Wealthy Indians eye investment avenues abroad

Mumbai: Affluent Indians are increasingly looking beyond India for unique investment opportunities in private companies and complex financial instruments, which are not available in the Indian markets. An increasing number of family offices, which manage the resources of wealthy individuals, are seeking permission from the Reserve Bank of India (RBI) to invest in offshore equities, real estate investment trusts (REITs) and other hybrid fixed income vehicles, said four wealth managers who work with such family offices.

In June 2014, Premji Invest, the family office of Wipro Ltd founder Azim Premji, sought RBI permission to invest in technology firms in the US and China, The Economic Times reported.

Since then, the trend appears to have picked up, with others also seeking regulatory nod for large overseas investments. “In the past six months, 6-7 rich Indian families have approached RBI for permission to invest in overseas markets. In the past years, at least 10 wealthy Indian families have approached RBI for a licence,” said one of the four wealth managers quoted above. He declined to be identified, citing confidentiality clauses attached to investments.

Among these is Infina Finance Pvt Ltd, the associate company of Kotak Mahindra Bank, which manages a part of Uday Kotak’s personal wealth. Infina Finance is awaiting a regulatory nod to invest in US-listed stocks directly.

“We are awaiting the RBI licence. If we get it, we will incorporate an investment firm in the US and start investing in shares of companies listed on US markets. To begin with, we will look at the listed space only and that too at firms which have done exceptionally well and are built around concepts that are not found in India,” said R. Venkat Subramanian, CEO, Infina Finance.

“We may begin with an investment of around $20 million,” Subramanian said. Infina currently manages a portfolio of ₹ 1,200 crore of Kotak’s personal wealth in the RBI-registered and regulated NBFC.

Two persons close to the Gautam Adani-controlled Adani Group’s eponymous family-office venture—Adani Advisory Llp—said they too have sought the banking regulator’s approval to invest in US markets. “We are likely to invest around $100 million initially in such markets,” said one of them.

The Adani family office is keen to invest in the renewable energy space in growth markets, including the US, he added, requesting anonymity due to the confidential nature of transactions.

While interest to invest abroad has picked up, regulations around such investments remain tight. According to RBI’s latest Liberalized Remittance Scheme (LRS) norms, resident Indians can buy assets overseas, including shares or debt instruments, up to $250,000 a year. Investments higher than that need permission from RBI.

However, when there are multiple wealthy individuals in a family, they can collectively form a single family office entity, get it registered with the regulators, and invest up to 50% of the family office’s total net worth in overseas assets.

Subramanian said the reason a number of wealthy investors are looking to invest abroad is to capture emerging trends and big business opportunities in the overseas markets that are not available to them in India.

“For instance, US-based firms such as Netflix Inc. and Boeing Co. are uniquely placed in terms of the nature of their businesses. In India, and in many other countries, we can’t find these types of firms successfully making money for shareholders,” said Subramanian.

Nasdaq-listed Netflix is an American provider of on-demand Internet streaming media, catering to viewers across North America, Australia, New Zealand, South America and parts of Europe. Similarly, NYSE-listed Boeing is an American multinational corporation that designs, manufactures, and sells airplanes, rockets and satellites.

“There is a growing interest in setting up family offices as there are strict parameters for investing under LRS. Many set up a family office so that they can use a part of the investment corpus in complex derivatives and also for leveraging in such products. There are products such as REITs and high-yield complex structured products, which are completely non-existent in India but available overseas. These are where entities invest after setting up a family office,” said the chief executive officer of a domestic wealth management entity, requesting anonymity.

Not everyone agrees that overseas investments offer a better way for family offices to preserve and grow their wealth.

According to Sriram Iyer, CEO of Religare Wealth Management Ltd, domestic markets offer significant opportunities in the medium to long term.

“While it is true that the investment options overseas are numerous and cover a wide array of underlying asset classes and geographies as compared to the domestic market, the attractiveness of investing overseas at this stage is limited given the significant opportunities that the domestic markets offer in the medium to long term,” he said

Iyer, however, admitted that there is a rationale behind diversifying into overseas investments. “If one is generating non-INR (rupee) income, then it makes sense to participate in opportunities overseas after accounting for necessary tax and residency implications. There are many products available overseas, which do not have a substitute in India. Oil bonds are one example,” Iyer added.

anirudh.l@livemint.com