For NRIs earning in stronger foreign currencies such as dollars, pounds or dirhams, investing in India can offer greater rupee purchasing power. However, according to The Economic Times, experts caution that currency strength alone does not make someone a better investor. Rohit Sarin, Co-Founder of Client Associates, emphasized that "a stronger earning currency gives an NRI greater purchasing power in India, but it does not make them a better investor." The distinction is crucial as an NRI may be able to buy more Indian assets with the same amount of foreign currency than a domestic investor, but this doesn't determine whether the asset itself is attractive. As The Economic Times reports, a stock can be expensive regardless of whether it is bought with dollars or rupees, and a property can generate poor returns even if it appears cheap in foreign-currency terms. This is why the focus should shift away from the currency itself and towards portfolio construction, with the more important consideration being how well the portfolio is constructed and aligned to the investor's objectives.
The Indian rupee has historically depreciated by around 3-4% annually against currencies such as the US dollar and pound, creating a structural headwind for NRI investors. As reported by The Economic Times, Alekh Yadav, Head of Investment Products at Sanctum Wealth, noted that this depreciation creates challenges for NRI investing in Indian assets. However, the presence of currency headwinds doesn't automatically make Indian investments unattractive. Currency depreciation is only one part of the equation, according to Yadav, highlighting the potential for economic growth, market opportunities and active management to offset some of the currency disadvantage. India continues to grow at a faster pace than many developed economies, while parts of the Indian market remain relatively less efficient, creating opportunities for investors and skilled fund managers to generate returns above market benchmarks. The recent 7.2% rupee depreciation against the US dollar over the past year illustrates how currency movements can materially alter investment outcomes for NRIs measuring returns in dollars.
According to The Economic Times, the recent 7.2% rupee depreciation against the US dollar over the past year demonstrates how currency movements can materially alter investment outcomes for NRIs measuring returns in dollars. Sarin noted that the rupee has weakened 7.2% against the US dollar over the past year, demonstrating how currency can be both relevant and misleading. The key consideration should be how well the portfolio is constructed and aligned to the investor's objectives rather than focusing solely on currency advantages. For investors with a long-term horizon, India's growth prospects and the opportunity to find alpha in relatively less-efficient markets can potentially outweigh the drag from rupee depreciation. However, the strength of the currency an investor earns in matters less than the quality of the portfolio they build. For NRIs, the real advantage is not simply earning in dollars, but being able to use that purchasing power without allowing familiarity with India, currency movements or the country's growth story to replace disciplined investing. Experts believe the currency advantage can sometimes create a false sense of comfort, leading investors to focus too much on the rupee and not enough on the quality of their investments.
For long-term investors, India's relatively stronger growth prospects can provide a fundamental basis for capital allocation to the country. As reported by The Economic Times, Yadav believes NRIs should not view rupee depreciation in isolation. Even after accounting for currency movements, Indian equities and other assets can potentially deliver attractive returns if the underlying investment thesis plays out. The opportunity becomes particularly interesting in areas where active managers can identify companies or sectors that the broader market may be underappreciating, though this doesn't mean every Indian asset is automatically attractive. For an NRI investor, the India allocation cannot simply be a bet on economic growth - the price paid for that growth matters. A strong economy can continue to expand while an investor earns disappointing returns if valuations have already priced in too much optimism. This makes valuation discipline particularly important for overseas investors who may be tempted to increase their India exposure simply because the country remains one of the faster-growing major economies.
