By: Sachin Sawrikar, Founder and Managing Partner, Artha Bharat Investment Managers

Currency volatility continues to hinder foreign investment into India, particularly for global investors assessing risk-adjusted returns. While India’s long-term growth prospects remain robust, abrupt currency fluctuations significantly erode returns when repatriated to foreign currencies, diminishing India’s competitiveness against other emerging markets. Long-term investors face compressed yields from elevated hedging costs, while short-term investors encounter heightened risks of sudden capital flight.

In risk-off scenarios, these dynamics intensify as global investors retreat from emerging markets toward safe-haven currencies and sovereign bonds. India typically experiences outflows from both debt and equity markets, exerting downward pressure on the rupee. Rising bond yields reflect foreign portfolio reductions, while equity markets—especially sectors with heavy foreign ownership or external capital dependence—face amplified volatility.

Mitigating currency volatility and sustaining policy credibility are therefore essential to maintaining investor confidence during periods of global uncertainty.