Business | Investment
Building a nest egg back home
For a large chunk of Indians abroad, especially the ones working in the Gulf, home is where the heart is.
- By Prasenjit De, Special to Gulf News
- Published: 22:05 September 25, 2009
- Image Credit: Image: Prasenjit De
- E.G Varghese with his daughter Leena (left) and wife Sheela at their Noida, India apartment.
For a large chunk of Indians abroad, especially the ones working in the Gulf, home is where the heart is.
Check out the money wired home and you know where their sentiments lie. India, over the past few years, has topped in expatriate remittance, with $52 billion (Dh190.94 billion) in 2008, up 34 per cent from 2007, according to the latest World Bank figures.
But "home" is more than just being sentimental about the folks left behind and sending money to them. It is really a serious business in terms of investment. When it comes to investing, property and gold still remain favourites, but there are those who are venturing into varied investment opportunities now available in a rapidly growing India.
"I have three apartments in Delhi and a house in Kerala", E.G. Varghese, who has just returned from the UAE after working there for 17 years, says.
He worked as a finance manager in some of the top companies in UAE. Along the way, he saved about 15 per cent of his savings in non-resident accounts of banks, five per cent in shares and two per cent in gold. But as is very clear, he put his bet on property.
Except the one in which he lives, Varghese has rented out the remaining houses, which he plans to sell them when those will fetch him a good return.
Like Varghese, many Indians are coming back from the Gulf. The trend is most evident in Kerala, where remittances from the Gulf contribute to 22 per cent of the state's income. According to the Non-Resident Keralites Affairs Department (NORKA), slightly less than one million people returned in 2007.
Unlike Indians in the West, most Gulf NRIs don't plan to become residents in the region. The are several reasons. But, as Abdul Khalique, Head of International Division of Assocham (Associated Chambers of Commerce and Industry of India), points out, the main reason is that "juridical structure" in the region doesn't allow permanent residency or property purchase laws are still restrictive (with some exceptions, such as the UAE) or the prices are still too high for middle class residents.
Earlier, Indians in the Gulf saved little. Much of the remittances were for maintenance of family members back home. This has been particularly true for blue-collar workers. Sometimes the withdrawals from the non-resident accounts have exceeded the inward remittances. However, part of the withdrawal has gone towards investment in a house.
As Indians moved to white-collar jobs in the Gulf in the past decade, the investment pattern among them has varied.
A large number of professionals had a lot of surplus cash, but it did not always translate into wise investment decisions. In fact, much of it has either been splurged or invested heavily on speculation.
"I have saved nothing," Nihal Singh, a former corporate banker with UNB, says. "How could I save? I used to visit London every summer for shopping, and Switzerland for skiing. I always travelled business class."
Singh returned to India after staying in Abu Dhabi and Dubai for 10 years. A few years ago, speculation in India's stock markets became a favourite game of a section of Indian expatriates and returnees.
As Anil Rego, CEO of Bangalore-based Right Horizons, a financial advisory company, says: "When markets [were] at their peak, there was a considerable shift towards equity assets& But when the markets fell, people became conservative and turned away from equities."
There are many like Singh. Some earlier reports suggested that Indians in the Gulf would save only two per cent of their income. Rego finds it abysmally low.
"Two per cent of earnings is too small a percentage to be assigned towards savings, unless your earnings are unfathomably huge. Ideally, one should look at anywhere between 8 per cent to 15 per cent of earnings to be set aside as savings, which is deployed into high yielding investments.
"The good part is that we are finding that many Gulf NRIs [increase] their investments. This is also because they are a little unsure about the long-term prospects of their jobs."
But there are others like Varghese who are a disciplined lot. Varghese has saved 75 per cent of what he has earned over the period of his stay in Dubai. That's an unusual figure, considering Indians' saving track record. White-collar job-holders may achieve high rate of savings if they stick to moderate living in the Gulf, keep family back in India and take full advantage of the low- or no-tax regime of the GCC countries.
But once home, their investment pattern changes.
"While in Gulf, their investment pattern is generally characterised by invest-for-earnings approach, whereas, on home coming, they largely focus on invest-for-stability," Faisal Ahmad, a policy analyst on Indo-Gulf geo-economic and geo-strategic relations, says.
However, he points out that the focus is further shifting from stability to future socio-economic security. Hence, property and fixed return plans such as bank deposits are becoming increasingly popular.
Rego agrees. "We find that most investors prefer conservative options on their return, including insurance and bank fixed deposits. Some of them do get into equity and mutual funds as well."
He also points out that contingency funds and investing in adequate medical cover have also gained ground.
A trend towards more calculated and constructive investment is surely being seen, experts say. Not only that long-term investment plans are finding favours, some money is going into income generation too. As seen from the investment patterns of the returning Indians, Ahmad categorises them into different income groups:
High-income - real estate (commercial), project exports, transport business, horticulture, education, management consultancy, job consultancy and immigration services.
Middle-income - house, property, gold, stock market, areca nut business and plantation (especially in South India).
Low-income - cyber café, public call offices (PCOs) and small-scale cottage industries.
Looking specifically at middle-income non-resident Indians, V.A. Joseph, chairman of South Indian Bank in Thrissur, Kerala, says the first priority is towards investment in banks to use as savings, expecting a good return for purchase or construction of a house. The second priority is normally for the purchase of land, expecting capital gain. A small percentage of NRIs started investing in capital markets and mutual funds. But the bank investment is always considered by them as the safest one.
Ahmad also mentions that regional funds, mostly in Kerala, which are termed as Pradeshika Kootaimma, and mainly contributed to by low- and middle-income migrants, are heavily invested in IT Parks and SEZs (Special Economic Zones).
However, he prescribes the invest-for-sustainability model and advises investment in banking, health services, media, agriculture, fisheries (especially in Kerala), and consultancy activities.
Rego adds: "Ideally, one should follow a diversified approach and invest in a combination of low- and high-risk return instruments. Often, it happens that many NRIs are either too conservative or too aggressive. It is important to follow a fixed allocation and continue to invest as per that asset allocation, irrespective of whether markets are in bull or bear cycles."
As the RBI expects an increase in the remittances by 2011, a more diversified investment approach may be expected from NRIs. As Khalique says, "There is a poor sense of investment among Indians. The houses they make mostly remain vacant till they return. Often, they can't even lease out due to lack of trust in tenants."
But there surely is a wind of change. Varghese wants to venture out into stock market consulting. Singh has already set up an infrastructure consulting business.
Singh has got investors to support his venture. These days, having money is not imperative for starting a business, he says.
India's recent infrastructural and economic situation has opened up new avenues and has given a cause of comfort to NRIs. This has increased what is called "reverse migration". For many Indians abroad, "home" now means better prospects, other than just properties.
- The writer is a freelance journalist based in New Delhi
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