Home country bias may well define the investor behaviour of today’s non-resident Indian (NRI), combined with an eye for select, safe global investments. Experts say the NRI investor is mindful of the world economic climate, treading with more caution than enthusiasm. However, with India taking centre stage as an emerging market in portfolios, NRIs are finding themselves part of a global marketplace.
Investor bias
“We have witnessed a strong home country bias in our investors. I think safety, simplicity and liquidity are driving investment decisions now,” Somer Massey, Chief Executive Officer, Kotak Mahindra Financial Services Ltd, tells GN Focus. >
The investment behaviour of NRIs is closer to those back home than that of high-net-worth individuals (HNWIs) across the world. “The investment pattern of NRIs based in the Middle East is not very different from the resident Indian counterpart due to their strong cultural links and affinity to India. Traditionally, Indians have a special inclination towards real estate and gold, as these are considered safer bets in comparison to other investments,” says Ajay Kapoor, Area Director, Middle East, Citi NRI Business.
When making investment decisions, investors have their ear to the ground and the bias often works in their favour. “Even as NRIs, investors retain strong ties to their home country and have several contacts who are able to give them an unfiltered view of ground realities that enable them to arrive at a logical conclusion,” says Gifford Nakajima, Regional Head of Wealth Development, Retail Banking and Wealth Management, HSBC.
In India, while other asset classes may show negative returns, property and gold, including exchange-traded funds (ETFs), have been considered effective hedges.
Experts say that the Indian market shifts in response to NRI interest. With the devaluation of the rupee, NRIs have shown special inclination towards property and in effect are driving up prices.
Lucrative deals
Massey says, “We have seen many NRIs looking at investing in property in India. In one example, there were three products launched in the past couple of months in Mumbai priced between Rs30 million (about Dh2 million) and Rs100 million for an apartment. They were sold out in a week. In fact, not everyone who booked and made the down payment got allocation at the end.”
While the world is moving away from fixed-income assets to more lucrative ones, in India it continues to be lucrative. “The interest rates have been really high. This year in January they have started dropping interest rates after the Reserve Bank of India said that it would focus as much on growth as on inflation. Even so from 8 per cent we have come down to 7.75 per cent, whereas in most parts of the world it is close to zero. >
“Fixed income has clearly been the asset of choice. In a declining interest rate regime, duration funds gain pre-eminence. We have seen a huge amount of interest in debt mutual funds in India last year which, we believe, will continue into this year. In fact, NRE term deposits in banks have also seen significant inflows due to the attractive interest rates offered by banks. NRE deposits have surged by $17 billion last year, a growth of close to 70 per cent,” says Massey.
Even so, for those planning to spend in the currency that they earn in, investing in the rupee is not always the best option. “For many NRIs, earnings are in foreign currency. With the steep devaluation of the Indian rupee and the high inflation rate in India, the actual purchasing power of the rupee has consistently eroded, despite the high INR deposit rate. However, the requirement for home currency would continue unabated to cater to the financial needs of family members residing in India. The need to build up Indian currency/assets and to expand portfolio investments in India is also driven by future relocation to India,” says Kapoor.
Safe bets
Equities, like elsewhere in the world, are set to make a comeback into India as well, even though complex derivative structures still have the potential to turn consumers wary. “In recent times, we have seen Indian customers taking cautious steps in stock markets through mutual funds. We see NRIs largely parked in safe instruments such as savings accounts, or take advantage of a falling rupee to make some gains by investing in India. We have also seen mutual funds, especially SIPs getting more popular,” says Nakajima.
India’s entry into global portfolios as an emerging market requires NRI investors to realign their assessments. Alert to global requirements, India is slowly creating a regulatory environment that is friendly to investors from outside the country.
“NRIs today can invest in numerous investment products right from mutual funds to stocks, fixed deposits and debentures of companies. The Reserve Bank of India has identified the potential of the NRI population and is facilitating and easing government policies to encourage NRI investment in India. In addition, there are various opportunities in central and state sponsored projects in key infrastructural sectors such as education, health care and construction which are now open to NRI investors,” says Kapoor.
