by Moiz Mannan
Non-resident Indians need to consciously control the rush of blood at the news of the sharp plunge of the Indian rupee. Much like the cricket batsman whose eyes gleam at the sight of a juicy full toss but misses it in a hurry and gets bowled out, the NRIs need to accept the fresh opportunity with a bit of calm.
Yes, the rupee has plunged to new depths and that gives a considerable advantage to overseas Indians earning their money in foreign currencies. At this juncture, it obviously makes sense to send any spare cash home post haste. But what’s to be done with it. Should the money be parked in bank deposits or should it be invested in equity or, say, real estate? That’s the question NRIs must consider very seriously because such an opportunity might not present itself again.
Why not? That’s because the circumstances in India are rather unique at this point in time. For one, no matter what anybody says, there is no denying the intrinsic strength of the Indian economy. The ‘nuts and bolts’ companies, in particular, are bound to keep doing well in the mid and long term. So, the temporary setbacks in the bourses need to be viewed as an opportunity to buy low to sell high later. In the run-up to the 2014 general elections, the equity markets as well as the real estate sector are going to remain subdued. So, this is a phase in which the mid and long term investor can really look to pick up deals.
One strong indication is that the Reserve Bank of India will persist with the rate cut cycle for several more months. Therefore, it might be worthwhile buying some banking shares, particularly those of private sector banks. Sectors like hospitality that are net dollar earners would also do well because of the rupee depreciation. The scenario might also be favourable to sectors such as Information Technology and pharmaceuticals.
Import dependent sectors such as petroleum will be under pressure so shares of oil companies may be avoided at this time. Similarly, NRIs can put on hold buying stocks of companies with large foreign borrowings as repayments in dollars would be an issue.
The other good option for NRIs is real estate. Analysts are unanimous in forecasting that the property market will zoom once political stability is brought by the election results, more or less regardless of which way they go.
For quite a period now, the Indian property market has by and large underperformed and, experts feel, it is now poised for the take-off. According to industry experts, the current poor run of the Indian rupee coupled with the subdued prices overall across the country have given NRIs an advantage of up to 25 per cent in property buying.
Real estate companies have reported a spurt in enquiries and are hopeful of many of these turning into deals. Developers expect that the NRI market will contribute around 35 to 40 per cent of the total investments in real estate in India this year.
Business Standard recently quoted Harinder Singh, managing director, Realistic Realtors, as saying that enquiries from NRIs for buying property in India have risen by at least 15-20 per cent following the rupee depreciation.
The number of calls from NRIs have gone up to 800 per month from 200 earlier at Investors Clinic, a real estate portal, the newspaper said, as the property prices for them has come down by 20 to 25 per cent.
Some experts have recommended that NRIs should ideally be looking at property on the fringes of selected tier-II and tier-III cities. Such locations are about to be looped in a slew of infrastructure development projects. Prices are pretty affordable at the moment and predicted to shoot up once the projects like malls, airports, and industrial parks get going. Here again, it is better to go for small to medium residential property rather than commercial spaces.
Analysts believe that tier-I and II cities may see a 15 to 20 per cent and 10 to 14 per cent appreciation, respectively, although the growth might be less during 2014 as the country goes for the Lok Sabha election. After that, the markets are expected to grow at a steady pace.
In short, NRIs need to rethink the strategy of putting a bulk of their space cash into bank deposits even though it might seem very prudent and risk free in the short run. According to reports, NRIs are pumping money into bank deposits without considering the possibility of losing money if they wish to repatriate it.
In the last two financial years, when the rupee had lost value, NRI deposits went up by 12.2 per cent and 21.2 per cent respectively. NRI deposits stood at $72bn as on April 2013 compared with $59bn at the end of April 2012.
Last year, the Reserve Bank of India raised the number of transactions that an individual can benefit from an external money transfer from 12 to 30 per year. The cap on a single transaction had been raised to $2,500. The move had facilitated NRIs to send more money home.
