India was growing at 8.2% as of the third quarter, a figure of which Prime Minister Narendra Modi's economic team rarely misses an opportunity to remind global investors. Yet as 2026 approaches, there's a different number markets should prioritize: 6.35%.

This is how much the rupee has declined against the US dollar this year, making it Asia's worst-performing currency. And here's another vital indicator: $1.3 billion. The reference here is to the magnitude of outflows to date in December by global funds withdrawing from Indian equities.

This creates a significant split-screen with China, where policymakers are scrambling to keep the yuan from rising. Xi Jinping's financial team has managed to keep the yuan's gain so far in 2026 to 3.3%.

All this matters because, generally speaking, exchange rates don't lie. And the truth about India's economy as 2025 draws to a close is that the headline economic growth number is masking signs of distress beneath the surface.

Of course, China faces significant challenges, not least of which is a property crisis that's fueling deflation. In November, Asia's biggest economy showed clear signs of stalling. Take factory output growth, which just plunged to a 15-month low. Retail sales, meanwhile, had their worst monthly performance since the "zero-Covid" lockdowns.

And yet, the yuan is reminding currency strategists who once pushed the rupee as a viable alternative that India's financial system isn't as ready for global prime time as advertised.

There are several short-term explanations for investors' shift away from the rupee. One is disappointment that Teams Modi and Trump haven't forged some kind of tariff deal, leaving India facing a punitive 50% US levy.

Another: the realization that India remains heavily reliant on overseas capital to fund its current-account gap and corporate expansion 11 years after Modi took power pledging to reduce it.

Dhananjay Sinha, research head at Systematix Shares and Stocks Ltd, speaks for many when he warns that it's time to "favor selective sectoral exposure" at a moment when equities face tepid returns amid a sliding rupee, modest earnings growth and range-bound government bond yields.