The investments universe has evolved at a rapid pace over the last two decades. During this period, non-resident Indian (NRI) investors have been exposed to a roller coaster experience when it comes to their investment options and opportunities. The decade began with the dotcom bubble, followed by the 9/11 attacks, then the financial crisis of 2007-08, downturn in real estate, the Eurozone debt crisis, Brexit, and currently the Covid-19 pandemic. These and many more related events have ushered many a bouts of volatility in the financial markets leading to a sharp re-rating across investment asset classes. The immediate question that pops up in everyone’s mind is: Have long-term investors lost out on their investments over these years? The answer is an emphatic no.
Diversified portfolio
The golden rule of wealth creation and investments is to have a diversified portfolio of investments with the ability and flexibility to mitigate risks. This calls for being proactive with your financial investments and take corrective actions on your long term investment goals and market outlook. A significant overexposure to one asset class has the potential to erode wealth much faster compared to having a well-diversified portfolio. A typical example of this is bank fixed deposits. In the recent years, they have given very low returns and their inflation adjusted returns have in fact been negative. Diversification is therefore the name of the game that provides the answer to ‘Why to Invest’.
The stock markets have performed very well last year, delivering an average returns in the range of 20-25 per cent across many categories.
Time spent in investments is more important than timing your investment. The financial markets provide a limited window of opportunity to investors, with respect to timing your investments, which needs to be availed by allocating lump-sum capital followed by a tapered systematic investment strategy. The question of ‘When to Invest’ is an ongoing process depending on the investment goals and opportunity. For instance, the early part of 2021 offered NRIs a good opportunity to invest in exchange-traded funds (ETFs) linked to real estate (REITs) and commodities. These asset classes have delivered returns in the range of 30-40 per cent in 2021.
The debatable question in the mind of an investor is — what asset classes are good for investments in 2022? The stock markets have performed very well last year, delivering an average returns in the range of 20-25 per cent across many categories. However, the lingering doubt that comes to an investor is — will this trend continue? What should be the ideal asset allocation model for NRI investors?
Equity
Majority of the global stock markets are now trading close to their all-time highs. Valuations across many sectors and companies appear a bit stretched both in India and globally. The key to success this year will depend on stock picks which have the potential to deliver good or better returns. The initial public offering (IPO) pipeline in India is also very good and it will be worth investing in IPO stocks which are reasonably valued from an NRI investor perspective.
Mutual funds
This asset class gives an excellent opportunity to diversify investments across asset classes — equity and debt. Now is an ideal time to get into multi-asset, flexi-cap, balanced and hybrid funds. Systematic allocations into large, small and mid-cap funds have the potential to deliver good returns in the long term.
Fixed deposits and bonds
Interest rates are expected to be raised during the second and third quarters of 2022. The timing of the rate hikes will provide an opportunity to allocate funds in this segment.
Others options
These include gold (precious metals), life insurance, commodities, real estate-backed investments, and structured products. Some of these investments are meant for sophisticated investors and require careful study and risk assessments.
Overall, the year 2022 needs to be viewed with a bit of cautious optimism for the NRI investors. The macro economic growth fundamentals appear to be stabilising globally, however, with impending rate hikes on account of the persistent inflationary indicators may create a temporary re-rating of the markets this year. ●
The writer is CEO, Barjeel Geojit Financial Services
