India’s currency has swung from emerging market leader to laggard as the country battles a ferocious wave of coronavirus infections, prompting concerns among global investors that a nascent economic recovery will crumble.

The rupee has dropped about 3 per cent to 75.14 per dollar since the start of April, the worst performance among a basket of two dozen emerging market peers tracked by Bloomberg that includes Russia’s rouble and Turkey’s lira.

That marked a stark reversal after a stellar start for India’s currency in 2021. Its rise of just under 1 per cent between January and March had made the rupee the only emerging market currency to gain ground on the dollar.

The currency’s tumble came amid a surge in Covid-19 cases that has overwhelmed India’s health systems and stoked public outrage as the government struggles with sufficient vaccine supplies. It will also likely compound corporate India’s financial woes and complicate the central bank’s plans to use monetary stimulus to soften the economic blow.

“The surging virus cases are hitting everything,” said Kiyong Seong, an Asia strategist at Société Générale, pointing to a sell-off in Indian equities that has pushed the benchmark Sensex index more than 5 per cent lower since hitting an all-time high in February.

Line chart of Indian rupees per US dollar showing India’s currency drops as Covid-19 cases surge

The country reported more than 260,000 Covid-19 cases on Saturday, higher than anywhere else globally, and almost 1,500 deaths.

Rising cases have resulted in a series of lockdowns and curfews, which analysts fear will upset what was expected to be a robust business and economic recovery from last year’s contraction.

“All this will have a spiralling effect,” said Navneet Damani, a currency analyst at brokerage Motilal Oswal. “This is not a very good sign.”

Analysts said the Reserve Bank of India’s recent dovish monetary policy statement and commitment to buy Rs1tn ($13bn) worth of Indian government debt this month had spurred investors to unwind bets on the rupee’s continued rise. The potential for gross domestic product and earnings downgrades has also weighed on the rupee.

“The aggressive resurgence of the Covid-19 pandemic is starting to impact growth prospects,” economists at ANZ wrote in a note. “Corporate earnings forecasts may be downgraded in the coming months and foreign portfolio flows may suffer.”

Foreign investors have ditched Indian assets on concerns of the country’s growth prospects, selling more than Rs40bn of equities in April, marking the first such net outflows since September.

“Until and unless we get clarity on the Covid scenario,” said Abhishek Goenka, chief executive of advisory firm IFA Global. “I think the rupee weakness is likely to stay.”