Will RBI’s new measures to support rupee affect overseas investments? Experts explain
The Indian rupee appreciated 93 paise against the US dollar on Monday, marking its steepest single-day gain in more than six months, after the Reserve Bank of India (RBI) announced measures to curb speculative activity in the foreign exchange market.
The domestic currency closed at 95.78 against the dollar, compared with its previous close, after opening at 95.61. During the session, it touched a high of 95.57 and a low of 95.96.
The RBI announced a series of measures on Saturday to strengthen the rupee and improve conditions in the forex market. The steps included tighter rules for foreign exchange derivatives transactions and a requirement for banks to maintain a 20% reserve against dollar purchases exceeding $2 million.
The central bank also directed authorised dealers not to permit users to rebook cancelled foreign exchange derivative contracts involving the Indian rupee, whether deliverable or non-deliverable.
The RBI also opened a special window for three public sector oil marketing companies—Indian Oil Corp., Hindustan Petroleum Corp. and Bharat Petroleum Corp.—to meet their daily dollar requirements through designated banks.
Experts said excessive dollar buying and leveraged positions can intensify currency volatility and increase pressure on the rupee.
By raising the cost of certain transactions and restricting the rebooking of cancelled derivative contracts, the RBI aims to discourage speculative activity and promote orderly market conditions.
The measures could influence exchange-rate movements, although the rupee's direction will also depend on factors such as global dollar trends, crude oil prices, foreign investment flows and geopolitical developments.
Vijay Kuppa, CEO at InCred Money, said: “The RBI’s latest measures are aimed at curbing excessive speculation and demand for dollars, and stabilising the rupee, which has come under pressure from elevated crude oil prices, foreign capital outflows and global uncertainty.”
“RBI is not defending a particular level of the rupee. It is managing the pace of the fall. This year the currency has faced pressure from several directions at once: elevated crude oil prices, rising global bond yields and continued foreign portfolio outflows,” said Aditya Agarwala, Co-Founder & CIO at InvestValue Capital Pvt. Ltd. “The message is simple. RBI wants dollar demand to come from genuine trade and hedging needs, not leveraged bets against the rupee.”
For Indian investors holding US stocks, international mutual funds or overseas exchange-traded funds (ETFs), exchange-rate movements can significantly affect returns in rupee terms.
Overseas investments generate returns from two sources: changes in the value of the underlying asset in foreign currency and movements in the exchange rate.
When the rupee depreciates against the dollar, the rupee value of existing dollar-denominated investments generally increases, assuming the underlying asset's dollar value remains unchanged. Conversely, rupee appreciation reduces its value.
For example, if a US stock remains unchanged in dollar terms but the rupee depreciates by 5%, the investment's rupee value would rise by approximately 5%, before costs and taxes. If the rupee appreciates by 5%, the rupee value would decline by approximately 5%, all else being equal.
The rupee's depreciation during 2026 had therefore provided a currency-related boost to some Indian investors' overseas holdings, in addition to returns generated by the underlying investments.
However, the actual impact varies according to the investment's performance, the exchange rate at the time of purchase and sale, and whether the fund uses currency hedging.
“The flip side matters too. Fresh investments now cost more because each dollar buys fewer rupees. And if RBI’s measures succeed in stabilising the rupee, or the currency recovers sharply as it did in April after the first set of curbs, part of that currency gain can reverse quickly. So investors should not mistake rupee depreciation for fund performance. Look at returns in the fund’s base currency first, then treat the rupee as a separate, volatile layer,” said Agarwala.
Ankur Choudhary, CEO and Co-founder at Belong, said: “The right approach is to evaluate international investments in the context of the investor’s overall portfolio, investment horizon and future currency needs, rather than treating short-term currency movements as a standalone investment signal.”
Experts recommend that investors distinguish between the currency risks affecting fresh overseas investments and existing foreign holdings.
A weaker rupee makes new overseas investments more expensive in rupee terms, while a stronger rupee reduces the rupee value of existing foreign assets.
Long-term investors can consider staggering overseas investments instead of converting a large sum at a single exchange rate. Maintaining an appropriate allocation to domestic assets and reviewing the currency exposure of international funds can also help manage portfolio risk.
Currency hedging through permitted instruments may be another option where suitable. However, hedging involves costs and can reduce gains if the exchange rate moves favourably.
Experts say investors should treat international exposure primarily as a portfolio-diversification decision rather than a short-term currency bet. Investment horizon, risk tolerance, costs and overall asset allocation should guide decisions on overseas investments and currency exposure.
With a distinguished career spanning nearly two decades at the highest levels of financial journalism, Rajendra Kumar Saxena stands as a cornerstone of the editorial leadership team at Livemint.com. In his current capacity as Content Editor, he is responsible for managing the comprehensive editorial lifecycle of the publication. His role is multifaceted, encompassing the strategic selection of high-impact stories, original reporting, and meticulous editing. <br> Furthermore, Rajendra is instrumental in executing a sophisticated Search Engine Optimization (SEO)-driven content strategy, ensuring that the platform's digital content reaches a global audience while maintaining the highest standards of journalistic integrity and accuracy prior to publication. <br> Rajendra’s professional journey is characterized by a profound expertise in a wide array of critical sectors. His analytical depth covers global economics, commodities, and stock market dynamics (across both Indian and United States landscapes). <br> Beyond the financial markets, he possesses a keen understanding of political affairs, banking and finance, foreign affairs, and the rapidly evolving technology sector. <br> His eighteen years journey in financial and business journalism includes a significant tenure at Financialexpress.com and freelance contributions to The Hindu. <br> Currently based in Delhi, Rajendra holds a Master of Journalism degree from the prestigious Makhanlal Chaturvedi National University of Journalism and Communication (MCNUJC). His blend of academic rigor and decades of on-the-ground experience makes him a leading voice in navigating the complexities of today’s financial world.
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