DSP MF said the rupee’s REER likely slipped below 88 after the dollar/rupee crossed 96.9 on May 20, calling it one of the currency’s most competitive levels outside the 2008 global financial crisis and the 2013 twin-deficit crisis.
The fund house also pointed to India’s narrowing inflation gap with the US. According to the note, the differential has compressed to around 1-2%, compared with a historical average of 3.5-4%. Over the past 12 months, India’s average CPI inflation stood at 2.3%, while US CPI averaged 2.8%, it added.
On the external sector, DSP MF highlighted India’s services exports and remittance inflows as key buffers for the balance of payments. The note said services exports are running above $418 billion annually, while inward remittances have crossed $135 billion.The fund house said risks to the rupee and current account could increase if crude oil prices remain above $120 per barrel for an extended period, though it described that as a stress scenario rather than its base case assumption.
DSP MF also said parts of the large-cap equity segment have “quietly de-rated”, with some stocks trading below long-term average valuation multiples and near levels seen during the Covid-19 period and the global financial crisis.
The note further observed that foreign portfolio investors have remained net sellers of Indian equities in FY25 and FY26, marking the first instance of two consecutive years of outflows since FY99.
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First Published: May 25, 2026 8:56 AM IS
