Why Stock Market Holds Ground, When Rupee Falls

The Indian rupee has fallen sharply this year, losing around 6 per cent against the US dollar. The decline started after the tariffs imposed by the US President Donald Trump on Indian goods triggered heavy selling in the currency market. Foreign Institutional Investors (FIIs) have withdrawn about 1.6 trillion rupees (around 18.4 billion US dollars) from Indian equities in 2025 so far. In December alone FIIs sold about 17,955 crore rupees. This has also taken a heavy toll on Indian rupee.

Nifty weathers global headwinds

However, Indian equity indices have shown resilience. The Nifty 50 index has been range-bound between 25,250 and 26,300 for several months. The optimistic views about the India-US trade deal have helped the index stay at the upper end of this range.
Market watchers point out that while the rupee reflects external stress, the stock market is supported by strong domestic participation and the government measures.

According to experts, the stock market benefits from a balance that the currency market lacks. When indices such as the Nifty 50, Bank Nifty, or Sensex faced headwinds, domestic institutional investors and retail investors came to the rescue, pushing the market to the upper side.

Reforms undertaken by the Central Government, such as GST rationalisation, lifting of income tax slabs, other tax reforms and the Securities and Exchange Board of India (SEBI)'s lowering of mutual fund fees, have also helped the market remain stable even as foreign investors continue to withdraw funds. With a lower expense ratio, fund managers will have more liquidity to counter foreign investor selling.

Marcellus Investment Managers, in their November-December 2025 portfolio insights, noted that India's equity markets remain stable because of significant domestic liquidity. They explained that policymakers are tolerating currency depreciation to aid exports and make the products competitive in international markets. At the same time, retail and institutional flows are acting as shock absorbers for equities, keeping valuations high even when the rupee shows weakness.

What Investors Can Do

According to the Enrich Money blog, investors should adopt a trading strategy suitable to the current environment. Long-term investors are urged to rely on large-cap stocks and multi-asset exchange-traded funds linked to domestic growth.

Traders may find opportunities in sectors sensitive to interest rates, such as banking, metals, and real estate. Debt investors are encouraged to use short-duration bond funds or target-maturity ETFs ahead of further monetary easing. Risk-averse investors may prefer hybrid funds and gold ETFs, which can act as inflation hedges.

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