Despite the staggering GDP figure, the Indian rupee fell to new lows. The solid Q2 GDP report was overshadowed by FII outflows and uncertainties around the US-India trade pact, which kept the rupee trading well below the 89.50/$ barrier. The currency fell significantly from its November low of 89.49/$.
Despite the spectacular Q2 GDP numbers, the decline occurred. In Q2, the economy grew by 8.2%, far more than the 7.3–7.5% increase that was anticipated overall. The rupee, which is still under pressure from importer hedging activities, the lack of movement on a US-India trade deal, and a less favorable balance of payments position, has not benefited much from the strong growth.
The market is being affected by the ongoing delays in US-India trade as well as the uncertainty surrounding the future of exports. The majority of money market observers think that the burden on rupee depreciation to provide that balance increases with the length of time there is no trade agreement.
Over $16 billion has been taken out of Indian shares by foreign investors so far this year. For the past five months, they have been net sellers of equities. Investors were alarmed by this and the October trade imbalance, which was at an all-time high. Furthermore, international investors were discouraged from opening new positions in the Indian market by the Dollar Index’s hovering around 99.
Many economists noted that they were waiting for a better balance of payments backdrop that may allay any worries about financial stability emerging from further monetary easing, even though that is not a formal mandate. India’s current account deficit (CAD) decreased to 0.2% of GDP during Q1FY26, according to September data. Another reason to be concerned is the nominal GDP for Q2. It stayed muted at 8.7%, far below the 10% two-year average. The economy’s main concerns were highlighted by the combination of weak nominal GDP and capex trailing. Sentiment was also affected by this.
