India ripe for the picking

India's 'resilient' economy is encouraging more UAE-based Indians to invest 'back home' for their retirement. But what are the best options right now?

Vikram Arora invests in Indian stocks despite having lived in Dubai for the past 17 years. Courtesy Sarfaraz Ali
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Pritti Nanda has lived in Dubai for the past 34 years and sends a large portion of her savings to her native India, regularly investing cash into fixed deposits.

“I just feel comfortable putting my money in India because I feel it is more secure back home,” says Ms Nanda, 59, who is from Mumbai and is the founder of SoPritti, a fashion and lifestyle events company in Dubai.

The funds she chooses to invest in are designed for her retirement, and she believes now is the right time to diversify her Indian investments further, potentially to stocks and mutual funds.

“I’ve been giving it some thought, but I want to learn about it before I jump into it. I do not want to go into it blindly.”

Factors influencing Ms Nanda’s increased interest in investing back home include India’s improved economic growth, lower inflation, and the rupee weakening against the dollar in recent weeks – this month the currency fell to a two-year low of 66.86 against the dollar.

The sharp decline means it is down about 10 per cent against the greenback compared to the beginning of the year, giving non-resident Indians (NRIs) in the UAE more rupees for each dirham they remit.

Despite concerns about China and India’s economic growth, figures coming in below expectations at 7 per cent in the second quarter – a slowdown from the first quarter – experts stress that India “has been extremely resilient”.

This works in favour of the UAE-based Indian expatriates looking to park their money in their home country. Picking the right types of investments is, of course, key.

“Unless something goes dramatically wrong, India’s in very good shape right now,” says Nitin Jain, the chief executive for global asset and wealth management at Edelweiss, an Indian financial service group.

“My view is that Indian macro has never been better … which means our equity market will do very well and our commercial real estate market will do very well. While I don’t think residential [property] will do as well, fixed income will continue to do well.”

Indians who bought property several years ago have enjoyed healthy returns as prices have risen sharply. However, in the past two or three years price growth in India’s property market has slowed amid oversupply and already inflated price levels. Mumbai, for example, experienced an average home price growth of just 2.5 per cent in the first half of the year and rates are expected to stagnate in the city in the second half, according to Knight Frank India. A report issued by Ambit in July said property prices in the city could fall by 50 per cent.

“Traditionally, real estate was a very big investment class for most of these NRIs, and it still continues to be,” says Mr Jain. “It’s a fascination a lot of Indians have of owning a house in their hometown or anywhere in their home country.”

Because residential property gains could be limited, for those looking for heftier returns in the coming years, Mr Jain recommends Indian stocks.

The benchmark Bombay Stock Exchange fell to 15-month lows on the spillover of China’s economic woes, trading at levels of about 25,700 this week compared to all-time high of above 30,000 achieved in March. This could present buying opportunities for expatriates to invest.

“In the next three to four years, I think it’s very possible that we might be trading at 70 to 80 per cent from where we are today,” says Mr Jain, tipping shares in Indian companies that issue credit such as private sector banks and non-banking financial companies.

But he warns NRIs considering equities to factor in a minimum three-year horizon, given the volatility that stock markets can face.

Vikram Arora, 45, the chief executive of Saffron Media in Dubai, has lived in the emirate for the past 17 years. Born in Jabalpur in Madhya Pradesh, he later grew up in Mumbai and still likes to invest in stocks in his home country despite being away for almost two decades.

For him, the weak rupee makes this an even more attractive time to deposit his money into India.

“I am sure all expatriates with any surplus funds will look at India,” he says, adding that his strategy is to “invest selectively”. “There are a lot of sectors that continue to benefit as India goes through secular, structural and demographic changes.”

Jimeet Modi, the chief executive of Samco Securities, agrees that now is a good time for NRIs to look at equities.

“Indian equity market offers tremendous value for long-term investors. Markets have corrected about 20 per cent from the top in the past six months,” he says.

Stocks in highly leveraged companies should be avoided, he says, along with metals and commoditised businesses.

“Pharma, IT, finance and the fast-moving consumer goods sectors should deliver above-average long-term returns to the investors”, Mr Modi adds.

Pankaj Sharma, the executive director and head of equities of Equirus Securities, says that while investing in stocks can be a particularly good way of building up a nest egg for retirement, it can be time-consuming to keep track of the markets.

“If you don’t have enough time to look at each and every equity investment in your portfolio, consider systematic investment plans,” he says. “Any large mutual fund with a decent track record is a good option.”

For those wary of the markets but more interested in fixed deposits, Mr Sharma warns NRIs to invest sooner rather than later, because interest rates in India are likely to fall further in the coming quarters.

Mr Modi, however, stresses that gains from fixed deposits could be eroded by inflation.

For those unsure which is the best option – equities or fixed deposits – Piyush Garg, the executive vice president at ICICI Securities, suggests a mix of the two.

“At the current levels of the equity benchmark Nifty and 10-year government yield of 7.75 per cent, a medium to long-term investor can allocate 25 per cent to equities and 65 per cent to fixed income, as the interest rates are expected to be on the downwards cycle,” says Mr Garg.

“Fixed income can provide good returns over the next year, and the current yield of 7.75 per cent also provides a reasonable cushion in case of a global risk-off trend, such as is under way now. For longer-term horizons, equities as an asset class generally outperforms most other asset classes, and hence the allocation can be increased further with time. For example, one could increase allocation by 10 per cent as the markets correct further.”

Mr Garg then suggests investors allocate the remaining 10 per cent of their portfolio to gold.

“It would provide a hedge in case the global economic scenario worsens, which may lead to an emerging market sell-off. Gold also provides a hedge as it appreciates in Indian rupee terms as the rupee depreciates against the US dollar,” he says.

For those with cash to spare who are perhaps looking for more unconventional, but potentially lucrative, options to invest into, Mr Sharma suggests diversifying into start-ups.

“You have to be selective but keep an eye on private equity venture capital options,” he says.


Srikanth Meenakshi, the co-founder and chief operating officer at the online investment platform, offers his tips for NRIs investing in India:

Which Indian investments should UAE-based Indian expatriates avoid at the moment?

Fixed deposit rates have already fallen, making it unattractive to deploy fresh money. Alternatively, exposure to debt funds would be a good idea if one had a three-year time horizon or more. While property prices have corrected in pockets, they still remain high in many cities. It also appears that there is room for correction in many places. Besides, rental yields have also gone down, if one plans to buy and let out. Given this background, unless one is buying a house for self-occupation or for family in India, an investment in realty would not be a great idea at this time.

What alternative investment options could NRIs consider?

Most NRIs are over-invested in real estate and fixed deposits and underinvested in equity. For long-term wealth building, if an investor misses out on the equity opportunity, their portfolio will likely yield suboptimal returns. While there are other new options such as alternative investment funds to invest in India, they carry higher risks (especially those that invest in real estate and other private equity) and are more complex. They need deeper pockets – a minimum 10 million rupees [Dh552,759] – along with understanding of the product and the ability to take risks.

What pitfalls should investors watch out for?

They need to choose regulated and contemporary products and understand the laws governing each product they invest in. In this context, some NRIs tend to go overboard on their gold investments. Unless required for ornamental reasons, holding physical gold is suboptimal from a taxation as well as a cost of holding angle. If NRIs are investing in India for their long-term requirements of settling down in India, it is important to understand the real inflation in India and whether their investments beat that. Over the past five years until early this year, fixed deposits delivered negative to marginally positive returns post inflation.

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