Global funds ready for further Rupee weakness with 100 in sight

Firms including Aberdeen Investments, MetLife Investment Management and Gamma Asset Management SA say the rupee hitting three digits versus the greenback remains a possibility, as a prolonged stalemate in the US-Iran war pushes up India’s oil import bill and drives investors toward the greenback.

“The rupee remains vulnerable to further depreciation, and 100 against the dollar is an important psychological threshold that investors will increasingly focus on,” said Rajeev De Mello, global macro portfolio manager at Gamma Asset. “The most immediate catalyst for a break of the level would be another leg higher in oil prices.”

The rupee was already under pressure before the Middle East conflict began, weighed down by widening external balances and foreign fund outflows. The oil shock has since compounded the pressures, stoking speculation over how far the currency could fall.

For global funds invested in Indian equities and bonds, currency losses can quickly erode local gains. They have bought just $1.3 billion of local index-eligible debt so far in 2026, while pulling a record $23 billion from stocks.

Live Events

Agencies

Indian Bonds See Modest Inflows Amid War Risks

Talk of the rupee weakening to 100 gathered pace after it slid through 95 and then 96 in rapid succession. On Wednesday, the currency fell close to the 97 mark, before the central bank stepped in to trim losses, traders said. The unit has dropped over 7% year-to-date — well above the 3% to 4% annual depreciation rate that the central bank has flagged as normal given India’s higher inflation relative to peers.

Read More: Here’s a Look at India’s Measures to Stem Hit From Oil ShockBank economists are revising their forecasts as pressure on the rupee mounts. Kotak Mahindra Bank now sees the currency trading between 93 and 99 per dollar. Australia and New Zealand Banking Group expects the rupee to weaken to 97.5 by year-end, from an earlier forecast of 93, while HSBC Holdings Plc has lowered its target to 95.5 from 93.5.

Not everyone sees a one-way slide. Asian currencies have become cheaper after broad declines, raising the scope for a rebound, according to the Amundi Investment Institute.

“There is more upside surprise eventually on the appreciation side,” said Alessia Berardi, global head of macroeconomics at Amundi in London.

Still, the sharp decline has unsettled investors already anxious that central banks, including the Federal Reserve, may raise interest rates, a scenario that supports the dollar and pressures emerging-market currencies.

Both Aberdeen and Gamma Asset have been underweight on the rupee, while Neuberger Berman Group LLC said it is not looking to add positions currently.

“We have been on the bearish side in terms of resolution of the Iran conflict and have expected higher for longer oil, which naturally is negative” for India, said Edwin Gutierrez, head of emerging market sovereign debt at Aberdeen.

Investors are also watching how aggressively the Reserve Bank of India would respond if the currency nears 100. While the authority has said it seeks to smooth volatility rather than defend a specific level, some investors say a rapid slide could prompt heavier intervention.

A fall toward the 100-mark would “raise the required risk premium, making yield compensation and policy choices central for investors,” said Anders Faergemann, portfolio manager in the EM team at MetLife.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)