One of the simplest outcomes will be that valuations go down in dollar terms. Let us take global GDP. It is measured in dollar terms and any weakness in the rupee would automatically compress the dollar GDP, even if rupee GDP is growing. For example, the $5 trillion GDP target was originally set for 2028, but may now get extended to 2031. One of the key reasons has been the weakness in the rupee, which has taken a lot of dollar wealth out of the GDP. The same logic also applies to the market cap, which may be growing, but you still have Indian markets lagging other markets. 

From a corporate perspective, this is one of the most important factors. For instance, there are sectors like oil refining where India depends substantially on imports. The Indian jewellers depend heavily on imported gold. Similarly, the massive export of mobile phones from India is also a function of heavy component imports. Since bulk of the trade is denominated in dollars, payables go up with falling rupee. The other major area of concern is the foreign loans repayable. This has reduced overall, but there is still an unhedged portion. Experts are of the view that if the rupee crosses 91/$, there could be a massive rush to hedge positions. 

This is often overlooked when we look at a weak rupee. In the case of India, there has been a perpetual merchandise trade deficit and the services surplus has been able to offset only part of this deficit.  That has left India with an overall deficit and also a current account deficit. When the dollar becomes expensive and the demand in India remains robust, then most of these global exporters tend to export their domestic inflation to India. That is not visible immediately to observers, but eventually it shows up in the form of higher domestic inflation, lower consumer confidence, and also loss of purchasing power. Cheap oil has, probably, subdued this effect for now. 

For a country like India, that still relies on volatile FPI flows to fund its fiscal deficit gap, this is a huge risk. Here is why. When the rupee weakens, foreign portfolio investors tend to become cautious about investing in India. That is because; if they earn 10% on the Nifty and the rupee depreciates by 6%, then their annual return from India in dollar terms is just 4%. That is why FPI flows turn negative when the rupee is weak. In the last 4 years, FPIs have largely sold in Indian equities. The buying in debt was also triggered by the inclusion of Indian government bonds in the global bond indices. For India, capital outflows often created the feared domino-effect!