Take stock of these options

India’s GDP growth slowed to 5 per cent in the past fiscal year after it grew at an average 8 per cent over the past decade, a situation accompanied by declining exports due to a strong rupee and lower foreign direct investment. Economists have expressed concern that India is not moving fast enough to reform its economic and monetary system and are astonished by Prime Minister Manmohan Singh’s response that the downturn is “only temporary”.

But what does this mean for investors? The Bombay Stock Exchange (BSE) index, India’s stock benchmark, fell through the 200-days moving average line on April 4, indicating that the good times for Indian shares are now over for a while.

“The Indian stock market is in turmoil, and the problems in Europe don’t make the situation better,” says Rahul Gargh, analyst, HSBC Mumbai. “It is true that investors are keeping an eye on the nation, but they urge to pursue financial sector regulatory reforms and improve the tax system in order to restructure the economy and get growth back on track. All eyes are on the reform road map, which has not been revealed yet.”

Clearly, stocks should make up only a small percentage of portfolios at the moment, so what are the alternatives for non-resident Indians (NRIs) looking to invest in India?

Government bonds

One safe option is tax-free government-backed bonds, some of which are available to NRIs. A new series (infrastructure bonds) has hit the market recently with the union budget 2013-14. Interest rates are likely to fall soon and investors better lock in investments at the rates currently available in the market. Some state bonds have annual coupons of around 8 per cent at a triple A rating, which is not a bad offer.

Forex trading

One reason forex trading is an option for NRIs is the current strength of the Indian currency, which has increased forex trading activity. In the past decade the Indian rupee has gone through highs and lows, but never faltered, and there is enough demand and supply for it to play forex trading at a lower risk. Furthermore, the rupee is not only listed on BSE, but also on the Dubai Stock Exchange, which helps NRIs in the UAE.

Mutual funds

Indian mutual funds offer better investment options than single stocks at present as they can be organised in many different ways, such as systematic investment plans, dividend reinvestment and greater asset allocation at lower risk, and are buffered through the proactive role of a fund manager who reacts to stock volatilities. Mutual funds can be liquidated quickly and are available in small units. The average return rate, depending on asset and risk classes, was between 5 and 10 per cent over the past five years.

Real Estate

There has been a strong growth in the Indian property market over the past ten years, and property values have nearly quadrupled. A house, apartment or plot of land is still seen as the most preferred asset class for middle-class Indians. Despite warning signs that the sector might be heading towards overheating, investment in Indian property can still be considered safe as opposed to short-time speculation. Furthermore, interest rates are expected to decline further over the coming quarters, making loans cheaper. ■