India’s fourth-quarter GDP is expected to slow due to weaker export growth, linked to the delayed effects of tariffs. Domestic demand is described as holding up.
The Rupee is reported to be under pressure amid capital outflows tied to a PE/VC exit cycle. It is also weighed down by still soft FII inflows, despite a recent trade deal, and concerns about AI affecting India’s IT services sector.
USD/INR is forecast to rise towards 93.00 over the medium term. Some near-term support for the Rupee in March is noted, based on seasonality and expected inflows.
We’re seeing the expected slowdown in India’s economy, with recently released data confirming that Q4 2025 GDP growth eased to 6.5% due to weaker exports. While domestic consumption has been a bright spot, the export weakness is a clear drag on the overall picture. This aligns with the lagged effect of trade tariffs we observed building throughout 2025.
This economic picture is pressuring the Rupee, which is struggling amid ongoing capital outflows from the private equity space. Adding to this, FIIs have been net sellers, with January 2026 data showing a net outflow of nearly $2 billion from equities. Concerns are also mounting over the IT services sector’s future as AI adoption by clients in North America begins to bite into billable hours.
Given these headwinds for the Rupee, we see a clear path for USD/INR to climb towards the 93.00 level over the next few months from its current spot around 90.50. Traders should consider positioning for this upward move through strategies like buying USD/INR call options or establishing bull call spreads. This outlook reflects the fundamental weakness we are tracking in capital flows.
However, we must be tactical in the immediate weeks ahead, as a short-term dip in USD/INR is possible in March. This potential relief often comes from seasonal factors like year-end fiscal inflows, a pattern we also observed in March 2025. This temporary Rupee strength should be viewed not as a trend reversal, but as a more attractive entry point to build or add to long USD/INR positions.
