ZACKS·2026-01-26 15:22Core Insights - India's currency market is under significant pressure, with the rupee hitting an all-time low against the U.S. dollar just before Republic Day 2026, raising concerns about the equity market and ETFs holding Indian equities [1][3] - The MSCI India Index has underperformed, rising only 2.2% in U.S. dollar terms in 2025, compared to a 29.9% increase in MSCI Emerging Markets [2] - The rupee's depreciation presents a paradox for ETF investors, as it may attract foreign investment but also increases volatility and risk [4] Economic Context - The decline of the rupee is attributed to massive capital outflows, with nearly $18 billion withdrawn from Indian equities in 2025, and an additional $846 million in early 2026 as investors sought safer assets [7] - Geopolitical tensions, particularly related to U.S.-India trade negotiations and global market uncertainties, have negatively impacted investor sentiment [8] - India's trade deficit has widened to over $25 billion, driven by rising energy and electronics import costs, further pressuring the rupee [9] Market Outlook - Analysts maintain a cautious outlook for the rupee in 2026, warning of potential further declines if geopolitical tensions persist or if the Federal Reserve maintains high interest rates [10] - Despite currency struggles, the IMF has upgraded India's 2026 growth outlook to 6.4%, indicating strong underlying economic productivity [12] ETF Performance - The WisdomTree India Earnings Fund (EPI) has total assets of $2.58 billion and has risen 2.4% over the past year, with top holdings including Reliance Industries and HDFC Bank [14] - The Franklin FTSE India ETF (FLIN), with assets of $2.75 billion, has also gained 2.4% over the past year, focusing on large and mid-cap companies [15] - The First Trust India NIFTY 50 Equal Weight ETF (NFTY) has total assets of $160.9 million and has risen 3.5% over the past year, providing exposure to the largest Indian securities [16]