No need to panic! Chris Wood of Jefferies sees rupee nearing a bottom

Indian rupee has been under sustained pressure in recent weeks, sliding to record lows against the U.S. dollar and raising fresh concerns about whether the rupee has more downside left. However, in latest GREED & fear report, Chris Wood of Jefferies believes macro fundamentals argue that the worst of the weakness may already be behind.

“GREED & fear has to admit to a certain surprise over the extent of the currency’s weakness. The hope is that this is the bottom as regards the rupee,” said the report.

Wood noted that the Indian stock market has delivered its weakest relative performance in nearly three decades in 2025, reflecting both a cyclical earnings slowdown and a sharp depreciation in the rupee.

Currency crisis unlikely

The Indian rupee has depreciated about 5.3% against the US dollar so far in calendar year 2025, breaking the psychologically important 90-per-dollar level in December.

Jefferies highlighted that India’s current account deficit for FY26 is forecast at just 0.6% of GDP, close to a 20-year low. At the same time, foreign exchange reserves stood at a healthy $687 billion as of December 5, equivalent to around 11 months of import cover.

These buffers, Wood noted, significantly reduce the risk of a disorderly currency move.

Another supportive factor is that the rupee has already corrected meaningfully on a real basis. Jefferies data show that India’s real effective exchange rate has fallen around 11% from its peak in November 2024 and is now at an 11-year low.

“The decline in the rupee has already done some of the adjustment work,” Wood said, though he cautioned that the currency is still about 12% above its trough seen in September 2013 on a long-term basis

‘No Need to Panic’: Jefferies Lists Four Reasons for Calm

Jefferies’ India research team also believes that the rupee’s recent slide has stirred anxiety, but the reaction has been disproportionate to the underlying macro picture. The brokerage stressed that the weakness reflects capital flows and positioning rather than any structural deterioration.

“We continue to believe that INR should not further depreciate and should hold the current levels,” Jefferies had said in an earlier report, adding that the currency now looks meaningfully undervalued.

It also listed key reasons:

Rupee deeply undervalued: Jefferies said the rupee has weakened about 5% against the dollar in 2025, even as the dollar index has fallen around 9% over the same period. The rupee is also down 9% versus the yuan, 16% against the euro and 11% against the pound. On this basis, Jefferies estimates the rupee is roughly 5% undervalued, making it the most undervalued in the past 12 years.

Current account risks remain contained: Jefferies said concerns over India’s external balances are overstated. Exports rose 4% year-on-year in the three months after U.S. tariffs were imposed, while strong November shipments helped cut the trade deficit by 23% year-on-year to a five-month low. With crude prices subdued, the brokerage expects the current account deficit to stay around 0.6–0.7% of GDP in FY26 and FY27, supported by services exports and remittances growing about 15% so far this year.

Capital outflows, but strong buffers: While net FDI has been weak due to private equity exits and large IPOs, Jefferies noted that gross FDI inflows remain healthy, rising 13% year-on-year to $81 billion in FY25 and a further 16% year-on-year in the first half of FY26. India’s foreign exchange reserves stood at $687 billion, up $47 billion year-to-date, giving the RBI significant capacity to manage currency volatility.

Stability, not a spiral: Jefferies’ base case is for the rupee to stabilise in the 90–91 range against the dollar over the next six to 12 months, backed by low inflation, manageable fiscal and current account positions, and strong reserve buffers. The brokerage said aggressive measures like those seen in 2013–14 are unlikely, while positives such as a U.S. trade deal and India’s inclusion in global bond indices next year could lend further support.

Some Risks

Despite a constructive medium-term outlook, Wood flagged several near-term risks for the rupee. India continues to face 50% tariffs from the US since August, which could widen the trade deficit further. The deficit has already risen 11.3% year-on-year to a record $282 billion in the first 11 months of 2025. Capital flows remain another challenge, with foreign investors selling $17.8 billion of Indian equities this year and outbound direct investment jumping 69% year-on-year to $28 billion in FY25.

“Repatriation flows and outbound investments are offsetting otherwise healthy gross FDI inflows,” Chris Wood noted. Jefferies also highlighted the RBI’s dovish tilt, with a 125 basis point repo rate cut to 5.25%, reducing carry support for the rupee despite low inflation.

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