Investors

SKN | UBS Asset Management Sees Value in Indian Rupee, Stays Cautious on Government Bonds

Date: December 29, 2025

UBS Asset Management is turning more constructive on the Indian rupee, arguing that the recent selloff has pushed the currency into attractive valuation territory. At the same time, the firm remains neutral on Indian government debt, citing comparatively expensive bond valuations and ongoing foreign investor outflows.

Speaking about the outlook, Shamaila Khan, head of fixed income emerging markets and Asia Pacific at UBS Asset Management, said the rupee’s weakness has created an opportunity. “We like the currency and feel it is very cheap,” she noted, adding that expectations of a long-awaited trade agreement between India and the United States could act as a catalyst for a recovery.

A Currency Under Pressure, but Fundamentally Supported

The Indian rupee has partially rebounded from a record low of 91.0750 per dollar reached earlier this month, but it remains down nearly 5% so far in 2025. That makes it the worst-performing major Asian currency this year. The decline has been driven by weak capital inflows, elevated U.S. tariffs, and uncertainty surrounding trade negotiations with Washington.

Despite these headwinds, UBS Asset Management believes the rupee’s depreciation has gone far enough to warrant renewed interest. Measured against a basket of trading-partner currencies, the rupee’s real effective exchange rate has slipped to a decade-low level, placing it firmly in what many investors consider “undervalued” territory.

UBS argues that the Reserve Bank of India has tolerated currency weakness as a temporary measure. Allowing the rupee to soften helps support exporters while policymakers work toward securing a trade deal with the U.S. “The fundamentals of the country look intact,” Khan said, suggesting that cheaper Indian assets could present selective entry points for global investors.

Why Bonds Are a Different Story

While UBS is warming to the currency, it is far less enthusiastic about Indian government bonds. The asset manager remains neutral to slightly underweight on fixed income, saying valuations look stretched relative to the opportunity in foreign exchange markets.

India’s 10-year government bond yield has fallen about 14 basis points from recent highs after the central bank introduced a series of liquidity measures. However, UBS believes this rally has reduced the margin of safety for investors. Foreign funds have also been pulling money out of Indian government bonds, partly due to expectations that the RBI is nearing the end of its interest rate easing cycle.

Another factor weighing on sentiment is taxation. Higher withholding taxes reduce effective returns for overseas investors, diluting the appeal of Indian debt even as yields decline.

What Investors Are Watching Next

Much now depends on external developments. A trade deal with the United States could help stabilize capital flows and support a rebound in the rupee, validating UBS’s positive stance on the currency. Until then, volatility is likely to persist, particularly if global risk sentiment shifts or U.S. dollar strength returns.

For UBS Asset Management, the message is nuanced: India’s currency looks compelling after a sharp correction, but government bonds do not yet offer the same value. Investors, the firm suggests, should distinguish carefully between asset classes rather than treating India as a single, uniform opportunity.