Market experts say trend is temporary, affluent investors evaluating opportunities

It is a trend that should make RBI Governor Raghuram Rajan happy. Indians are cutting back on their investments and remittances overseas. According to RBI data, Indians sent a mere $75 million (Rs 470 crore today) abroad in August for investing in shares, property and education and as gifts for relatives living overseas.

This is a third lower than the average monthly outflow of $115 million between April and July. Money sent abroad has fallen after five years of sustained increase.

Property, gifts fall

Purchases of property abroad fell the most, standing at a mere $3 million in August, down 65 per cent from the average of $8-10 million in April-July. Gifts and donations also fell 40 per cent to $17 million.

Market experts attribute the fall to RBI’s recent efforts to curb dollar outflows through this route. In an effort to stabilise the rupee, the RBI reduced the sum that individuals may remit abroad from $200,000 to $75,000 under the Liberalised Remittance Scheme (LRS) in August. It also banned purchase of immovable property abroad. Remittances towards education and medical expenses can still be made outside these limits.

According to Om Ahuja, CEO - Residential Services, Jones Lang LaSalle India, many Indians chose to buy international real estate to ensure steady rental revenue streams for their families abroad, or provide accommodation for their own use. Destinations such as West Asia , London and Singapore were much sought-after, before the RBI ban brought such investments to an abrupt halt.

Only in pause mode?

But some wealth managers believe affluent investors remain quite convinced about investing outside India and have only paused to re-evaluate opportunities.

Ashish Shanker, Head - Investment Advisory, Motilal Oswal Private Wealth Management, says that while the RBI moves have had a knee-jerk impact on property transactions, high net worth individuals (HNIs) will continue to remit money abroad for other investments, education and maintenance of relatives.

“The limits are considered a short duration measure and, therefore, money is likely to remain on the sidelines. Other avenues may be explored after a wait of at least six months,” says Mudassir Zaidi, National Director – Residential at the real estate firm Knight Frank India.

Investing in foreign equity and debt is still open to HNIs, an avenue that is under-utilised. This may now find more takers. The US markets have delivered a 23 per cent return in the last one year compared with the 9 per cent return on the Sensex. The primary market has been quite active in the US with recent IPOs like Twitter delivering blockbuster returns of 58 per cent from its listing price.

But taking advantage of this trend does not necessarily require investors to send money overseas. “HNIs can also invest through international funds through the feeder route to make use of the opportunity available in other markets,” says Shanker. Top-performing feeder funds such as Franklin US Opportunities, Motilal Oswal NASDAQ-100, and ICICI Prudential US Bluechip have delivered a 50-55 per cent return in the last one year.

Sitting pretty

Meanwhile, investors who have purchased assets abroad in the last five years may be sitting on hefty gains. “The strengthening of the dollar is good from the point of view of returns on such investments,” says Rajmohan Krishnan, Co-founder and MD, Entrust. “Recovering from the initial shock of the rupee fall, more investors may actually invest abroad over the next 12-15 months given the risks to rupee even now,” says Shanker.

(This article was published on November 25, 2013)
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