When Indians invest in US stocks, their returns depend on two factors: the performance of the investment and the movement of the USD/INR exchange rate. If the Indian rupee weakens (depreciates) against the US dollar, the value of US investments increases when converted back into rupees, even if the stock itself has not generated exceptional returns.
Understanding how currency movements affect overseas investments helps investors evaluate their actual returns and manage currency-related risks.
Key Takeaways
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Returns from US stocks depend on both stock performance and exchange rate movements.
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Rupee depreciation increases the rupee value of US investments.
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Currency gains are separate from investment gains.
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Rupee appreciation can reduce returns from overseas investments.
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Exchange rate movements can significantly influence long-term portfolio performance.
How Does Rupee Depreciation Affect US Stock Returns?
When you invest in US stocks, your money is first converted from Indian rupees (₹) into US dollars (US$). After you sell the investment, the proceeds are converted back into rupees.
If the rupee depreciates against the US dollar during the investment period, each dollar is worth more rupees. As a result, your investment may generate higher returns in rupee terms even if the US stock delivers only moderate gains.
Also Read About: How to Invest in US Stocks From India?
How Does Rupee Depreciation Boost Returns?
Suppose an investor converts ₹8,50,000 into US dollars when the exchange rate is ₹85 per US$.
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Investment amount: ₹8,50,000
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Exchange rate: ₹85/US$
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Dollars invested: US$10,000
Assume the US stock appreciates by 10%, increasing the investment value to US$11,000.
Scenario 1: Exchange Rate Remains Unchanged
If the exchange rate remains at ₹85 per US$:
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Investment value = US$11,000 × ₹85
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Final value = ₹9,35,000
Return = 10%
Scenario 2: Rupee Depreciates
Suppose the rupee weakens to ₹90 per US$.
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Investment value = US$11,000 × ₹90
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Final value = ₹9,90,000
Return = 16.47%
Although the US stock gained only 10%, the investor earned a higher return in rupee terms because of the weaker rupee.
Is the Extra Return Real or Artificial?
The additional return arises from currency movements rather than the performance of the underlying investment.
It is often described as an "artificial" boost because:
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The company's business performance did not improve due to exchange rate changes.
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The investor's purchasing power increased only because each US dollar converted into more Indian rupees.
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The currency gain is independent of the stock's actual performance.
However, for an Indian investor measuring wealth in rupees, the currency gain is a genuine component of the total investment return.
Also Read About: Should You Invest in the International Stock Market?
What Happens When the Rupee Appreciates?
The opposite effect occurs when the rupee strengthens against the US dollar.
Even if the US stock performs well, converting dollars back into a stronger rupee may reduce the overall return in Indian currency.
For example:
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US stock return: 10%
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Rupee appreciates from ₹85 to ₹80 per US$
The gain from the stock may be partially offset by the unfavourable currency movement.
Factors That Influence the USD/INR Exchange Rate
Several factors affect the exchange rate between the Indian rupee and the US dollar, including:
Inflation
Higher inflation in one country can weaken its currency over time.
Interest Rates
Changes in interest rates by the Reserve Bank of India (RBI) and the US Federal Reserve influence currency demand.
Economic Growth
Strong economic performance can support a country's currency, while slower growth may weaken it.
Foreign Investment Flows
Large inflows or outflows of foreign capital can influence the value of the rupee.
Global Events
Geopolitical developments, trade tensions, and global financial uncertainty can lead to significant currency fluctuations.
Should Investors Rely on Currency Gains?
No. Currency movements are unpredictable and should not be the primary reason for investing in overseas markets.
Investors should choose international investments based on:
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Long-term growth potential
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Company fundamentals
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Geographic diversification
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Investment objectives
Currency gains should be viewed as an additional factor that may either enhance or reduce returns.
Benefits of International Investing Despite Currency Fluctuations
Global Diversification
Investing in international markets reduces dependence on a single country's economy.
Exposure to Global Companies
Investors gain access to leading multinational businesses across technology, healthcare, consumer goods, and other sectors.
Potential Currency Advantage
A weakening rupee can enhance returns on overseas investments when converted back into Indian currency.
Portfolio Risk Management
International assets can help diversify risk across different economies and markets.
Conclusion
Rupee depreciation can increase the rupee value of US stock investments by boosting the value of US dollars when they are converted back into Indian currency. While this additional return comes from exchange rate movements rather than stock performance, it forms part of an Indian investor's total return. Investors should consider both investment performance and currency risk when evaluating overseas investments and avoid relying solely on exchange rate movements for returns.
Disclaimer: Access to US securities is offered via IFSCA Global Access route. Angel One Limited is registered with IFSCA as a Global Access Provider. Investment in securities market is subject to market risks, read all the documents carefully before investing. Any reference to securities is indicative and not a recommendation. Angel One Limited claims no right, title or interest therein, and no endorsement or affiliation is implied. Office address: Unit No. 256, Seats 1 to 4 located on the first floor of Pragya Accelerator II, Building -15B, Block – 15, Road No- 1C, Zone-1, GIFT SEZ, GIFT City, Gandhinagar – 382050. IFSCA Broker-Dealer Registration No. CMI2026BDK1061, GAP Registration No. IFSCA/GAP/BD/2026-2027/016.
