But does earning in a stronger currency automatically make an NRI a better investor?
Not quite.
Currency can certainly influence the eventual returns from an India-focused portfolio, but wealth creation ultimately depends on what an investor buys, at what valuation, for how long and how well the portfolio is aligned with their objectives.
In fact, 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.
“A stronger earning currency gives an NRI greater purchasing power in India, but it does not make them a better investor,” said Rohit Sarin, Co-Founder of Client Associates.
ETMarkets.comThe rupee headwind cannot be ignored
For NRIs, investing in India comes with an additional layer that domestic investors do not have to deal with to the same extent: currency risk.If an investor earns and ultimately measures their wealth in dollars or pounds, the return generated by a rupee-denominated investment needs to be viewed in the context of how the Indian currency moves against their home currency.
Alekh Yadav, Head of Investment Products at Sanctum Wealth, pointed out that the Indian rupee has historically depreciated by around 3–4% annually against currencies such as the US dollar and pound. That creates a structural headwind for an NRI investing in Indian assets.
But the presence of a currency headwind does not automatically make Indian investments unattractive.
The key is whether the underlying investment can generate enough returns to compensate for the currency impact.
India continues to grow at a faster pace than many developed economies, while parts of the Indian market remain relatively less efficient. That creates opportunities for investors and skilled fund managers to generate returns above market benchmarks.
“Currency depreciation is only one part of the equation,” Yadav said, highlighting the potential for economic growth, market opportunities and active management to offset some of the currency disadvantage.
A stronger currency can improve purchasing power, not investment skill
The distinction is subtle but important.
An NRI may be able to buy more Indian assets with the same amount of foreign currency than a domestic investor can with an equivalent rupee income. But that does not tell us whether the asset itself is attractive.
A stock can be expensive regardless of whether it is bought with dollars or rupees. A property can generate poor returns even if it appears cheap in foreign-currency terms. And a portfolio can be poorly constructed irrespective of the investor’s income currency.
This is why Sarin believes the focus should shift away from the currency itself and towards portfolio construction.
“For us, the more important consideration is how well the portfolio is constructed and aligned to the investor’s objectives,” he said.
That means an NRI should ideally begin with questions around goals, risk tolerance and investment horizon rather than starting with the assumption that India is attractive simply because their foreign earnings have greater purchasing power in rupee terms.
India’s growth story still matters
The currency argument also needs to be viewed against India’s broader economic trajectory.
India’s relatively stronger growth prospects can provide a fundamental basis for allocating capital to the country. For long-term investors, the potential expansion of corporate earnings and the development of the economy can matter considerably more than short-term currency fluctuations.
Yadav believes this is one reason 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.
However, that does not mean every Indian asset is automatically attractive.
The India story still needs valuation discipline
Being bullish on India and being bullish on every Indian stock are two very different things.
Sarin said Client Associates remains overweight on Indian equities, but sees relatively greater attractiveness in large-cap stocks based on valuations.
That distinction is important at a time when different segments of the Indian equity market are trading at very different valuation levels.
For an NRI investor, therefore, 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.
The 7.2% rupee move is a reminder—not an investment thesis
The recent movement in the rupee also illustrates why currency can be both relevant and misleading.
Sarin noted that the rupee has weakened 7.2% against the US dollar over the past year. For an NRI measuring returns in dollars, that movement can materially alter the final outcome of a rupee investment.
But the important takeaway is not that NRIs should avoid India because the rupee may weaken.
Instead, currency should be treated as one of the risks embedded in the overall investment decision.
An NRI investing in Indian equities, for example, is taking a view on corporate earnings, valuations and India’s economic prospects, while also accepting currency exposure. The currency movement can enhance or reduce the eventual return, but it should not replace the investment thesis itself.
What Should Investors Do?
The perception that NRIs have an automatic investing advantage because they earn in dollars, pounds or dirhams is only partly true.
They may enjoy greater purchasing power when investing in India, but that advantage does not eliminate currency risk, valuation risk or portfolio-construction risk.
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, according to Yadav.
At the same time, Sarin’s point is equally important: the strength of the currency an investor earns in matters less than the quality of the portfolio they build.
For NRIs, then, the real advantage is not simply earning in dollars.
It is being able to use that purchasing power without allowing familiarity with India, currency movements or the country’s growth story to replace disciplined investing.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
