For NRI investors, the post-pandemic world can seem a daunting and unpredictable place. From navigating the devaluation of the rupee, inflation fears and the possibility of Indian stock market corrections to whether it could be beneficial to invest in the US dollar, it is important to take an informed and measured approach to investment decisions.
Sayan Chattopadhyay, President & Director - NRI Private Wealth, AHR Private Wealth, says that NRIs should consider investing outside of India. “We have been educating our clients on the very simple fact that it is very important for them to look beyond India as there are many opportunities there,” he says.
“We are not asking clients to exit India but instead not to increase their exposure in assets which are underlying in the INR. In the last 10 years, the benchmark index of India Nifty 50 has delivered around 6 per cent compound annual growth rate (CAGR) in USD terms, whereas the S&P 500 has delivered a CAGR of around 12 per cent, which marks a huge outperformance by the S&P 500."
Inflation issues and the dollar
Shivam Kumar Yadav, Senior Vice President & Director - NRI Private Wealth, AHR Private Wealth, refers to the current weakness of the US dollar – the result of the Fed’s record bond buying activity as part of its Covid-19 economic stimulus package. Yadav says that this may be a reason NRIs should consider holding onto their US dollars. “Given the amount of liquidity which is still there in in the US market and the subsequent effect of the same on Inflation, although a segment of the market is calling it transitional, it is almost certain that the Fed will have to react to the inflation situation at some point, which will result in higher interest rates. If that happens then the USD will keep getting stronger. For NRIs it is better to hold onto their USD as it will continue to gain strength against INR in the coming months.“
Chattopadhyay says that NRIs should also expect inflation to continue for some time to come and that investors should build a diverse portfolio to hedge against the issue. “Higher inflation, which leads to higher interest rates, is never good for investors as the real rate of returns go down. In such a situation, a commodity like gold should be a part of your portfolio as it acts as a hedge against inflation.
“On the equities side, sectors which are more relevant for an economic recovery and are directly proportionate to a booming economy (which is what we are seeing in the US) are cyclical stocks such as consumer discretionaries and consumer durables, which will continue to outperform the market. Cash will perhaps be very expensive to hold as higher inflation will keep diminishing its value. We are of the opinion that a well-diversified portfolio across asset classes will stand out from a risk adjusted return perspective depending different risk profiles. Asset allocation will be the key.”
A long-term approach
Chattopadhyay suggests that portfolios should be created with a long-term view but that investments should also be regularly reviewed to mitigate against changes in the market, especially following Covid-19. “Asset allocation should be given maximum importance. Now there are two segments of it, one being the strategic asset allocation part, and another is the tactical asset allocation part.
“The strategic allocation should be in line with the long-term goal of the clients, which should to be more than five years. The tactical allocation should be inclined towards taking short to medium term calls on the markets. The markets are very dynamic and the advancement of disruptive technologies such as AI has changed many things. Therefore, it is important to do periodic reviews of the portfolios,” he says.
Accepting a degree of risk
Yadav says that aside from US Treasuries, there are few safe havens for NRIs at the current time and that these investments are unlikely to generate significant returns. He says that a nimble, informed and unbiased approach to investments is required to mitigate fluctuations in markets such as the Nifty 50.
“We do not see a crash coming in but in all probabilities the markets may get into a time correction mode for a prolonged period where companies with excellent results will be rewarded. The days of easy moneymaking are perhaps behind us.“
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