While India’s broader economic narrative remains one of high-speed growth, its currency market entered 2026 under significant pressure, with the rupee plunging to a new all-time low against the U.S. dollar (USD) just ahead of the nation’s Republic Day. This puts the spotlight on the country’s equity market performance and, by extension, the exchange-traded funds (ETFs) holding those equities. 

Over the past year, India's growth narrative, while resilient, has been increasingly overshadowed by macroeconomic headwinds and global volatility. The MSCI India Index rose only 2.2% in U.S. dollar terms on a total-return basis as of Dec. 19, 2025 (as cited in Fortune India), largely underperforming the 29.9% rise of MSCI Emerging Markets.

The start of this year has also not been bright, with the MSCI India Index seeing a 6.4% decline as of Jan. 23, 2026, while the Indian Rupee (INR) touched an all-time low of 92 per USD mark. 

This weakening currency situation of the country, amid an upgraded GDP outlook from the IMF, has created a paradoxical situation for ETF investors. While the rupee's depreciation can provide a potential tailwind for foreign investors in these funds, it comes with heightened volatility and risk, making the performance of India ETFs a key barometer of both investor sentiment and the underlying economy's strength. 

Thus, investors who would like to tap into the fast-growing economy may consider keeping a handful of India ETFs in their watchlist and invest in them when they see fit. 

But before suggesting those ETF names, let's delve a little bit deeper into what caused India’s currency to depreciate lately and what we expect in the near future, so that you can make an informed decision.

Understanding the Stress Factors Behind the Rupee’s Fall

The rupee's recent decline is not an isolated event, but rather the result of converging stress factors. 

Massive Capital Outflows: A primary driver of the rupee's fall has been the significant outflow of foreign portfolio investment (FPI) from India’s equity market, as global investors sought safer havens like gold amid heightened geopolitical uncertainty. In 2025 alone, foreign funds withdrew nearly $18 billion from Indian equities, as reported by Reuters. This trend continued into 2026, with $846 million in foreign funds withdrawn in the first two trading sessions of January, as investors rotated capital toward cheaper valuations in other emerging markets like China or safer "tax-haven" assets.

The Greenland Uncertainty & Trade Jitters: Global markets have been rattled by recent geopolitical rhetoric from Washington—specifically regarding the Greenland dispute and potential fresh tariffs on nations with strong trade links to Russia. This "risk-off" sentiment hurt India particularly as negotiations for a key U.S.-India trade deal hit a stalemate in early 2026.

The Import Burden: As a major importer of energy and electronics, India's trade deficit widened to over $25 billion last month. Rising bullion prices and a sharp spike in crude oil import costs have forced domestic companies to aggressively buy dollars to hedge their exposure, putting further downward pressure on the local currency in recent times.

The 2026 Outlook: A Dismal Path With a Silver Lining

Looking ahead, the outlook for INR remains cautious for the remainder of the year. Analysts warn that if geopolitical tensions don't ease or if the Fed maintains a "higher for longer" stance on interest rates, the rupee could touch even lower levels.

However, the IMF recently raised India’s 2026 growth outlook to 6.4% by 20 basis points (bps), which offers a sliver of hope. This indicates that while the currency (the "price" of the economy) is struggling, the actual productivity (the "engine" of the economy) is outperforming global peers, including China and the United States.

ETFs in Spotlight

For ETF investors, the aforementioned growth upgrade is a reason for optimism, creating a classic valuation play. They are buying fundamentally strong companies at a currency-adjusted discount. However, one should proceed with caution, considering the fact that further currency devaluation risk and flow dynamics cannot be ignored when sizing India exposure.

WisdomTree India Earnings Fund (EPI Quick QuoteEPI - Free Report)   

This fund, with total assets worth $2.58 billion, provides exposure to 557 profitable companies in India’s equity market. Its top three holdings are Reliance Industries (7.05%), HDFC Bank (HDB Quick QuoteHDB - Free Report) (5.75%) and ICICI Bank (IBN Quick QuoteIBN - Free Report) (5.25%). 

EPI has risen 2.4% over the past year. The fund charges 84 bps as fees. 

Franklin FTSE India ETF (FLIN Quick QuoteFLIN - Free Report)  

This fund, with total assets worth $2.75 billion, provides exposure to 276 large and mid-cap companies in India. Its top three holdings are HDB (6.63%), Reliance Industries (6.04%) and IBN (4.53%). 

FLIN has gained 2.4% over the past year. The fund charges 19 bps as fees.

First Trust India NIFTY 50 Equal Weight ETF (NFTY Quick QuoteNFTY - Free Report)

This fund, with total assets worth $160.9 million, provides exposure to the 51 largest and most liquid Indian securities listed on the National Stock Exchange of India. Its top three holdings are Tata Steel (2.28%), Hindalco (2.24%) and JSW Steel (2.20%). 

NFTY has risen 3.5% over the past year. The fund charges 81 bps as fees.