The Case for Dollar Diversification in Indian Portfolios

Over rolling ten-year periods, the rupee has depreciated against the dollar at roughly 3–4% annualised. That arithmetic alone makes a USD sleeve worth examining for any portfolio with multi-decade horizons. A dollar asset that merely keeps pace with US inflation still compounds the currency drift on top of its own return when measured in rupees.

This is not a forecast — exchange rates are notoriously hard to predict over short windows. But across long horizons, the interest-rate and inflation differentials between the two economies have produced a persistent, if uneven, drift.

Beyond the drift, a USD sleeve tends to behave defensively exactly when an Indian portfolio needs it to. In global risk-off episodes, the rupee typically weakens against the dollar — so the USD sleeve, measured in rupees, cushions the drawdown of domestic equities. The diversification is structural, not incidental.

There is no universal number. For many Indian portfolios, a sleeve in the 10–25% range is enough to matter without surrendering the home-market growth that remains the engine of the portfolio. The right figure depends on liabilities, time horizon, and whether future spending will be partly in foreign currency (education, travel, relocation).

Illustrative only. Allocation decisions should be matched to your stated objectives and made with a qualified professional.