Jefferies views the Rupee as fundamentally strong and is undervalued by 5% – Explained

Synopsis: Jefferies said the Indian Rupee fell 5–16% in 2025 but remains fundamentally strong. With exports up 4% YoY and the currency 5% undervalued on REER, downside risk appears limited, and stabilisation is expected.

Jefferies has assessed the recent weakness in the Indian Rupee and believes the decline should not be a cause for concern. Despite volatility in 2025, the brokerage maintains that strong economic fundamentals and supportive external factors position the rupee for stability ahead.

Jefferies on Indian Rupee

Jefferies has highlighted concerns around the Indian Rupee after it weakened sharply by about 5–16% against major global currencies during the calendar year 2025. This depreciation has raised questions about the near-term outlook for the rupee, especially amid global volatility and shifting capital flows. However, Jefferies emphasizes that the recent fall should be viewed in context rather than as a sign of structural weakness.

Despite the currency decline, Jefferies believes India’s macroeconomic fundamentals remain strong, suggesting there is no reason for panic. The brokerage points to a relatively low current account deficit, comfortable foreign exchange reserves, a softer US dollar index (DXY), and improving foreign direct investment inflows as key supportive factors for the rupee.

Export performance has also been resilient. Jefferies notes that India’s exports grew by around 4% year-on-year over the last three months, even in the face of steep 50% tariffs imposed by the United States. This resilience indicates underlying strength in India’s trade competitiveness and external sector.

From a valuation perspective, Jefferies highlights that on a Real Effective Exchange Rate (REER) basis, the Indian Rupee is about 5% undervalued, making it the most undervalued it has been in the past 12 years. This suggests that the currency has already corrected meaningfully and may be closer to its fair value.

Based on these factors, Jefferies maintains its view that the Indian Rupee is unlikely to depreciate significantly further from current levels. The brokerage expects the currency to stabilise and hold around present levels, supported by strong fundamentals and improving external indicators.

Written by Manideep Appana

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