The US dollar has weakened to its lowest level in 3 years, reaching below the 97 level against a basket of currencies. Historically, every time the dollar has weakened, it has become a bullish trend for Sensex and Nifty. The DXY is projected to range from 95-99 in the next two quarters, as meaningful upside is limited due to the expectation of a 100-125 bp Fed rate cut. This brings in the opportunity to buy Indian stocks. Brokerage Elara Capital has selected 19 stocks to buy!
Why US Dollar Is Falling?
At the time of writing, the US dollar traded around 96.7 against a basket of foreign currencies, floating near its over 3-year low. Investors focus has shifted towards the upcoming US job report for the month of June, which, if it comes in weaker than expected, could fuel hopes of an early rate cut from Fed. A rate cut weakens the demand for dollars.
Due to the fall in the dollar, the Indian rupee strengthened to 85.5 per dollar, recovering sharply from its three-month low level of 87 that was touched on June 23, 2025. Experts are positive in India due to the weaker dollar!
Why is the dollar under pressure? As per Elara Capital, given the unsustainable fiscal path of the US (as per the Senate version of the One Big Beautiful Bill Act [OBBBA]), underlying risks to US growth, the Fed staying on the rate cut path, the BoJ staying on the rate hike path, and positivity surrounding the EU, we expect downside pressure to continue on the USD. However, positive news on trade deals and tariffs can arrest the one-way decline to some extent.
Emerging markets equities has shown resilient performance against weakness in the dollar. For instance, data from Elara reveals that EM equities (MSCI EM TRI) CYTD (Jan-June) has recorded 15.3% upside, beating global equities MSCI World TRI return of 9.5%.
In the case of India, a similar pattern has been observed.
According to Elara, in each of the 8 years when the DXY fell more than 5%, the Nifty posted positive returns—with a median gain of +34%. To date in 2025, despite a 9% DXY decline and a -0.9 correlation, the Nifty is up a mere 7.5% YTD. If past patterns hold, an additional 8-10% upside appears plausible.
Dollar is expected to be under pressure ahead.
Elara's note said, "we expect the DXY to be in the range of 95-99 for the next two quarters, putting the CY25E average at 100 vs 105 in January 2025. For the next 18 months, we do not expect any meaningful upside in the USD, as we expect the Fed to undertake 100-125bp of rate cut. For CY26E, there is a lot of uncertainty—if the new Chair is a political-appointee -- we expect the USD to remain on a sustained downside and below 100 (DXY Index)."
Which Indian Stocks To Buy As Dollar Weakens?
"A weaker USD, especially when tied to expectations of rate cuts in the US, will generally have a positive impact on Foreign Institutional Investor behaviour, as Investors will rotate from developed markets into emerging markets to seek higher yields," said Ross Maxwell, Global Strategy Operations Lead, VT Markets.
Such will is likely to have a positive impact on Indian equities, as a weak dollar leads to more capital inflows into the country, offering support to the rupee and lowering bond yields.
"A strong rupee and lower import costs due to the weaker dollar can improve margins for big sectors in India such as Aviation, chemicals and consumer goods. Lower prices for USD-denominated commodities such as metals and crude oil will reduce inflationary pressures and boost Indian companies, although some export sectors such as IT and Pharmaceuticals may face challenges," said Maxwell.
Overall returns on Indian assets can also increase, as the cost of hedging positions decreases with a weaker USD which can boost Investor capital flows into bonds and equities, he added.
Historically, mid and small caps have outperformed in similar setups, reflecting broader risk appetite and liquidity rotation!
Elara said, "With FII shareholding near low since Sept 2017 and a macro backdrop resembling prior recovery cycles—rate cuts, benign inflation, and external stability—the environment remains supportive. We expect this to play out through a selective high beta rally."
That being said, Elara has identified 18 large- and mid-cap stocks that combine high bull beta dynamics with supportive fundamentals and alignment to the current macro theme.
Here are 18 stocks to buy!
1. Power Finance Corporation (PFC): BUY For Target Rs 508
2. REC: BUY For Target Rs 650
3. DLF: BUY For Target Rs 1,050
4. Trent: BUY For Target Rs 8,300
5. Eternal: BUY For Target Rs 300
6. JSW Energy: BUY For Target Rs 630
7. Mahindra & Mahindra: BUY For Target Rs 3,755
8. Larsen & Toubro: BUY For Target Rs 4,051
9. Bajaj Finance: BUY For Target Rs 1,116
10. Axis Bank: BUY For Target Rs 1,485
11. HUDCO: BUY For Target Rs 361
12. Indian Hotels Company: BUY For Target Rs 861
13. Godrej Properties: BUY For Target Rs 3,700
14. Oberoi Realty: BUY For Target Rs 2,500
15. Mphasis: BUY For Target Rs 3,170
16. LIC Housing Finance: BUY For Rs 773 Target
17. Prestige Estates Projects: BUY For Target Rs 2,300
18. SJVN: BUY For Target Rs 131
Looking ahead, Maxwell said, "There are some challenges ahead though, especially if US recession fears persist and this translates into Investor fears over a global recession, then this could hurt market sentiment and dampen demand for India exports." Adding he said, "If we see an increase in geopolitical tensions then we may also see a risk-off sentiment return which can prompt investors back to safe havens in the short term, hurting Indian markets."
Overall, the emerging market (EM) assets have better tailwinds than developed markets (DM). Elara stated easier financial conditions due to a softer USD with a comfortable inflation outlook have provided a window for the EM central banks to cut rates.
Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. Neither the author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.
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