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Shyamal Banerjee/Mint
Shyamal Banerjee/Mint

Uncertain times, certain opportunity

The financial market situation in India is far from stable, so tread with caution

All major asset classes—equity, fixed income and precious metals—have exhibited a lot of volatility and have lost ground in the year 2013. Though this level of uncertainty across asset classes has thrown unique challenges, it has also opened up opportunities for investors, especially non-resident Indians (NRIs).

The rupee plunge

Along with asset classes, the Indian rupee has taken a tumble in recent months. The India rupee has fallen at least 20% against the US dollar in the last six months with the last three months seeing a fall of about 15%. While the government and the Reserve Bank of India (RBI) decide how to successfully navigate this problem, the situation presents an opportunity for NRI investors to remit their foreign exchange earnings to India and take advantage of the falling rupee.


The global macroeconomic environment coupled with the grim state of affairs of the Indian economy has put pressure on Indian equities quite substantially. Though major market indices—S&P BSE Sensex and CNX Nifty—have not taken much of a beating, several scrips are trading close to their 52-week lows. Many bluechip large-cap stocks are available below their book value and seem to be very attractively priced. It could be a good opportunity to pick stocks or use mutual funds (MF) to take exposure to the Indian equity market with a long-term horizon.

NRIs have two options in the MF space—India-domiciled rupee-denominated funds or dollar-denominated offshore products that invest in India.

Fixed income

As the government continues to debate about launching sovereign bonds, among other options, to attract foreign investment, RBI has already taken steps to attract money from non-resident investors.

On 14 August 2013, the central bank deregulated interest rates on NRI fixed deposit schemes and exempted such term deposits from cash reserve ratio (CRR)/statutory liquidity (SLR) ratio requirements. The interest rate ceiling on foreign currency non-resident (bank) or FCNR(B) deposits for the 3-5-year maturity period has been raised from London inter-bank offered rate (Libor)/swap plus 300 basis points (bps) to Libor/swap plus 400 bps until further notice.

RBI further informed that as per an earlier circular, interest rates offered by banks on non-resident external or NRE deposits could not be higher than those offered by them on comparable domestic rupee deposits. But in order to provide the benefit of exemption provided on incremental NRE deposits with a maturity of three years and above from CRR/SLR requirements, banks have been given the freedom to offer interest rates on such deposits without any ceiling. However, the prevailing ceiling on non-resident ordinary or NRO accounts will continue as it is. These instructions will be valid up to 30 November 2013, subject to review.

After the RBI announcements, many private and public sector banks have raised NRI deposit rates. Though interest rates on FCNR(B) deposits are still pegged to Libor and not deregulated like NRE and NRO deposits, banks are seeing it as an opportunity to get more foreign currency inflow into such accounts. The advantage with FCNR(B) deposits is that the investment remains denominated in dollar terms and is fully repatriable.

Apart from the above, investments in gilts and corporate bonds are also available, both directly and via the MF route. Due to the prevailing environment, fixed maturity plans (FMPs) are back on the horizon in droves and are offering attractive indicative yields of around 11% per annum.

Real estate

NRIs with an appetite for property in India can also explore investments in realty given their automatically stronger purchasing power due to the Indian rupee depreciation. Though it is nothing like other investment avenues outlined above, the realty space in India has always presented an attractive proposition for those who buy property with clear objectives and are willing to stay the course.

The investors, however, would need to tread with caution. The financial market situation in India is far from stable. The currency has remained volatile even after a barrage of policy moves.

With RBI and the government keen on attracting foreign capital and the equity market offering valuations that provide an opportunity for long-term investors, NRIs are sure to benefit. But be ready for some hiccups, which no doubt will come along the way.

Aditya Agarwal is managing director, Morningstar India.

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