The Indian rupee’s fall beyond the ₹90-per-dollar mark on December 3, its weakest level on record, has triggered fresh concerns across the private equity (PE) ecosystem. The nearly 5% depreciation this year, described as steeper and faster than expected, is now reshaping exit plans, valuations, and return expectations for foreign investors preparing for IPOs and secondary share sales.

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Steeper-Than-Expected Depreciation Hits Dollar Returns Rupee Slide May Delay Exits, Distort Valuation Expectations Return Targets Still Safe, But Risk-Adjusted Calculations Tighten Domestic Capital Becomes Attractive for Indian GPs Weaker Rupee Makes New Deals Cheaper—But Selectivity Rises

Industry experts noted that while PE return models typically account for moderate depreciation, this year’s sharp and swift fall has gone beyond assumptions, tightening return thresholds and pushing some investors to revisit monetisation timelines.

Steeper-Than-Expected Depreciation Hits Dollar Returns

Highlighting the industry’s discomfort, a Mumbai-based investment banker said overseas PE funds are visibly unsettled by the sudden currency slide.

“PE funds, especially overseas guys, are at a loss. This depreciation hits their investments. They are never happy with such a level of depreciation,” he stated.

For PE investors planning near-term exits through IPOs, the depreciation directly impacts exit values and overall return metrics, as every rupee of valuation now translates to fewer dollars.

Experts emphasised that valuation floors fixed in rupee terms now result in lower dollar realisations, forcing investors to rethink the timing and structure of their exits.

Rupee Slide May Delay Exits, Distort Valuation Expectations

According to industry bankers, the current volatility complicates exit calculations even for experienced global funds. The sharp depreciation risks distortions in valuation expectations, particularly for those eyeing monetisation in the coming quarters.

The banker added:
“PE guys don’t operate on the short term… They will build this into their exit calculations, but such a sharp depreciation is not something that one accounts for.”

While some larger PE funds use currency hedges, these protections are rarely complete. Hedging works only when exit timelines are fixed—and PE exits are often uncertain, leaving room for significant exposure.

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Return Targets Still Safe, But Risk-Adjusted Calculations Tighten

Despite near-term pressure, experts believe that the rupee’s fall is not a threat to India’s long-term attractiveness, particularly from a PE perspective. However, the speed of depreciation is prompting funds to review their assumptions for risk-adjusted returns.

Vivek Soni, Partner and National Leader, Private Equity Services at EY India, explained that PE funds generally target 20–25% IRRs. A slight increase in assumed currency depreciation—around 100–150 basis points more than earlier models—may not derail investments or discourage long-term commitments.

He stated:
“If they have to factor in 100–150 bps of additional currency depreciation than what they did in the past, I don’t think it will be a big hit or a deal breaker for the India story.”

However, Soni added that funds will now be more selective when evaluating new deals to ensure they meet requisite risk-adjusted returns. This effectively raises the bar for future investments, tightening screening processes and pricing benchmarks.

Domestic Capital Becomes Attractive for Indian GPs

The rupee’s weakness is also reshaping competitive dynamics in India’s deal-making environment. As foreign capital faces currency-related pressures, domestic investors, who operate and expect returns in INR, may gain an edge.

Soni noted that domestic capital commitments to Indian GPs become more attractive in such scenarios, as return expectations remain insulated from currency swings.

He also highlighted that a supportive India–US trade deal could shift sentiment and potentially strengthen the rupee. If India secures favourable terms, US-based capital sources may renew confidence and expand India exposure, which could help the currency recover.

Weaker Rupee Makes New Deals Cheaper—But Selectivity Rises

On the investment side, the weaker rupee has made new acquisitions cheaper in dollar terms, technically improving affordability for foreign investors. However, industry experts suggest that funds will adopt a wait-and-watch approach until volatility stabilises.

Despite the cost advantage, the heightened uncertainty means deal activity will remain cautious, with investors focusing on assets that can deliver stronger buffers against currency risk.

Long-Term India Story Intact, But Short-Term Adjustments Inevitable

While the ongoing depreciation is a concern for near-term exits and valuation recalibration, experts broadly agree that it doesn’t dent the long-term India growth story for private equity.

However, the immediate impact is unavoidable: