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Is this the best time for NRIs to invest in Indian stock market?

Non resident Indians are a happy lot as a slump in rupee has given them a windfall gain on their foreign exchange earnings.

Naveen Kumar | October 18, 2018 | Updated 19:54 IST
Is this the best time for NRIs to invest in Indian stock market?

The recent fall in rupee has been a cause of great concern for most stakeholders, but there is one community that must be rejoicing over the turn of events. Non resident Indians (NRIs) are a happy lot as a slump in rupee has given them a windfall gain on their foreign exchange earnings. In just a little over two months on October 11 - the day rupee fell to record low of Rs 74.3875 per US Dollar -- one dollar fetched Rs 5.78 or 8.42 per cent more than its August 1 value. On a year-to-date basis, the rise in the dollar is even larger as one dollar was equivalent to Rs 63.6697 in the beginning of the year. To put it in perspective, if an NRI had a foreign exchange of $1 lakh at the beginning of the year, and if he converted it in rupee on October 17, he would have got Rs 73.48 lakh instead of Rs 63.66 lakh. This is Rs 9.81 lakh or 13.35 per cent more than what he had on January 1, 2018.

Such steep corrections do not happen very frequently. It is mere a coincidence of multiple factors playing at the same time from trade war between US and China, US sanctions on Russia and Iran, global uncertainty, surging crude oil prices, rising interest rate in US and back home widening current account deficit that led to a sharp correction in the value of rupee.

Good time to realise forex gains

It seems that the momentum of the recent decline in rupee has now been arrested to a good extent. After falling to a record low of Rs 74.3875 on October 11, the rupee has made a marginal recovery as it quoted at 73.4846 versus dollar on October 17. "We expect the rupee to trade in the range of Rs 74 - 74.50 unless some strong interventions - US administration relaxing India on oil supplies from Iran or the government coming up with a scheme to increase the dollar inflows through NRI bonds etc -- take place," says Salil Datar, ED & CEO, Essel Finance Forex. So, it may be a good opportunity for NRIs, who have foreign exchange earnings for future end-use in India, to convert their foreign exchange savings into rupee. "Rupee has already moved from 68 to 74 levels over the last one-two months. We expect the rupee to continue to be weak and volatile. At Rs 74 vs dollar , we expect the upside for NRIs by way of any further drastic depreciation from this point to be limited and should be good levels for NRIs to send funds to India," adds Datar.

Good time to invest in equities

For foreign portfolio investors, who invest significantly in Indian capital markets for higher returns, were suddenly finding returns in US quite attracting. However, this high return from an emerging market like India comes with currency risk, which is why many foreign investors pulled out money from India and put it back in US. Besides fuelling the rupee fall, such a pullout by foreign investors from Indian capital market also led to a sharp correction in the equity market. The BSE benchmark Sensex crashed nearly 12 per cent to 34,779.58 on October 17, 2018 from its highest closing of 38,896.63 hit on August 28, 2018. That said, many good Indian equities have fallen sharply and are now available at attractive valuations. However, there is a large consensus about long-term growth story of India still remaining intact. As India grows, those invested in Indian equities are bound to benefit from this growth.

So, this time the opportunity is not limited to converting money but also for investing in long-term growth assets like equities. "I feel these are one of the best times for NRIs to invest in Indian equity market as most bluechip stocks are at 20-30 per cent discount from their highs. Besides, rupee depreciated by 14 per cent YTD, which makes it an attractive investment opportunity for any NRI looking at long term equity investment In India. Favourable demographics as well as domestic consumption makes India one of the best investments opportunities for any long term investor," says Tarun Birani Founder & CEO, TBNG Capital Advisors.

Avoid conversion and investment at one go

Though current momentum of a fall in rupee has been mostly arrested, another fall cannot be entirely ruled out. "Recent data prints such as the drop in India's trade deficit as well as oil prices cooling down to $80-81 levels coupled with slower than expected growth in US inflation have led to rupee recovering to 73.50 levels. However, we expect that the rupee will continue to be weak. Sensitive geopolitical news such as the recent tension between Saudi Arabia and the US over the disappearance of Saudi journalist Jamal Khashoggi impacting the oil prices will lead to a drop in the rupee," says Datar. There could also be a situation where we may witness a further fall. Therefore, one should not get overwhelmed by this opportunity and avoid transferring your savings at one go. It would be better to utilise this opportunity to covert 30 -40 per cent of your foreign exchange savings into rupee at this point of time and wait for few months to take call on your rest of the savings.

As far as investing in equities is concerned, unless you are a financially savvy person, you should do it through mutual funds. However, if you want to take direct equity exposure, you may do so through a professional service provider. Birani points out that lumpsum investment in equity should be avoided right now and focus should be on staggered investment. "I feel investing money during next six to nine months in a staggered manner will yield attractive long-term returns as the coming two quarters are expected to remain volatile due to elections as well as global factors," says Birani.

Satyen Kothari, Founder and CEO, Cube Wealth echoes the same sentiment.

"Tranches are a good idea as it balances the market out. Investors can split their money into three tranches and spread them apart by three months at this point given that we are looking at a six-nine months of uncertainty," he says, adding one may also look at SIP route to invest in equity mutual funds.

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