When Indian expatriates in the UAE light earthenware lamps and decorate their homes for Diwali on November 14, many will also be making investment decisions.
Nitasha Mulani is one of those celebrating with the purchase of a new 5,000-square-foot farmhouse in the northern Indian city of Chandigarh. “With this new investment, I’m hoping for a new beginning for my family. Even though we have a few homes around India, one more is a blessing,” she says.
Ms Mulani, 43, is the organiser of the annual Ennigma Diwali Bazaar, an exhibition of fashion, jewellery and gifts timed to coincide with the annual Indian festival of lights.
With the event moving online this year in view of the coronavirus crisis, she is also using the occasion to launch a new luxury online business, thehouseofennigma.com, hoping it delivers the kind of success thought to accompany new beginnings at Diwali. “Diwali is the perfect time to do so, because new business starts at this auspicious time are always successful.”
As she does every Diwali, Ms Mulani will also buy gold jewellery and silver coins this weekend. “It’s a sign of prosperity, good health and wealth coming in,” she says.
Traditional Hindu belief holds that investments made over Diwali signal a year filled with prosperity. The festival of lights celebrates the triumph of good over evil and is associated with Lakshmi, the Hindu goddess of wealth, in many parts of the country.
While traditions vary across communities, a number of special days over the season are associated with wealth, investments and new purchases. People buy gold and silver on Dhanteras, which falls on Friday, November 13, this year. For people such as Ms Mulani, property and new businesses are other major investments.
On Saturday evening, stock exchanges will open for a special hour-long muhurat trading session to celebrate the start of the new Hindu year.
Jagdish Golani, senior financial adviser at Nexus Insurance Brokers in the UAE, regularly buys blue chip stocks during this special trading session. Shares he bought in the consulting firm Infosys three Diwalis ago have already grown 40 per cent in value but he says he won’t sell them for a long time.
“People want to start the new year with a bang, with a profit and extend those gains. Investments made over the Diwali season are usually kept for the long term for sentimental reasons,” he says.
Although cash is a traditional Diwali gift in many Indian communities, Mr Golani suggests investing on behalf of family members instead. “I always advise my clients to invest for their own and their chilMren’s future at Diwali. Instead of giving my daughter cash, buying 10 shares in a company such as Infosys or Reliance each year would make her a rupee millionaire at the very least by the time she turns 18,” he says.
The emotional trigger to invest at Diwali prompts Indian brokers across a range of asset classes to spotlight their investment picks for the year ahead. From shares to insurance plans and real estate launches, non-resident Indians (NRIs) will find their mailboxes full of special offers and deals this week. But before making your Diwali investment decisions, it's important to consider the following tips.
Educate yourself before investing
Sharad Nair, founder and director of Apex Advisors, an investment adviser to ultra-high-net-worth individuals across the Middle East and elsewhere, cautions Diwali investors to consider every aspect of an asset before making a purchase.
“It is critical for NRIs to educate themselves before investing. Don’t act on tips you receive from WhatsApp University or from friends with vested interests. Instead, follow one of the many financial literacy programmes available online,” he says.
Mr Nair advises expatriate Indians to think beyond their home market despite the emotional connection, even at Diwali. “Here in the UAE, access to the world’s major financial hubs is seamless and easy. You don’t have the regulatory shackles you would as a resident Indian, for example, and the time zone works in your favour for international markets.”
Diversify across assets and geographies
Mr Nair says mobile apps offer a cheap and easy way to invest in global markets. “There are ample digital investment options available in the UAE, and you can use them to build diversity across geographies, sectors and themes while reducing your costs,” Mr Nair says.
“Previously, the cost of investing was severe, with brokerage fees ranging from 2 to 5 per cent, but with many digital apps you pay as little as 0.1 or 0.15 per cent in fees. Not only are they simple to understand, but they also offer the advantage of allowing you to put in a stop loss and take profit orders to manage your investments and make more rational decisions.”
Mr Golani says investing in dollar-denominated assets benefits expat Indians in another way. “Not only does the US offer a high level of stability, but investors stand to make an additional 10 to 20 per cent on the dollar as compared to rupee gains,” he says. “So you beat inflation while improving your returns.”
Diversity, a perennial investment mantra, is also important, particularly as the coronavirus crisis plays out across economies over the short and medium term – any temporary boost from US President-elect Joe Biden's victory notwithstanding.
Danish Chotani, chief executive of Burj Financial, which creates global investment vehicles for private and institutional clients around the region, says: “Overall, investors should consider sector and geographical diversification. Take a balanced approach, with a good blend of income generation versus growth, and work towards building a defensive portfolio to counter volatility.”
Stay averse to risk
Mr Chotani is one of those advising a careful outlook over the next few months. “Currently, I remain averse to risk until I can measure fiscal reforms; bonds would be my preferred asset class. Short- to medium-term investment remains high risk and speculative, which the equity market addresses very well.”
He points to debt mutual funds as a good way for retail investors to access Indian debt instruments such as government securities and bonds, whose high entry barriers put them otherwise out of reach.
Within the equity and equity fund segment, the consensus gathers around the sectors that have delivered high returns throughout 2020. Technology, logistics, telecoms and pharma stocks remain top choices across markets, even though indices are at historic highs. “For new investors, however, there is a word of caution,” says Mr Chotani. “Read, analyse, identify your risk appetite before you dive in.”
For those looking to stay within the Indian market, Mr Golani suggests considering the private banking sector in addition to technology and pharma stocks.
A home away from home
When it comes to property, experts agree that every NRI needs a fallback home of their own in India. Beyond that, the investment choices are outside the oversold metropolitan areas and state capitals, Mr Chotani says, pointing to second- and third-tier cities.
Mr Nair also directs investors to small towns and comparatively well-off rural areas with a high disposable income. “Here, affordable housing – priced between Rs500,000 [$6,758] and Rs1.5million – has benefited from government sops and subsidiaries. You can easily buy six of these homes, rent them out and sell them for a small mark-up to an array of end-users in a country with a growing population. At the other end of the market, the premium segment, Rs50 million and above, is also doing well. But look past the mid-market segment, where prices of off-plan homes have fallen over the past couple of years.”
Gold or Bitcoin?
Finally, what of gold? Indian investors have traditionally bought the precious metal as a hedge against inflation. Diwali has been the world’s single-biggest gold-buying event for decades, but was recently overtaken by Chinese New Year.
With prices having hit an all-time high in August, triggered by uncertainty surrounding the coronavirus and a wave of second lockdowns, the sensible advice seems to be to buy a small amount for sentiment and good luck.
“If you’re buying for auspicious reasons, a token piece of jewellery is enough to appreciate the festive season,” Mr Golani says. “Don’t make an investment play right now, and in any case, you should be holding more than 5 per cent of your portfolio in gold.”
On the other hand, with Bitcoin having rallied to more than $15,000 in the past week, those with an appetite for speculation may want to look at the cryptocurrency afresh. “I believe digital assets are the future and I would seriously look at alternative investments as a hedge against the constant printing of money by central banks globally,” Mr Chotani says.
Mr Nair agrees, citing recent regulatory frameworks for institutions to hold and normalise cryptocurrencies. “Blockchain-based assets are likely to move from a delicacy to business as usual, but be aware that only very few digital assets hold any real exchange value. So unless you’re educated, don’t think about cryptocurrencies in your primary asset allocation.”
Their volatility may well dull otherwise glowing returns from other Diwali investments.