Dollar vs rupee: How currency fluctuations impact Indian investments in US markets

The Indian rupee’s steady decline against the US dollar has been a subject of concern for policymakers, businesses and consumers alike. The currency recently breached the Rs87 mark, having fallen from Rs74.5 on January 1, 2022, to Rs87.39 as of March 3, 2025. This depreciation has led to higher import costs, a widening trade deficit and pressure on India’s current account balance. However, for Indians looking to invest in US markets, this seemingly negative trend presents a strategic advantage.

Because when the rupee weakens, US dollar-denominated investments become more valuable in rupee terms. Historically, the rupee has depreciated at an average rate of 3-4 per cent per year, effectively offering Indian investors an additional layer of returns beyond the performance of US assets themselves.

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For the uninitiated, India’s economic history is marked by a persistent depreciation of the rupee against the dollar, a reflection of inflation differentials, capital flows and macroeconomic imbalances. The numbers speak for themselves:

• 1947: $1 = Re1

• 2010: $1 = Rs45

• January 2022: $1 = Rs74.5

• 2024: $1 = ₹83+

• March 3, 2025: $1 = Rs87.39

This long-term trajectory shows a fundamental reality: currency depreciation is not an anomaly, but a structural trend. For Indian investors with US dollar exposure, this trend has historically amplified overall returns when repatriating gains to Indian rupee.

How weakening rupee can improve returns

To illustrate the impact of rupee depreciation, let’s consider you invested $10,000 in US stocks from January 2022 to January 2025.

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Assuming you allocated $10,000 to US stocks when the exchange rate stood at Rs74.5 per USD, you basically had to invest Rs7,45,000. Over the next three years, assuming an annual return of 15 per cent, the investment grew to $15,209 by January 2025, which is worth Rs13,07,974 in rupee terms, reflecting a total gain of Rs5,62,974 over the initial investment.

However, since the rupee annually depreciated 4.89 per cent from Rs74.5 per USD to Rs86 per USD - a fall of 15.4 per cent, your actual annualised growth would be an impressive 20.6 per cent.

The reason? Returns for Indian investors in US stocks are a combination of two factors: market performance and currency depreciation. While the US stock market itself delivered a 15 per cent return, the rupee’s depreciation of 15.4 per cent (from Rs74.5 to Rs86 per USD) further boosted returns.

Looking at both your stock market gains and the currency changes together, your total return grows significantly. Here’s how it works:

- Stock market return: 15%
- Currency depreciation: 4.89% annually
- Additional boost from combining both factors: 15% × 4.89% = 0.73%
- Total annualized return: 15% + 4.89% + 0.73% = 20.6%

(Note: The stock return is multiplied by the currency depreciation rate because the currency effect applies to both your original investment AND the gains you made. This creates an additional boost on top of the two individual returns.)

This shows how the falling rupee actually works in your favor as an Indian investor in US markets. It’s like getting a bonus on top of your investment returns.

The best part? Even if your US stocks had zero growth, the weakening rupee alone would still have given you a positive return when converting back to Indian rupees.

Zero market scenario

Let’s now assume your US investments delivered zero returns. You would still have made a 15.4 per cent absolute return between January 2022 and January 2025 – equivalent to a CAGR of 4.89 per cent – due to rupee depreciation.

The last word

While a declining rupee poses macroeconomic challenges, the historical 3-4 per cent annual rupee depreciation serves as a structural buffer.

Moreover, investing in the US also brings forth much-needed geographical diversification. It can serve as both a hedge against domestic risks and a tool for long-term wealth creation.

The author is Founder & CEO, Appreciate. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.