When 3 Billion Dollars Worth of Rupees Vanishes: What India's Currency Crisis Means for ETF Investors

India’s economic growth story remains compelling, but the currency market is telling a different tale. As the Indian rupee crashed to an unprecedented low against the U.S. dollar—touching 92 per USD—a massive reallocation of capital worth roughly 3 billion dollars in rupees has forced investors to reassess their positions in India-focused exchange-traded funds. This currency crunch creates both risks and opportunities for those looking to gain exposure to one of the world’s fastest-growing economies.

The paradox facing today’s investors is striking. While India’s fundamental economic strength appears intact with improved growth projections, the rupee’s weakness has created a complex investment landscape. Investors must understand what’s driving this currency pressure before deciding whether India’s equity ETFs—many managing billions in assets—represent a compelling buying opportunity or a cautionary tale.

The Perfect Storm: Multiple Pressures Collapsing the Rupee

The rupee didn’t weaken in isolation. Instead, a convergence of external and internal pressures has hammered the currency, with foreign investors pulling capital worth 3 billion dollars in rupees equivalent from India’s stock market. Understanding these drivers is crucial for ETF investors navigating this volatile period.

Foreign Money Fleeing to Safer Ground

The most visible pressure has come from foreign portfolio investment (FPI) outflows. During 2025, international investors withdrew nearly $18 billion from Indian equities, seeking refuge in gold and other safe-haven assets amid escalating geopolitical tensions. This exodus accelerated into the new year, with hundreds of millions in foreign capital exiting during the first trading sessions of January alone. As global uncertainty mounted—particularly around Washington’s rhetoric on trade tariffs and geopolitical disputes—investors rotated money toward cheaper emerging markets like China or tax-advantaged jurisdictions.

Geopolitical Shocks and Trade Tensions

Recent diplomatic tensions and trade uncertainty have disproportionately hurt India. A stalled U.S.-India trade negotiation combined with broader “risk-off” sentiment in global markets created additional selling pressure. Meanwhile, India’s massive trade deficit—exceeding $25 billion monthly due to surging energy and electronics imports—forced domestic corporations to aggressively purchase dollars for hedging, compounding downward pressure on the local currency.

The Import Squeeze

As a resource-dependent economy heavily reliant on crude oil and semiconductor imports, India faces a structural challenge. Rising commodity prices and import costs have forced businesses to lock in dollar purchases, creating sustained demand for foreign currency and further weakening the rupee’s position.

A Divided Outlook: Currency Weakness Meets Economic Strength

This divergence between currency performance and economic fundamentals creates an unusual situation. While the rupee may continue facing pressure—particularly if U.S. interest rates remain elevated or geopolitical tensions persist—India’s economy is performing better than many peers. The International Monetary Fund recently upgraded India’s 2026 growth forecast to 6.4%, suggesting that despite currency headwinds, the underlying economic “engine” remains powerful.

For ETF investors, this creates what appears to be a classic value opportunity: purchasing exposure to fundamentally sound Indian companies at currency-adjusted discounts. However, the path forward requires caution. The further decline risk in the rupee and the unpredictable flow dynamics of foreign capital remain significant concerns when sizing India exposure.

Three Billion Dollars at Stake: Examining India’s Leading ETFs

When evaluating India-focused ETF options, three funds stand out as major players in the space, collectively managing assets worth billions of dollars converted into rupees. Each offers distinct characteristics worth comparing.

WisdomTree India Earnings Fund (EPI)

With $2.58 billion in assets, EPI provides broad exposure to 557 profitable Indian companies. The fund’s portfolio emphasizes financial heavyweights, with Reliance Industries (7.05%), HDFC Bank (5.75%), and ICICI Bank (5.25%) comprising its top three positions. Despite the recent market volatility, EPI has delivered a modest 2.4% return over the trailing year, charging 84 basis points in annual fees. The fund’s focus on profitable enterprises provides some buffer against currency volatility, though the high fee structure deserves consideration.

Franklin FTSE India ETF (FLIN)

This $2.75 billion fund focuses on large and mid-cap Indian securities, holding 276 companies. Its top holdings mirror EPI’s concentration in banking and energy: HDFC Bank (6.63%), Reliance Industries (6.04%), and ICICI Bank (4.53%). FLIN has also gained 2.4% over the past year while charging a significantly lower 19 basis points in fees—a substantial advantage over alternatives. The lower cost structure makes FLIN particularly appealing for buy-and-hold investors.

First Trust India NIFTY 50 Equal Weight ETF (NFTY)

The smallest of the three with $160.9 million in assets, NFTY tracks India’s 51 largest and most liquid securities on the National Stock Exchange with equal weighting. This approach provides exposure to Tata Steel (2.28%), Hindalco (2.24%), and JSW Steel (2.20%), giving investors broader sector representation beyond banking and energy. NFTY has outperformed its peers with a 3.5% annual gain, though it charges 81 basis points.

Making the Call: Balancing Opportunity and Risk

The 3 billion dollars in rupees representing recent foreign investor outflows underscores the real capital at stake. While the rupee’s weakness creates a genuine opportunity to purchase quality Indian equities at adjusted valuations, investors must acknowledge the risks. Currency depreciation could accelerate if geopolitical tensions worsen or if capital flows reverse unexpectedly.

The selection among EPI, FLIN, and NFTY depends on individual investment philosophy. Those prioritizing cost efficiency and large-cap exposure should consider FLIN’s ultra-low fee structure. Investors seeking exposure to equal-weighted smaller names may find NFTY’s diversification appealing despite higher fees. EPI offers middle ground but at premium cost.

Ultimately, India’s long-term growth narrative remains intact despite near-term currency turbulence. The key is entering at appropriately cautious position sizes while remaining attentive to further rupee pressure and capital flow developments. For investors confident in India’s economic trajectory, the current opportunity—powered by 3 billion dollars in rupees worth of repositioning—may present an attractive entry point despite the underlying volatility.