With the market outlook remaining strong despite an alarming surge in covid cases in India, investment advisers are redrawing priorities for NRI investors.
Until last week, investment advisers in the UAE have been upbeat on the long-term prospects of the Indian markets and suggested NRIs stay invested in the Indian stock market directly or through mutual funds.
Though the markets are performing well in spite of the surge in covid cases, they will turn negative if lockdowns are imposed throughout the country, which will cripple the economy that has been on a recovery path.
India added 357,229 new cases on Wednesday alone, taking the total outbreak to 20 million positive cases and death toll to 222,408.
Infections are rising faster than anywhere in the world.
Recast portfolios
As expected, investment advisers are not advocating pulling completely out of the market in the face of extreme uncertainty exacerbated by the second wave of the coronavirus cases; rather they suggest recasting portfolios with a judicious weighting to each asset class.
“Market correction and crash are imminent, which will offer good buying opportunity. Those who have SIP accounts should ask their fund managers to restructure their portfolio to take advantage of the lower valuation,” said AS Elavarasan, Chairman, Aspa Mangement Consultancy, Dubai.
Go for mutuals
Those looking for long-term gains should buy mutual funds or pick stocks directly.
“Mutual funds are an ideal for small investors as they offer well-diversified portfolios selected by professional fund managers. Mutuals afford investors a lot of convenience and ease as far as investments are concerned. Besides, mutual funds are well regulated by the Securities and Exchange Board of India at different levels even including the types of schemes they launch from time to time,” said Ajay Mehta, director, Vision Ventures, Dubai.
Further, mutual funds present a wider range of choice. They give investors opportunities to invest in growth stocks, as well as international investing through international or global funds and emerging market funds.
A sizeable sum is directed to mutual funds by NRIs. The mutual fund industry in India is set for exponential growth and is expected to reach INR 100trn (£991m, $1.38bn, €1.1bn) over the next 10 years, according to a consortium of top asset management companies (AMCs). The mutual fund investor population in India has reached 23 million.
Mehta is of the view that mutual funds need not be the only vehicle for investments as there are opportunities provided by well-managed portfolio management schemes, though they are for investors with a sizable amount of funds at their disposal.
Bonds better option
Investors who are looking for interest income with a long-term outlook should go for bonds, said Binoo Nayyar, chief financial officer at TrendRiser Securities, Dubai.
The interest rates on government securities are higher than bank fixed deposits. Investments in bonds are safe as the government of India is giving sovereign guarantee that promises full repayment on maturity. Currently, FD rates hover around 5-5.5% per annum. Bank deposits and fixed deposits with banks do not offer sovereign guarantee.
India has opened up the government securities market for retail investors by permitting them direct access to government bonds, both primary and secondary.
Retail investors can buy and sell government bonds online. The access to both the primary and secondary markets is allowed directly through the central bank, which has allowed retail investors to open gilt or G-sec accounts on a platform called Retail Direct.
Investors can open a gilt account in the central bank’s electronic platform E-kuber. They can place a direct bid with the NDS-OM, an electronic anonymous order matching system for secondary market trading in government securities.
Retail investors also have the option to put their money in gilt mutual funds rather than investing in government bonds. It is easy to liquidate gilt mutual fund unit.
