond market. Concurrently, Indian equities are finding it difficult to compete with their North Asian counterparts, which are demonstrating stronger earnings and currency stability.

Speaking on CNBC TV18, Anindya Banerjee, Head of Currency & Commodity Research, Kotak Securities, explained the perplexing situation. "If you look at the dollar index, the USD-INR move is not making sense. But when we go deeper…the US bond yields have hardened…because of which what is happening, we are seeing outflows from the Indian bond market," he said. Banerjee noted that foreign portfolio investors (FPIs) have pulled out approximately $2.5 billion from Indian debt and equity markets in December alone, which is the primary factor weighing on the rupee.

He added that while the Reserve Bank of India (RBI) is intervening, it is doing so sporadically and may need to act more decisively around the 91-per-dollar level to prevent a further slide. According to Banerjee, the central bank appears comfortable with a gradual depreciation as low domestic inflation allows it to use a weaker currency to support the export sector in a "trade war environment."

This currency headwind is a critical factor influencing foreign investor sentiment towards Indian equities. Market strategist Manishi Raychaudhuri -- CEO of Emmer Capital Partners -- highlighted the stark comparison between India and the rest of Asia. He pointed out that of the three key variables influencing equity markets—earnings, currency, and interest rates—only interest rates have been in India's favour.

"We are still waiting for the currency to stabilize. We are still waiting for earnings estimates to move up…rest of Asia, particularly the North Asian markets are doing way better," Raychaudhuri stated. This performance gap, he argued, is becoming increasingly evident to foreign institutional investors (FIIs) and is reflected in their recent selling activity in India.

Delving deeper into the regional comparison, Raychaudhuri emphasized the growing appeal of North Asian technology stocks over Indian IT services. He concurred with the view that even after a significant rally in 2025, South Korean chipmakers like SK Hynix and Samsung Electronics still trade at attractive single-digit price-to-earnings (P/E) multiples. These companies, along with Taiwan's TSMC, are seen as key "AI enablers" with strong business moats. "These Asian champions…are one universe that he can look at," Raychaudhuri said, suggesting they offer a cheaper entry into the artificial intelligence theme compared to their highly-valued US counterparts. In sharp contrast, he described Indian IT services as potential "AI losers," whose traditional business models face significant disruption and risk until they successfully reinvent themselves.

Looking ahead to 2026, Raychaudhuri revealed a nuanced investment strategy. His firm has recently moved to a "marginal overweight" on India within its Asia ex-Japan portfolio, alongside overweight positions in Hong Kong, China, and Korea. Within India, he favours several sectors. "The private sector banks…the outperformance is just beginning to set in over there," he said.

He also expressed bullishness on consumer discretionary stocks, including autos and healthcare chains, and select conglomerates like Reliance Industries, which recently saw an earnings upgrade. Furthermore, Raychaudhuri maintains a positive stance on industrials, holding stocks like Larsen & Toubro and Adani Ports, citing the sustained government focus on infrastructure and a global infrastructure boom. Defence is another long-term theme he believes will gain prominence amid geopolitical tensions.