Sectors in which NRI investors can make money in India right now
Strong economic fundamentals, proactive handling of the pandemic by the government and a young population make India a ripe destination for mature investments in a variety of sectors. Here is how NRIs can take advantage of it.
It’s wise to be fearful when others are greedy and greedy when others are fearful.
That statement sums up investment legend Warren Buffet’s contrarian view on stock markets – but it’s also equally effective for the Non-Resident Indian diaspora looking for attractive investment opportunities in India amid the Covid-19 pandemonium.
The economic impact of coronavirus has been devastating, but it has also dramatically changed the outlook for several industries. It has emptied offices and shuttered shops – but filled warehouses and highlighted demand for work-from-home spaces.
In India, movement restrictions to contain Covid-19 have led to unprecedented changes in the way millions of people live and work, with online shopping sales soaring. According to industrial property firm ProLogis, the demand for logistics real estate worldwide could grow by 150-200 million square feet annually per country for the next two to three years, prompting some bold investors to not only stick with their property asset class but also raise their stakes.
According to legendary investor and fund manager, James Richman, while governments around the world are scrambling to stimulate their economic machinery, India is among the handful of countries that are poised to bounce back with a bang. If that sounds more contrarian than Buffet, Richman says that strong economic fundamentals, steady increase in GDP since the turn of the century and a robust and young population make India a ripe destination for mature investments in a variety of sectors.
Historically, the major demand driver for NRIs investing in India was real estate – either as avenues of pure profit/income or to plan for their eventual return to India. The ongoing exodus of millions of expats back to India has thrown this driver into sharper relief, coupled with a work-from-home regime that’s likely to last beyond the pandemic and the realisation that in a world of professional uncertainty, house rent is pure expense with no long-term value.
In this uncertain economic climate, what are the ways in which the Indian diaspora can leverage their non-resident status and make the most out of their potential investments in India? Here are some key sectors and investment avenues to consider:
Gold and precious metals
While gold is like an insurance cover for your portfolio and often tends to do well in times of trouble, it’s also important to remember that gold and silver have historically offered only capital protection after adjusting for inflation and as such do not qualify as an appreciating asset.
But of course, you never lose with gold – especially if you consider investing between 10-15 per cent of your overall portfolio holding. NRIs who do not have any existing investment in the precious metal should consider adding gold to the investment portfolio whenever gold prices fall. Further, instead of investing in physical gold, it’s always better to buy through Gold exchange-traded funds (ETFs) with a good trade volume.
If you have family members in India, you should also consider investing in Sovereign Gold Bonds through them – since NRIs are not allowed to directly invest in Indian Sovereign Gold Bonds as per current regulations.
In the weeks since Covid-19 forced much of India to go indoors during the preventive lockdown, residential real estate in India has seen a major jump in interest from NRIs.
“The viability of property as an investment asset class has never been higher. Today, NRIs are viewing properties in India from their homes via virtual site visits, speaking to developers and channel partners through video conferences, and paying booking amounts through online digital platforms. In the midst of the Covid-19 turmoil, several reports highlighted the surprisingly robust performance of Indian real estate players during the lockdown. This logic-defying scenario is the proverbial silver lining on the coronavirus-shaped cloud. Quality projects are finding buyers – now, in the midst of the pandemic for which there is still no end in sight,” says Shajai Jacob, CEO of Anarock Property Consultants.
A survey conducted by Knight Frank India showed that both residential and commercial real estate sectors are expected to be hit in terms of launches, sales and prices, and real estate prices are expected to fall by up to 20 per cent in India – representing a golden investment opportunity for NRIs.
The prospects are bright not only in the residential but also the industrial and logistics sectors. “Modest absorption amidst the Covid-19 uncertainties hints that the fundamentals of the industrial and logistics sector are strong and set to take a faster revival route among major real estate asset classes,” Ramesh Nair, CEO and Country Head of India for JLL, said in an industry forecast.
However, for NRIs wanting to invest in Indian real estate now, the focus should be on completed projects. “Buying under-construction units should be deferred for now as there might be significant delays. Since it is now confirmed that India will have a slowdown this year, rental markets is also expected to struggle under the current uncertain scenario. NRIs should be prepared for stagnant or slide in rentals this financial year,” advises Jacob.
In a survey conducted during the pandemic by Anarock, 48 per cent respondents preferred residential real estate as their best investment option. Moreover, 50 per cent of the respondents said that they see this as the best time to invest in homes – since prices are at an all-time low, home loan interest rates have gone below 2008-09 levels, and the perception of housing as the most viable asset has never been stronger.
While real estate always appreciates eventually, the real value in the current times is that it either eliminates rent or earns rental income even as the usual market forces come into play to take care of that appreciation. Unlike gold, mutual funds and equities, deals on real estate can be improved with strategic negotiation.
Tech driven real estate deals
Indian real estate was adapting to technology even before this crisis, but Covid-19 has given the process “escape velocity”.
“Every crisis brings challenges as well as opportunities too. Covid-19 has rapidly converted millennials – otherwise die-hard advocates of all things rented – into enthusiastic homebuyers. For this tech-savvy generation that expertly navigates digital solutions, owning a home has now become a priority. The entry barriers for real estate have also come down substantially. For NRIs – the focal point of lucrative real estate deals and the primary beneficiaries of the rupee’s depreciation of almost 7 per cent since January 2020 – the time to invest in the most tangible and rewarding asset in a post-pandemic world has never been better,” says Jacob.
Home loan refinancing
Want to make more money out of your existing mortgaged property right now? Consider a refinancing of your NRI home loan right away.
With interest rates falling sharply, the State Bank of India recently announced a rate cut for home loans – with the existing rate for SBI home loan now being in the range of 7.2 per cent to 7.6 per cent. HDFC also has cut its mortgage lending rate by 15 basis points. These are among the cheapest home loan rates in years and NRIs paying higher interest on home loans should consider refinancing their home loan to reduce the monthly EMI burden and increase their interest cost savings. Even with pre-closure charges, processing fees and valuation fees on the new loan, it would still be worth refinancing and saving substantial money if the home loan has a long tenure left. There are options to opt for fixed rates on new loans to lock-in lower rates for the entire term.
Amid the looming prospect of a global recession, equity markets in India have been hit by the volatility like any other global markets. The markets right now are trading at levels where they were 5 years ago without taking inflation into account. However, it’s vital to remember that equities have always been the blue-eyed boy of investors, especially those with a higher risk appetite. The equity market consistently produced the best returns until the markets wiped out around 30% of global investor wealth in less than 3 months due to the pandemic.
The current situation is thus an opportune moment to value-buy stocks but with adequate due diligence. With the Sensex and Nifty down by more than 30 per cent, NRIs can start with incremental investments into Indian equities, allocating fresh money to equities or moving some money from debt to equities in a staggered manner. But make sure you don’t need this money for the next 3 years.
For NRIs with existing equity investments, it’s critical to review your portfolio holdings of fundamentally weak companies. Instead, NRIs can invest in quality large-cap companies with a strong balance sheet, robust business models and good corporate governance. It is advisable not to have more than 10 per cent of equity investments in a particular company, and invest across diverse to reduce portfolio volatility rather than going overboard with a particular sector.
A special advantage for NRIs is that they can invest without going through the hassles of choosing the right stock or being biased in picking stocks – ETFs or Index Funds do just that. ETFs or Index Funds attempts to mirror the market performance of its underlying asset and are low-cost investment options – but always select ETFs with a good trading volume or an Index Fund with a good asset under management (AUM) base.
Bank deposits and mutual funds
A substantial lowering of interest rates might affect the lure of bank deposit and mutual funds in the short term for risk-averse investors. It is advisable for NRIs with investment in equity mutual funds to review the scheme type, portfolio holdings and AUM – to ensure that the fund has exposure to fundamentally strong companies.
But as James Richman says, the pent-up demand caused by the lockdown in India will certainly raise the amount of spending and sectoral bounce-backs once the situation eases. While Richman has pumped investments in multi-million fintechs and socially impactful projects in India since 2018, NRIs can also take advantage of the rock-bottom prices to be ready for the future surge in prices – but be patient about it.
Insurance markets and cover
The pandemic has underscored the vital importance of a good and reliable insurance policy – and if that policy pays profits for NRIs it gets even better.
While investing in a pure term insurance in India is the cheapest and safest mode of making provisions for the family, it’s equally profitable to invest in a market-facing policy with adequate insurance cover. While NRIs can always buy term cover from their country of residence, it is strongly recommended for them to buy secure plans in India.
In addition, for those members of the diaspora who frequently visit India for long stays or plan to return to the country in next 2-3 years, now is the time to buy a health insurance plan and avoid higher risk assessments and premium costs.
Tax exemptions /DTAA
If all the above investment avenues are not enough, here’s a quick way in which you can earn 30 per cent on your investments – if you haven’t done so already.
We are talking about TDS exemption certificates and Double Taxation Avoidance Agreements for NRIs!
Under Indian Income Tax laws, anyone making any payment to NRI is required to deduct taxes at source at stipulated rates unless specified otherwise. If you have NRO accounts, draw any rental income in India or have mutual funds and other investments, you would have noticed a tax deducted at source (TDS) from that income. NRIs can save substantial and often overlooked amounts of money by claiming back unnecessary deductions through TDS exemption/Lower TDS Certificates in India. NRIs should also check tax treaties between India and their country of residence, and benefit from it by submitting Form 10F and Tax Residency Certificates.
The coronavirus pandemic has shaken the world to the core and upended many of the traditional wisdom surrounding investments and finance. But, like Buffet, acting with carefully assessed risks can bring enormous rewards in a country with strong economic fundamentals like India.
With a dynamic management of the virus outbreak in India and sweeping stimulus packages for several industries, the Indian government has provided adequate cushion to protect domestic and global investors alike from the severe economic blows of the pandemic. Now is the time for forward-thinking NRIs to embrace the motto of Carpe Diem and seize the moment.