The report highlighted that the rupee had weakened sharply during April-May 2026, hitting a low of 96.8/USD on May 20 amid concerns over rising crude oil prices, widening trade deficits, and sustained foreign portfolio outflows. However, it has since recovered about 1.3 per cent from its lows as of June 9, 2026, and averaged around 94.7/USD during 1QFY27 (April-June 9).
It added that while elevated crude oil prices and a wider current account deficit are expected to keep the currency on a gradual weakening path, “stronger capital inflows, a more favourable balance of payments outlook, sizeable foreign exchange reserves, and continued intervention by the Reserve Bank of India (RBI) will likely prevent a disorderly depreciation.”
“The outlook for the rupee has improved meaningfully following the recent measures announced by the RBI and the government,” the report said, adding that key risks continue to include US dollar strength, interest rate hikes, geopolitical tensions, and fluctuations in global crude oil prices.
The report also highlighted that India’s external sector remained resilient in FY26 despite a widening merchandise trade deficit, with the current account deficit staying contained at USD25.4 billion (0.6per cent of GDP), only marginally higher than USD23.1 billion (0.6 per cent of GDP) in FY25, keeping India among the lowest in major emerging markets. However, the capital account weakened during the year, with higher FPI outflows weighing on overall inflows, even as FDI improved to USD4.2 billion in Q4FY26 from USD 0.4 billion in Q4FY25 and an outflow of USD 3.7 billion in Q3FY26.
As a result, the overall balance of payments (BoP) recorded a deficit of USD 23.6 billion in FY26, as against a deficit of USD5 billion in FY25 on weaker capital inflows. However, a strong current account surplus of USD 7.1 billion in Q4FY26, along with RBI dollar-rupee swap operations, helped the BoP post a surplus of USD 7.2 billion in the final quarter, providing some support to foreign exchange reserves.
Commenting on the services sectoral outlook, the brokerage house noted that deterioration in the trade balance is expected to be partly offset by stronger invisibles. “Net services receipts are projected to rise to USD 245 billion (6 per cent of GDP) in FY27 from USD 217 billion in FY26, while remittances are expected to remain strong at around USD143b. Consequently, net invisibles are estimated to increase to USD 338 billion (8.2 per cent of GDP) from USD312b (8.0 per cent of GDP) in FY26,” it said.
