Will RBI’s new measures to support rupee affect overseas investments? Experts explain

(AI generated image)AI Quick ReadThe Indian rupee appreciated 93 paise against the US dollar on Monday, marking its steepest single-day gain in more than six months, after the Reserve Bank of India (RBI) announced measures to curb speculative activity in the foreign exchange market.

The domestic currency closed at 95.78 against the dollar, compared with its previous close, after opening at 95.61. During the session, it touched a high of 95.57 and a low of 95.96.

The RBI announced a series of measures on Saturday to strengthen the rupee and improve conditions in the forex market. The steps included tighter rules for foreign exchange derivatives transactions and a requirement for banks to maintain a 20% reserve against dollar purchases exceeding $2 million.

The central bank also directed authorised dealers not to permit users to rebook cancelled foreign exchange derivative contracts involving the Indian rupee, whether deliverable or non-deliverable.

The RBI also opened a special window for three public sector oil marketing companies—Indian Oil Corp., Hindustan Petroleum Corp. and Bharat Petroleum Corp.—to meet their daily dollar requirements through designated banks.

Experts said excessive dollar buying and leveraged positions can intensify currency volatility and increase pressure on the rupee.

By raising the cost of certain transactions and restricting the rebooking of cancelled derivative contracts, the RBI aims to discourage speculative activity and promote orderly market conditions.

The measures could influence exchange-rate movements, although the rupee's direction will also depend on factors such as global dollar trends, crude oil prices, foreign investment flows and geopolitical developments.

Vijay Kuppa, CEO at InCred Money, said: “The RBI’s latest measures are aimed at curbing excessive speculation and demand for dollars, and stabilising the rupee, which has come under pressure from elevated crude oil prices, foreign capital outflows and global uncertainty.”

“RBI is not defending a particular level of the rupee. It is managing the pace of the fall. This year the currency has faced pressure from several directions at once: elevated crude oil prices, rising global bond yields and continued foreign portfolio outflows,” said Aditya Agarwala, Co-Founder & CIO at InvestValue Capital Pvt. Ltd. “The message is simple. RBI wants dollar demand to come from genuine trade and hedging needs, not leveraged bets against the rupee.”

For Indian investors holding US stocks, international mutual funds or overseas exchange-traded funds (ETFs), exchange-rate movements can significantly affect returns in rupee terms.

Overseas investments generate returns from two sources: changes in the value of the underlying asset in foreign currency and movements in the exchange rate.

When the rupee depreciates against the dollar, the rupee value of existing dollar-denominated investments generally increases, assuming the underlying asset's dollar value remains unchanged. Conversely, rupee appreciation reduces its value.

For example, if a US stock remains unchanged in dollar terms but the rupee depreciates by 5%, the investment's rupee value would rise by approximately 5%, before costs and taxes. If the rupee appreciates by 5%, the rupee value would decline by approximately 5%, all else being equal.

The rupee's depreciation during 2026 had therefore provided a currency-related boost to some Indian investors' overseas holdings, in addition to returns generated by the underlying investments.