In an interview with ETMarkets, Gahlaut said: “A growing economy translates into higher stock market valuation and hence the long-term prospects of the stock markets remain upbeat in line with these growth projections,” Edited excerpts:
Q) What factors should Indian investors consider before diversifying their portfolio into global markets in 2025?
A) The global markets have been very unpredictable, largely due to the turn of geopolitical events in Europe and the Middle East and the election of a new President in the United States.
While we believe that the Indian markets offer excellent long-term growth potential, anyone who is looking at diversifying into overseas markets should consider geopolitical stability, currency risk and the growth potential of the markets they want to invest in.
Ideally, the best investment portfolio should not be overly complex. Investment opportunities in India offers a great mix for diversification, managing risk and getting optimal returns.
Let’s not forget the world looks towards India as one of the most promising markets for investments.Keeping in mind the currency risk, taxation inefficiency and higher cost of investments, at most, overseas diversification should only be a strategic part and the allocation should be less than 10% of the overall portfolio.Investing overseas in foreign currency also adds another layer of tax complexity and can lead to assessment orders/scrutiny from the tax department.
Q) What are the best ways for Indian investors to access international markets—direct stock purchases, ETFs, or mutual funds?
A) Indian investors today have multiple options to choose from for accessing international markets that would include direct stocks or through Mutual Funds (feeder funds).
The biggest challenge that an investor faces when investing in global markets is limited knowledge of markets, regulations and the prevailing economic condition in the country you would want to invest in.
Today, most platforms make it easy for an investor to invest in international equity or international mutual funds. However, the point to note is the higher cost, risk and taxation which can substantially erode the net returns to the investor.
If investing overseas is important to the investor, the best option would be to invest in an Indian mutual fund which has an allocation to international equity as one of its offerings.
Q) With rupee at record low – how do currency fluctuations impact the returns of Indians investing abroad, and how can they hedge this risk?
A) When a currency loses value (in this case the Rupee), your overseas investments tend to deliver higher returns in Rupee terms.
However, when you invest in an overseas market and the Rupee strengthens, it would have an adverse impact on the value of your investments held overseas. Fluctuation in currency poses a heightened risk of investing in the global markets. Not only do you have to factor in the risk of investing in the markets but also the risk of currency fluctuation.
Imagine that you make a 12% return by investing in the S&P index, but if the currency strengthens by 5%, your net return would be only 7%. While there are ways to hedge currency risk, like forward contracts on currency, these often turn out to be complex and difficult to execute.
Hence, we believe that for the retail investor, the Indian market offers more opportunities to invest and given the complexities of currency fluctuations and other factors in overseas investing, staying focused on domestic markets can often yield better returns with reduced risk.
Q) How can NRIs create their retirement fund if they plan to settle in India after 60 years. How much should be the corpus?
A) Amongst all financial goals, retirement is perhaps the most complicated, with multiple variables coming into play that can make a significant impact on the outcome.
The amount needed to have a comfortable retirement would depend on your current & future lifestyle expenses, inflation’s impact, increased life expectancy and duration left to accrue funds before retirement.
NRIs must factor in increased lifestyle expenses post-retirement, as living expenses in India have increased manifold in the past few years and are expected to keep rising in future.
Retirement planning is complex and each phase of life needs to be treated differently. While it is essential to adopt an aggressive approach during the pre-retirement or accumulation phase, it becomes equally important to reassess and manage risk as you get closer to your retirement years. With rising life expectancy, meticulous planning of your post-retirement life is essential.
Contrary to popular belief, adopting an overly conservative approach at this stage can lead to premature depletion of your retirement corpus.
Striking the right balance in asset allocation becomes crucial to meet short-term income needs while ensuring portfolio growth in the longer term.
For NRIs, engaging with an investment expert, getting the maths right and having a track record of putting people on the course of their retirement planning is important.
Because of physical distance and limited real-time information on the Indian market, an expert becomes essential in bridging the gap by providing personalised advice, ensuring compliance with regulations and navigating service-related complexities.
An investment expert helps NRIs make decisions based on informed risk, aligns investments with financial goals and ensures a check on behaviour pitfalls that could be detrimental to long-term wealth creation.
Q) What are the key investment options available for NRIs in India—real estate, mutual funds, stocks, or fixed deposits?
A) Investing is not a one-size-fits-all process, and hence, while an array of investment avenues are available to NRIs wanting to invest in India, investment in any asset class must be made by understanding its suitability to financial goals, the risk-return trade-off and ease of liquidity.
Real estate tends to lock liquidity, and due to its illiquid nature, it could also create inaccessibility of funds in times of need.
While investing directly in the stock market or Mutual Funds could be risky, they have the potential to create long-term wealth and could come in handy in times of need due to their highly liquid nature.
Keeping the above in mind, an NRI who would like to achieve goals and create wealth while based overseas, Mutual funds become a preferred vehicle for investing.
They offer diversified exposure to equities, debt or a mix of both, catering to different risk appetites and financial goals. Systematic Investment Plans or SIPs are especially beneficial for building wealth over the long term.
While fixed deposits seem to be safe and secure, their inability to beat inflation makes them an investment class where exposure should be limited.
Each of these options has its advantages and risks, and the choice depends on your financial goals, risk tolerance and investment horizon.
It is always advisable to consult with an investment expert who can help you create a customized investment plan aligned with your unique requirements as an NRI.
Q) Which sectors in India are most promising for long-term investment for NRIs?
A) Our perspective is that sector investing tends to be cyclical, as different sectors perform better or worse depending on the economic and market conditions.
While focusing on trending sectors could have short-term benefits, the cyclical nature of sectors could see long periods of underperformance due to changing patterns of consumption, regulation or other external factors.
For NRIs, a diversified investment approach that spreads your portfolio across various sectors and ensures consistent long-term growth would be an ideal way of investing.
Diversification reduces the reliance on the performance of any single sector, providing a balanced growth opportunity while safeguarding against volatility.
A diversified equity mutual fund is an excellent way to achieve this balance, as it spreads investments across various sectors, reducing risk and generating optimal returns.
These funds benefit from the expertise of Fund Managers in managing the portfolio held by them, ensuring consistent long-term returns.
Q) How can NRIs use NRE or NRO accounts to manage their Indian investments effectively?
A) Banking for NRIs often turns out to be complex, considering different regulations guiding the Banking accounts – the NRE and the NRO. According to FEMA regulations, an NRI is required to maintain either an NRE or NRO account for all banking needs.
NRE accounts are ideal if one wants to repatriate funds and offer tax-free interest income in India, making them suitable for investments like mutual funds and fixed deposits. NRO accounts are used for managing income earned in India, such as rent or dividends.
NRIs should carefully consider whether they would like to have the option of repatriation of funds or not and then accordingly invest through either an NRO or NRE account.
Q) What trends in Indian markets are currently attracting significant interest from NRI investors?
A) There are 4 primary reasons that are attracting significant interest from NRIs to invest in India.
• Rise of the Indian Economy led by favourable demographics: India’s rapid economic growth, marked by the tag of the world’s fastest-growing major economy, has been a big factor for the country attracting investments from all over the world. Being tipped as a huge consumption and manufacturing story India is projected to become a 5 trillion-dollar economy by 2025. With structural reforms and huge spending on infrastructure, the government of the day is ensuring that the right growth drivers are in place for India to become a developed economy by 2047. We are fast approaching tipping points in higher per capita income which should lead to exponential growth over the next two decades.
• Performance of the Indian Stock Market: The Indian stock market has consistently delivered strong returns over the past years and there has been large retail participation happening in the overall stock market growth story. A growing economy translates into higher stock market valuation and hence the long-term prospects of the stock markets remain upbeat in line with these growth projections. The Indian stock market is also considered among the most well-regulated in the world.
• Improved Standard of Living: We are increasingly seeing the trend of reverse brain drain happening in India. With opportunities abound and the start-up ecosystem coming of age, a lot of global Indians are moving back to capitalise on this trend. The improved living standard with infrastructure upgrades is adding to India becoming an attractive destination for NRIs to own assets here.
• Depreciation of the Indian Rupee The weakening of the Indian Rupee against major global currencies offers NRIs a favourable exchange rate advantage. This depreciation makes investing in Indian assets, including real estate and equities more advantageous for NRIs earning in foreign currency.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
