How Global ETF Investors Should Navigate India's Currency Crisis

The Indian rupee has been under intense pressure in early 2026, hitting unprecedented lows against the U.S. dollar just as the country marked its Republic Day. For global ETF investors, this currency crisis presents both significant challenges and potential opportunities within India’s equity markets. While India’s economic fundamentals remain solid—the IMF recently upgraded the country’s 2026 growth forecast to 6.4%—the broader macroeconomic environment has created a complex landscape that demands careful analysis before deploying capital into India-focused global ETF positions.

The contrast is striking: India’s domestic productivity is outpacing many peers, yet its currency has become increasingly volatile. As of late January 2026, the rupee touched 92 per USD, representing an all-time low. The MSCI India Index experienced a 6.4% decline during the same period, significantly lagging behind economic growth projections. This disconnect between growth potential and market performance has drawn the attention of global portfolio managers seeking to exploit potential valuation opportunities through India ETFs.

Why Global Investors Are Watching India’s Currency Crisis

The rupee’s recent weakness stems from several interconnected pressures that have particular relevance for international investors:

Foreign Capital Flight

Throughout 2025, global investment funds withdrew approximately $18 billion from Indian equities as market participants sought safer alternatives amid heightened uncertainty. This exodus accelerated into 2026, with $846 million withdrawn during the first two trading days of January alone. Major institutional investors rotated capital toward cheaper valuations in alternative emerging markets and defensive “tax-haven” assets, creating downward pressure on India’s currency.

Geopolitical Uncertainty and Trade Tensions

Washington’s recent rhetoric around the Greenland dispute and potential tariff escalation has created a broader “flight to safety” sentiment across markets. Negotiations for a key U.S.-India trade agreement stalled in early 2026, adding to investor concerns. These headwinds have disproportionately impacted India, which relies heavily on global market confidence.

Widening Trade Deficit Pressures

As a major energy and electronics importer, India’s trade gap has expanded beyond $25 billion in recent months. Surging crude oil costs and elevated bullion prices have forced Indian companies to aggressively purchase dollars for hedging, intensifying rupee depreciation. This dynamic creates a self-reinforcing cycle that concerns foreign portfolio managers.

The Paradox: Weak Currency, Strong Economy

Despite these headwinds, the fundamental picture remains encouraging for global ETF investors willing to accept near-term volatility. The IMF’s upgraded growth projection—raised by 20 basis points—signals continued productivity gains even as the currency “price” of the economy declines. This creates a classic scenario that contrarian investors find attractive: fundamentally sound assets available at currency-adjusted discounts.

For international shareholders in India ETFs, rupee depreciation can function as a double-edged sword. While it increases foreign currency risk, it simultaneously prices Indian equities more attractively to global capital when converted back to investor home currencies at favorable rates. However, this advantage relies on the assumption that rupee weakness will stabilize or reverse once geopolitical tensions ease and capital flows normalize.

Analysts caution that further devaluation remains possible if the Fed maintains elevated interest rates or geopolitical risks intensify. Investors must size their India exposure carefully, balancing the compelling growth narrative against genuine currency volatility risks.

Top Global ETF Options for India Exposure

For international investors evaluating India ETF positions, three prominent vehicles merit consideration:

WisdomTree India Earnings Fund (EPI)

With $2.58 billion in assets under management, EPI provides diversified access to 557 profitable Indian companies. The fund’s largest holdings include Reliance Industries (7.05%), HDFC Bank (5.75%), and ICICI Bank (5.25%). Over the trailing twelve months, EPI has returned 2.4% despite the currency headwinds, charging 84 basis points in annual fees. For global investors seeking broad exposure to India’s quality earnings generators, this fund offers meaningful diversification across sectors.

Franklin FTSE India ETF (FLIN)

This $2.75 billion fund tracks 276 large and mid-cap Indian companies, offering a slightly larger company focus than its peers. Top holdings are HDFC Bank (6.63%), Reliance Industries (6.04%), and ICICI Bank (4.53%). FLIN has also returned 2.4% annually, though it charges lower fees at 19 basis points. The competitive fee structure makes this particularly attractive for global ETF investors building core India positions.

First Trust India NIFTY 50 Equal Weight ETF (NFTY)

Among the three options, NFTY offers the most concentrated exposure to India’s 50 largest securities through an equal-weight methodology. With $160.9 million in assets, it’s the smallest by fund size but provides differentiated access through its top holdings of Tata Steel (2.28%), Hindalco (2.24%), and JSW Steel (2.20%). NFTY has outperformed, returning 3.5% over the past year despite charging 81 basis points. The equal-weight structure may appeal to global investors seeking exposure to India’s industrial and metals complex.

Strategic Considerations for Global ETF Investors

All three funds have weathered 2025’s challenging environment with modest positive returns, suggesting that domestic Indian fundamentals are supporting valuations despite currency and flow headwinds. Global investors considering exposure should approach at current levels with an understanding that:

1. Rupee volatility will likely persist until geopolitical tensions ease significantly
2. The IMF’s upgraded growth outlook provides fundamental support for equity valuations
3. Foreign investor rotation and capital flow dynamics remain important monitoring points
4. Currency-adjusted valuations remain attractive relative to global emerging market peers

The window for establishing global ETF positions in India may narrow if the rupee stabilizes and attracts capital back, pushing valuations higher. Conversely, further currency weakness could create more attractive entry points for patient global investors willing to accept near-term volatility in exchange for long-term exposure to one of the world’s fastest-growing major economies.