The Nifty may be significantly higher than where it stood five years ago in rupee terms, but the picture looks considerably weaker for investors measuring returns in US dollars. The depreciation of the Indian rupee against the dollar has absorbed a large portion of the equity market gains over the period.

The Nifty measured in US dollars has fallen back to around 242, a level last seen around September 2021. This highlights the difference between headline index performance in domestic currency and the returns experienced by a dollar based investor.

In rupee terms, the Nifty has risen from roughly 17,500 in September 2021 to around 23,200 currently. Over the same period, the rupee has weakened from the mid 70s against the US dollar to around Rs 96. The currency movement has therefore offset a significant part of the index appreciation when translated into dollars.

The impact of currency depreciation extends beyond the foreign exchange market. A sharp decline in the rupee can make India's equity market performance appear substantially weaker for global investors, even when domestic equity indices continue to remain above their earlier levels.

The pressure on the rupee has intensified recently. The currency closed at around Rs 96 per dollar on September 16, its weakest level in more than a month. Brent crude was trading above $108 a barrel, while higher US Treasury yields and expectations surrounding tighter US monetary policy added to pressure on the Indian currency.

Foreign portfolio flows have also emerged as an additional headwind. FPIs withdrew around Rs 14,116 crore from Indian equities during the first half of September after remaining net buyers for the previous two months.

The renewed foreign outflows have coincided with a sharp increase in crude oil prices. Brent has gained more than 20 percent so far this month, creating an important risk for an oil importing economy such as India.

Higher crude prices increase India's import bill, while a weaker rupee raises the domestic currency cost of those imports further. The combination can add pressure to inflation, corporate margins and the broader external balance.

The pressure is also reflected in the equity market. The Nifty has declined around 4 percent over the past month, while broader market segments have also remained under pressure.

For investors assessing India's equity performance, the divergence between rupee and dollar returns therefore remains an important factor. The recent combination of rupee depreciation, elevated crude prices and foreign portfolio selling has added another layer of pressure to an already weaker market environment.