Financial advisers bullish on India’s future
There may not have been a slew of ground-breaking initiatives announced for Indian expatriates in the first union budget under the new government, but there is confidence that investing in India could become more attractive.
From changes in the tax environment to a positive outlook for the property sector, financial advisers recommend that Indians abroad take a close look at what opportunities are opening up.
“There is this entire thing that suggests global alliance and inviting NRIs (non-resident Indians) and creating a conducive climate for them to come and invest and become part of India’s growth,” says Gaurav Mashruwala, a financial planner based in Mumbai.
The new government, under the prime minister Narendra Modi and the Bharatiya Janata Party, came to power in May and delivered its budget just a month and a half later.
“This has not been a full-fledged kind of budget,” says Mr Mashruwala. “We’re really not talking about a whole lot of benefits straightaway for NRIs as a community, and I feel that’s because the government didn’t have enough time to do anything. As and when new developments come up, NRIs should look at it.”
He says that he would not be surprised to see announcements to appeal to NRIs come in later this year.
One of the aspects of the budget that could negatively affect some expats was a change to the taxation structure of debt orientated mutual funds. Previously, Indians could take advantage of paying lower taxes with one-year funds qualifying for long-term capital gains benefits, but that holding period has now been increased to three years.
“Up until now, they were better off putting money in this,” says Mr Mashruwala. “Now that advantage has been taken away. NRIs have an option of NRE (Non-Resident External rupee) fixed deposits, which is tax exempt as of now. Resident Indians don’t have that option. NRIs may want to consider that option and earn tax-free interest. It’s a call that they would want to make.”
Other financial experts agree that NRIs with exposed investments should look at alternatives.
“On the changes to the taxation and tenor of debt funds – it will be advisable for NRIs to review and shift their Indian rupee investment portfolio from funds which are impacted,” says Krishnan Ramachandran, the chief executive of Barjeel Geojit Securities, which is headquartered in Dubai.
India’s finance minister, Arun Jaitley, also clarified the tax benefits of Real Estate Investment Trusts (Reits) in the budget, which are expected to appeal to Indian expats.
“The clarification on the pass-through taxation benefit on Reits investments, on interest income and on capital gains will be a good investment opportunity for NRIs in the coming months,” says Mr Ramachandran.
The government also unveiled plans to launch a special NRI investment fund for conservation of the river Ganga.
“The structure is still unknown but is expected to be on beneficial lines for NRIs,” Mr Ramachandran says.
Dev Maitra, 46, is originally from New Delhi and has lived in Dubai for 12 years. He is very positive about what the benefits the new government could create for NRIs, although he adds that he is well aware that changes will take time.
“Even if Modi doesn’t come out with any special plans for NRIs, in general for the NRIs a stable government will stabilise the economy and prop up the property rates and stocks,” says Mr Maitra, who is the chief executive of Indigo Properties. “As long as there’s stable growth, everybody’s happy and I think the Modi government will definitely bring that. Modi’s a prime minister with a business acumen and he’s a wonderful administrator. NRIs will anyway want to invest into the economy, even if he may or may not come up with some special programmes.”
He points out there are already definite benefits to putting his cash into India.
“I’m a long-term player,” says Mr Maitra “I’m not into short-term gains. I believe that India will last and it’s a success story. Let’s talk about fixed deposits over there. The deposits rates over there are between 9 to 10 per cent yearly. In Dubai, the annual interest rate for fixed deposits is at best 1.5 to 2 per cent. Literally, it’s a no-brainer for us to put the money into fixed deposits into India.”
Mr Maitra sends about 30 per cent of his income back to India, mainly into fixed deposits.
The Indian rupee has lost about 20 per cent of its value against the US dollar compared with two-and-a-half years ago.
Because the UAE dirham is pegged to the dollar, this means that Indian expats sending money home from the UAE can buy more rupees for each dirham.
He foresees other effects from the budget on savings and lending rates.
“There is an impact,” he says. “As an NRI, what I notice is that the interest rates will change. Through all the measures they have taken during the new budget, the inflation will come down and once inflation comes down – which is probably a matter of two quarters – the interest rates will reduce, as in the savings and the fixed deposits. In terms of the other side of the balance sheet, which is the lending side, the home loans finances have been reduced and are now slightly cheaper for everyone, including the NRIs. Obviously the government is trying to shore up the sale of residential and commercial property. That’s a definite impact because a lot of NRIs would buy properties back home.”
Mr Maitra says that he does not have any investment in mutual funds currently in India “fortunately”, so will not be impacted by the changes to the tax structure.
Stock prices in India have soared, with the Bombay Stock Exchange benchmark Sensex, hitting record highs in recent days. This confidence had attracted high inflows of investments into stocks from abroad.
“I don’t do stocks because I don’t have time to follow the stock market,” says Mr Maitra.
REITs would not really appeal to him either, he says.
“When I have an option to buy directly into the market, where I am in control rather than a few fund managers, I would rather do a real estate investment directly. REITs have yet to take off in India. It’s a very good proposition, but it’s only for the top 0.5 per cent tier of the population. It’s still at a very nascent stage.”
He says he is seriously considering investing in a house in India.
“I think if you invest in a newly launched project with a good sound developer in a tier one or tier two, it grows at quite a rapid speed, so you can’t go wrong,” he says.
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Published: August 1, 2014 04:00 AM