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A Stark Conversation on Currency Risk, India, and Smart Global Investing
One morning, you wake up and half your life’s savings are gone.
Your fixed deposits buy less food.
Your salary buys less fuel.
Your pension feels meaningless.
This is not fiction.
This is exactly what happened in Turkey, where the lira collapsed by nearly 80%. It has happened before in Argentina, Sri Lanka, and multiple emerging economies. History shows a brutal pattern: currency collapse is often followed by social and political collapse.
In a compelling episode of Finest FinTalk, this uncomfortable reality is explored in depth in a conversation between Karnvir Mundrey and renowned investor Saurabh Mukherjea, fellow LSE alumnus and one of India’s most respected voices on long-term investing .
The core question is simple-but deeply unsettling:
Is India immune to currency risk? And if not, how do ordinary investors protect their families?
The Truth About the Rupee (No Panic, Just Math)
Mukherjea makes an important distinction early in the conversation:
not every currency fall is a crisis.
India’s base case is structural, not apocalyptic.
Historically, the rupee has depreciated by roughly 30–40% against the US dollar every decade. This isn’t mismanagement-it’s economics. Fast-growing emerging markets experience rising domestic service costs (haircuts, restaurants, rents), which push inflation higher. The currency then adjusts downward to maintain global competitiveness .
This is normal. This is healthy.
But ignoring it is dangerous.
If you earn, save, and invest only in rupees, you are quietly accepting a steady erosion of global purchasing power.
When Currency Risk Turns Catastrophic
Where things become truly dangerous is when confidence breaks.
When currencies fall sharply:
- Prices don’t rise gradually – they spike overnight
- Central banks panic and raise interest rates aggressively
- Global capital exits
- Ordinary people pay the price first
Mukherjea points out that not everyone drowns in such scenarios.
Those who survive are not necessarily richer – they are better diversified .
The One Idea That Changes Everything: Diversification
At the heart of the discussion lies a deceptively simple idea from finance theory.
In 1957, Harry Markowitz published a paper that later won him the Nobel Prize. The insight:
If you combine two uncorrelated assets, you get higher returns with lower risk.
Mukherjea explains why this idea matters profoundly for Indian investors today.
Over the last 10, 20, and 30 years, only two large markets have delivered consistent double-digit dollar returns:
- India
- The United States
What makes this extraordinary is that India and the US have very low correlation. Their economies, political systems, financial structures, and market cycles are fundamentally different. Except during global shocks like 2008 or COVID, they rarely fall together .
The implication?
A 50:50 allocation between Indian and US equities historically delivers:
- The better of the two markets’ returns
- Lower volatility
- Better sleep at night
You don’t need to predict which country will outperform next. You simply rebalance.
Valuations Matter (And They Matter Right Now)
Mukherjea highlights a crucial present-day asymmetry.
- Indian small and mid-cap valuations are elevated
- US small and mid-caps are at multi-decade lows
Applying Markowitz today doesn’t just reduce risk – it actively improves expected returns by selling expensive assets and buying cheaper ones .
“But Isn’t Investing Abroad Difficult?”
Until recently, yes.
The interview walks through three historical barriers that stopped Indians from investing globally — all of which have now largely been dismantled:
- High capital gains tax on foreign investments
→ Harmonised in the July 2024 Budget at 12.5% LTCG, regardless of geography. - The $250,000 LRS cap
→ Now complemented by the Overseas Portfolio Investment (OPI) route via GIFT City for corporates and family offices. - Punitive short-term capital gains tax (up to 42%)
→ Can be mitigated with proper structuring and long-term holding discipline .
In short: the excuses are gone.
Practical Ways to Hedge Currency Risk
For investors without large portfolios, Mukherjea offers clear, implementable options:
- US equity ETFs (S&P 500, NASDAQ) via Indian brokerages
Hold for over two years to avoid punitive taxation. - Gold ETFs as a natural dollar hedge
Gold, he notes, is effectively a global currency accepted everywhere. - A simple framework:
⅓ Indian equities + ⅓ US equities + ⅓ Gold
This structure ensures only a third of your wealth is fully exposed to rupee depreciation .
Physical Gold vs Gold ETFs: A Reality Check
Addressing a common fear, Mukherjea compares risks plainly:
- Physical gold carries law-and-order risk
- Gold ETFs carry institutional risk
In a country like India, he argues, the personal safety risks of holding large quantities of physical gold often exceed the risk of a reputed mutual fund failing .
The Bigger Picture: India’s Long-Term Promise
Despite all this, Mukherjea remains fundamentally optimistic.
India and the US are the only large democracies and free markets to have delivered sustained dollar wealth creation. That combination – democracy + free markets – is rare and powerful.
The lesson is not to abandon India.
The lesson is to balance optimism with prudence.
Final Thought
Currency risk is invisible when everything feels normal.
It becomes brutally obvious only when it’s too late.
Smart investors don’t wait for panic.
They diversify before fear sets in.
As this episode of Finest FinTalk makes clear, protecting your wealth today is not about predicting disaster – it’s about respecting history, understanding risk, and acting early.
This article is based on a conversation from the Finest FinTalk YouTube podcast with Saurabh Mukherjea. It is for educational purposes and not investment advice.
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