After being cautioned earlier this year to stay put in view of the market volatility and prospects of a devastating recession in India, NRI investors are now being advised to wait and watch before entering the market in a bull phase.
India’s benchmark stock index Sensex crossed a record high of 46,000 points on 9 December, amid reports of a new stimulus economic package and approvals of covid-19 vaccine.
Business media reported that the bull appears to be on steroids, and while the short-term trend is positive, investors have been urged to act with caution as valuations are high.
“Though India’s economy was faltering under the covid pandemic onslaught and an imminent recession, NRI investors were advised to keep invested in the Indian markets for better returns,” said Binoo Nayyar, chief financial officer at TrendRiser Securities, Dubai.
“However, things have turned positive, not on fundamentals but on sentiment, and therefore investors should wait before jumping onto a bull-run.”
A disturbing trend is the rally in low-grade stocks without any fundamentals. Investors should avoid such stocks, he said.
“The Indian stock market is in the midst of an unusual phase where 98% of its bluechips are trading above a long-term trend indicator. Out of the 50 stocks on the benchmark Nifty, 49 were above their 200-day moving average, a phenomenon not seen since September 2009, underscoring the broad-based strength of the recent spurt that has helped the market reach new milestones,” he added.
The outlook is positive that the economy is showing strong signs of recovery and the prospects a covid-19 vaccine being approved for wider use.
A top government official said India’s drug regulator may grant emergency use licences to one or more of the three covid-19 vaccines under review in the next few weeks.
No investment strategy
As usual, average NRIs stay away from the securities market, fearful of investing in Indian stocks.
They tend to choose the relatively safer route of putting their money in fixed deposits with banks, though the interest rates are at record low of 5-6%.
However, after adjusting for inflation rate, the returns are either negative or near-zero.
Investors, including institutional ones, were disappointed with the performance of equity schemes and have been pulling money to invest in stocks directly in a sort of reallocation of assets.
Advisers recommend a similar reallocation strategy to NRI investors.
Jojo James, chief executive of Fosbury Wealth Managers, and partner of Tamim Chartered Accountants, Dubai, reiterated his advice of a reallocation strategy for NRIs to shift investments to different portfolios; such as migrating to debt funds or switch to US-focused INR funds.
The US economy should do well with political stability there under the new administration in a possible post-covid era.
SIPs the best option
James said NRI investors should look for better and safer options such as non-convertible debentures.
They can also look at dollar-denominated instruments in view of the positive outlook for the US economy in a post-covid atmosphere.
An ardent advocate of SIPs, KV Shamsudheen, managing director, Burjeel Geojit Financial Services, Dubai, said this is the time to fortify portfolios, but only after the current rally.
“Retail investors should focus on SIPs. Every portfolio will have some low-quality stocks. This is a good opportunity to sell low-quality stocks and buy quality stocks on corrections.”
