The depreciating rupee is a blessing in disguise for Indians residing abroad Image Credit: Agency

Despite being rated as Asia’s worst-performing currency against the dollar, the Indian rupee’s depreciation seems almost a blessing in disguise for expatriate or Non-Resident Indians (NRIs).

With the dirham now fetching about 14 rupees, as against Rs10 some years ago, every Indian living abroad now earns up to 20 per cent more (if UAE inflation is excluded) without a salary hike. Take the example of a labourer who would send Rs20,000 home a few months ago; today, he can send at least Rs24,000 without any increment.

Some Indians in the UAE have even taken loans from banks here to close liabilities back home. “I bought an apartment in 2006 in Kerala with a housing loan of Rs2 million from the State Bank of India (SBI). As we get better value for the rupee these days, I took a Dh150,000 loan from my bank in the UAE two months ago and paid off the home loan. I actually saved Rs400,000,” says V. S. Prajush, a systems analyst with the RTA.

“The fact that the rupee is undervalued offers long-term investors attractive investment opportunities. But in the short term, global risk appetite will remain the driving force behind the rupee’s performance. The economic trend and the euro crisis will influence its development. The rupee stands to profit disproportionately from any easing of the euro crisis,” investment bank Sarasin-Alpen said in a January strategy focus report.

We look at a few options for those seeking to cash in on the low rupee.

Bank deposits

As governments worldwide encourage consumers to spend more in an attempt to effect a consumer-led recovery, bank deposit rates have fallen well below the rate of inflation, dropping to zero in some cases. Indian banks, however, are offering attractive rates of around 9 per cent for onshore deposits in Non-Resident External (NRE) and Non-Resident Ordinary (NRO) accounts. Citibank’s Indian arm, for example, was offering top rates of 6.75 per cent for NRE accounts and 9.9 per cent for NRO accounts.

“NRIs are currently at an advantage. Although the yield is for deposits over 12 months [or more], it is still tax-free, and conservative short-term investors may well see an opportunity to protect purchasing power,” says Khalid Shamim, Financial Consultant with wealth managers Mondial Dubai.

“The interest rates on both NRO and NRE deposits are the same. The hike in interest rates has been massive from an earlier max rate of 3.82 per cent to 9.25 per cent,” says Debajyoti Ray Chaudhuri, CEO of SBI Dubai.

“In the last one month, we have had a record influx of NRI deposits. Everyone is depositing in their NRE accounts,” says Hema Sundeep, Assistant VP, Axis Bank, Dubai. Last week, her bank was offering 9.4 per cent on NRO deposits for a period of 12-14 months and 9.3 per cent on NRE deposits for a similar term.

Conversely, because deposits are being offered over a longer term, they are more appealing to some buyers. “Now deposits are being offered for up to ten years. Earlier the max period offered was five years. So this is a good time to lock into deposits at an attractive rate of interest,” says Chaudhuri.

NRE deposits are fully tax exempt in India, unlike NRO deposits. “Considering the quarterly compounding of interest, an NRE deposit with a special term deposit rate for ten years will generate a tax-free yield as high as 14.95 per cent. The premature penalty has also been brought down to 0.5 per cent from 1 per cent earlier (no interest given if prepaid before one year),” says Chaudhuri. Interest rates have been rising for the past two years, but with signals from the central bank of a pause in further hikes, Chaudhuri feels the current window of opportunity may not be open very long.

Stocks and bonds

For risk-friendly investors looking to grow their money in the long run, stocks offer plenty of opportunity. “In just two months, we have opened 500 fresh accounts for new NRI clients to trade in the Indian stock market,” says K.V. Shamsudheen, Director, Barjeel Geojit Securities, a financial intermediary with branches in the UAE.

One way a sudden depreciation of the rupee affects market sentiment and expectation is that all Indian companies with incomes in US dollars stand to post improved earnings results. “IT large-cap companies such as TCS and Infosys have seen their stock prices go up, in defiance of the broader market, in anticipation of better financial results due to rupee depreciation. All export-oriented companies will do well if these valuations of the rupee continue against the dollar,” says Nikhil Apte, a Dubai-based proprietary trader in the Indian stock market.

But buying stocks because they are cheaper is no longer a good idea. “Yes, valuations are cheap, but most stocks, even blue-chips, would be better bought after they bottom out, rather than trying to catch the proverbial falling knife,” says Apte.

Mondial’s Shamim says investors across the globe see a promising return for their money in Indian stocks. “The risk for Gulf-based NRIs lies in any further depreciation of the rupee against the US dollar. Additionally, with inflation showing signs of slowing, we cannot ignore ten-year government bonds. Global rating agencies have reiterated India’s status to a point that will attract investor confidence,” he says.

The Sarasin-Alpen report also highlighted Indian government bonds. “Whereas yields in the other Asian emerging market countries retreated in 2011, yields on ten-year Indian government bonds rose. Sticky inflation and the attendant powerful rise in key interest rates have weighed on bonds. But as the economy cools further, the first interest rate cuts during the year are likely to give Indian government bonds significant upside potential this year.”

Real estate

A low rupee has also made Indian property cheaper by around 15 per cent. “As a result land prices and construction costs are climbing higher than ever before — especially in upcoming sites such as Tecom’s Smart City in Cochin, Greater Noida area in New Delhi and even in remote areas of tourist-centric states such as Goa,” says Dubai-based Praveen P. Menon, Overseas Manager for Kerala’s Skyline Builders.

Vijay Kumar Sharma, Director and CEO of LIC Housing Finance, India’s largest mortgage provider, told reporters recently that NRI interest has been “perceptible and visible”. He said his company’s Dubai and Kuwait offices have seen a 50-60 per cent growth in the volume of product enquiries.

Pensions

The New Pension Scheme is another excellent option, launched two years ago by the government two years ago to help citizens plan their retirement. Under this scheme a low-income group employee who can deposit only below Rs12,000 a year will earn Rs1,000 annually. Besides the tax benefits, it is simple, portable and regulated. Plus, recurring charges are less than half those for mutual funds and unit-linked insurance plans, making this the cheapest investment option for NRIs.