NRI advisers who recommended investors stay put with their investments during a no-holds-barred selloff in domestic equities are encouraging them to deepen their engagement with the Indian market as it has bottomed out and holds promise for long term gains.
The global lockdown following the alarming spread of covid-19 has triggered a panic selloff by retail investors that caused new lows on most indices.
In India, the benchmark Bombay stock index Sensex fell to 28,266 points on 31 March 2020 from a peak of 42,273 points on 20 January 2020, thus knocking INR58.71trn ($763bn, £626bn, €704bn) from investors’ wealth.
“Investors have either stayed away from the market or opted for fixed deposits or other ‘safer’ asset classes, generating little business for advisers,” said R Ramesh, chief executive of Veracity Consulting FZE.
“This is coupled with the lockdown in the UAE and standstill business following a recession-like situation and grim economic outlook.
“The financial market is facing the threat of defaults by debtors in the face of job losses, salary cut and business closures.”
India looks up
Now that the Indian market started looking up with projected long term growth, advisers are nudging retail investors to re-enter the market for long term gains.
In a bid to retain clients and canvass business, advisers cite the history of dramatic recovery and rallies in 1991, 1997 and 2008.
On all these occasions the indices have returned to their peak within an average 16-18 months.
This prospects are no different this time.
The World Economic Outlook by the International Monetary Fund has forecast that India’s growth will drop to 1.9% in 2020 from 4.1% in 2019, but will leap to 7.5% in 2021.
The Reserve Bank of India has cut rates to the lowest since 2004 and announced measures to inject liquidity. Companies can borrow money cheap, taking advantage of the central bank’s liquidity schemes and will emerge as market leaders, with their stocks will bring better returns.
Boom in the offing
Analysts expect the covid-19 pandemic will push India into an economic boom period, attracting foreign institutional investors en masse.
One analyst described the Indian market as ‘mouth-wateringly interesting’, which means a rally is in the offing.
On 10 March, NRI Adviser reported that investment advisers in the UAE were giving “diagonally opposite advice on the current market meltdown”, as one group advised investors to ‘stay put’ while the other was of the view that this is the best buying opportunity.
But advisers found to their disadvantage that the ‘stay put’ recommendation would bring in little business and started selling the India success story once again to lure clients.
“This is the time to cash in on the rosy prospects,” said CA Ugamoorthy, managing director of Yuga Accounting & Business Consultants.
“The next round of boom is in the offing. Post-covid-19, a resilient India will shine again. The market goes up and down, but in the long term it will perform better and provide good returns.
“The portfolio may drop in value in the short term due to volatility, but the long term prospects are bright and therefore investors should not shy away.”
Of SIP and PIS routes
Advisers in unison say systematic investment plans (SIPs) are the best suited to NRIs, as they are the preferred investment tool to help retail investors reduce the risk of timing the market and average costs.
More technologically oriented advisers vouch for Smart SIPs which allow individuals to invest automatically either in equity schemes or liquid schemes.
Smart SIP invests a monthly sum in equity mutual funds when the markets are fairly-valued and it doubles the monthly SIP amount when markets are undervalued.
This they do by skipping investming in equity schemes and parking the SIP sum in liquid schemes, the money is later used to buy equity mutual fund units when the markets become inexpensive.
To gain from the market in the long run, however, Sajith Kumar PK, chief executive of Dubai-based financial services company IBMC International, recommends the portfolio investment scheme (PIS) route.
“NRIs can directly invest into Indian stock market under PIS route regulated by the Reserve Bank of India.
“PIS investment scope covers stocks and convertible debentures from the secondary market and futures and options.
“In the 2019 union budget, PIS investment was shifted to foreign portfolio investment (FPI) category. Additionally, PIS investors can avail bank loans against the shares they hold,” Kumar said.
