Rupee Weakness and FII Returns: How a ₹10 Lakh Portfolio Lost Value Against the Dollar

The Indian rupee has recently crossed a significant threshold, hitting ₹85.50 against the US dollar. This rupee depreciation December 2025 is causing ripples across investment circles, especially among foreign institutional investors (FIIs) and domestic investors holding foreign currency-linked assets. The rupee 85.50 dollar impact is more than just a number—it directly affects the returns of portfolios valued in Indian rupees when converted back to dollars. This blog explores how currency risk Indian investments face, focusing on a ₹10 lakh portfolio and the real loss in dollar terms due to rupee weakness.

Understanding Rupee Depreciation December 2025

Currency depreciation happens when the value of a country's currency falls relative to another currency. In December 2025, the rupee’s slide to ₹85.50 per dollar marks a significant weakening compared to previous levels. This rupee depreciation December 2025 is driven by multiple factors:

• Rising crude oil prices increasing India’s import bill

• Higher US interest rates attracting capital away from emerging markets

• Global geopolitical tensions affecting investor sentiment

• Domestic economic challenges slowing growth prospects

  
  

For investors, especially FIIs, this rupee weakness means that even if their Indian assets perform well in local terms, the returns may shrink when converted back to dollars.

How Rupee 85.50 Dollar Impact Affects FII Returns

Foreign institutional investors bring significant capital into Indian markets, attracted by growth potential and higher yields. However, currency risk Indian investments carry can erode these gains. Consider a ₹10 lakh portfolio invested by an FII:

• Suppose the portfolio was worth ₹10 lakh when the exchange rate was ₹75 per dollar.

• At ₹75, the portfolio’s dollar value was approximately $13,333.

• With the rupee now at ₹85.50, the same ₹10 lakh is worth about $11,695.

• This means a loss of $1,638 purely due to currency depreciation, even if the portfolio’s rupee value remains unchanged.

  
  

This example highlights how rupee weakness can reduce FII returns significantly. The currency risk Indian investments face is often underestimated, but it plays a crucial role in overall portfolio performance.

Currency Risk Indian Investments Face Beyond FII Returns

Currency risk is not limited to foreign investors. Domestic investors with exposure to foreign assets or those who plan to repatriate funds abroad also face this challenge. Importers and exporters feel the impact differently:

• Importers pay more rupees for the same dollar-priced goods, increasing costs.

• Exporters receive more rupees for their dollar earnings, potentially boosting profits.

  
  

For portfolio managers and finance students studying currency risk, understanding these dynamics is essential. Hedging strategies can help mitigate losses, but they come with costs and complexities.

Practical Steps to Manage Currency Risk

Investors can take several steps to protect their portfolios from the rupee 85.50 dollar impact:

• Diversify currency exposure: Avoid concentrating investments in a single currency.

• Use hedging instruments: Currency futures, options, and forward contracts can lock in exchange rates.

• Invest in assets with natural hedges: Companies with balanced import-export operations may offset currency swings.

• Monitor macroeconomic indicators: Stay informed about interest rate changes, inflation, and geopolitical events.

• Consult financial advisors: Tailored advice helps align currency risk management with investment goals.

  
  

For a ₹10 lakh portfolio, even small percentage changes in exchange rates can translate into thousands of dollars lost or gained. Awareness and proactive management are key.

What This Means for NRIs and Domestic Investors

Non-resident Indians (NRIs) tracking India investments should pay close attention to rupee depreciation December 2025. Currency risk Indian investments carry can affect the value of their holdings when converted to their country of residence currency. Similarly, domestic investors with foreign currency exposure need to understand how rupee weakness impacts their net worth.

Portfolio managers must factor in currency fluctuations when reporting returns and advising clients. Hedging currency risk is not just about protecting profits but also about reducing volatility and uncertainty.