Caution is the word investment advisers offer to NRIs who panic over Indian equity market volatility, political uncertainty and above all the dramatic exit of the governor of India’s central bank the Reserve Bank of India (RBI).
The new governor of the RBI has been named as Shaktikanta Das, the former economic affairs secretary when the Modi government implemented demonetisation in November 2016.
Many NRIs in the UAE have a sizable exposure to Indian equities, mainly through the mutual fund and SIP (systematic investment plan) routes.
The global sell off in equities and concerns over the election outcomes in four key Indian states saw the benchmark stock index Sensex plunged 713 points.
Resilience of the Indian economy
However, most investment advisers believe that the Indian economy is resilient and whatever be the outcome of the elections, the market will continue to grow.
KV Shamsudheen, director, Burjeel Geojit Securities, Dubai, said: “The RBI governor’s resignation, though short-term negative, is unlikely to impact the economy and markets beyond the short-term, if the new incumbent is a credible and respectable person.
“SIP investors are advised to continue their SIPs. In fact, scaling up SIPs would be a smart investment move now.”
R.Ramesh, chief executive, Veracity Consulting, UAE, said this opportunity should be utilised by NRI investors in SIPs: “They are the most preferred investment tool that helps retail investors reduce the risk of timing the market and average costs over time, by buying more units when prices are low and fewer units when prices are high.
“In the current scenario, SIP investors will accumulate units at lower prices, which will lower their average cost of purchase.”
Time to top up investments
“This is the time to top up investments, taking advantage of the low valuation in blue chip, mid-cap and small-cap scrips. One should learn from historic experiences that the markets had rebounded after every fall in the past. Whether it’s shares or SIPs, every fall should be considered opportunities for further investments,” said CJ George, chief executive, Geojit Financial Services.
He is joined by other investment advisers.“History tells us that the worst investment decision is to panic and sell, and the best decision is to keep cool during times of excessive volatility and smartly buy quality stocks that will be available cheap during market volatility,” said Manoj Vallikudiyil, partner Manjul Associates, securities and investment consultants.
He advises that the best investment options for NRIs in the coming year are mutual funds through SIPs, stocks, real estate and government securities.
NRIs can invest in government bonds, and long-term securities issued by the government of India. The bonds can be directly be purchased from the proceeds available in the NRE/NRO or FCNR accounts. Government securities give returns of between 7-8%.
Asset manager viewpoint
Anuja Munde, portfolio manager from the Asian Equity team at Nikko Asset Management based in Singapore, said: “RBI governor Urjit Patel announced his resignation citing “personal reasons”. This unexpected event points to the ongoing frictions between the Indian government and RBI on various issues.
“Though both parties have valid arguments on their points of view, the sudden resignation raises questions on whether the Indian government is trying to restrain public institutions and undermine RBI’s independence.”
He said the resignation along with political uncertainty will keep the market volatility elevated in the run-up to the 2019 general elections.
“The ruling BJP’s showing in the general elections could dramatically impact the risk premium for the Indian market.
“Meanwhile, the government will start the process of hiring the next RBI governor, which could take 2 to 3 months. We believe that this resignation has no bearing on the direction of the monetary policy, which is decided by the Monetary Policy Committee (a 6 member committee).
“The committee is expected to have a dovish stance, given the low inflation trajectory. Overall, we believe, that RBI is a robust organisation and an individual’s exit would not undermine its regulatory functions and independence.”
Foreign portfolio investment norms
Meanwhile, NRI investment advisers are a confused lot as far as the revised Foreign Portfolio Investment (FPI) norms are concerned.
NRI fund managers in India are facing a peculiar challenge to create a viable structure in compliance with the recent laws. A modified circular on FPI eligibility and identification of beneficial ownership issued recently has made it difficult for them to create viable structures in compliance with the law.
The market regulator, the Securities and Exchange Board of India (Sebi), had issued a circular barring NRIs, persons of Indian origin (PIOs) and overseas citizens of India (OCIs) from being a beneficial owner.
Sebi’s new rules say that a fund needs to have 51% money from overseas investors and 49% from NRIs, meaning, NRIs cannot be in control of the fund.
But most NRI fund managers and resident Indian fund managers manage only NRI money. Therefore, maintaining the 51% clause of foreign money is a challenge. As it is, NRIs can take exposure in Indian securities market directly.
The move had sparked concerns of fund restructuring and winding up of structures which could lead to large outflows from the Indian equity markets. Subsequently, in September 2018, Sebi rolled back most of these restrictions.
