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How NRIs can take advantage of India's growth story

Top asset manager details investment strategies, high potential sectors

India is expected to become the third largest economy in the next three years, and non-resident Indians (NRIs) need to invest wisely to take advantage of its expansion, an expert said. “At $5 trillion, India becomes an asset class in itself and cannot be avoided anymore. With strong growth foundations, the country presents investment opportunities across asset classes,” Anshu Kapoor, president and head, Nuvama Asset Management (formerly Edelweiss Wealth Management), told Khaleej Times in an interview.

The NRI community has been historically under-allocated to India. “India’s weight in the MSCI EM index is now close to 20 per cent, up from 6-7 per cent about 10 years ago. NRI’s could use this as a guide to start building up their investments in the Indian markets,” Kapoor said.

Backed by a growing interest in India, the asset management industry has evolved investment options across asset classes on offer via the GIFT City route, Kapoor said. “It is built with the idea of being India’s gateway to inbound and outbound investments and is being developed to be at par with international jurisdictions like Singapore & DIFC. Special dispensations have been granted to Funds in IFSC to equip them with higher operational flexibility while maintaining tax efficiency. This flexibility under the foreign exchange regulations complements AIF regulations well, making IFSC attractive for a wide range of AIF funds for NRIs. Parity with international jurisdictions, favourable taxation regime, calibrated regulatory regime are among the key factors that have led to gaining international investor’s trust as the preferred investment route,” he added.

Fiscal consolidation focus continued with FM cutting FY25 fiscal deficit target to 4.9 per cent from 5.1 per cent in the interim budget. Along with Fiscal consolidation, The Union Budget 2024-25 was set against a backdrop of the need to sustain the capex push as broader private capex is still weak, and the need for a spending boost at the lower end of the income spectrum keeping the recent poll outcome in mind.

“From an equity markets standpoint, we don’t think the budget would materially alter the earnings trajectory (which is likely to see moderation) in the coming year. As regards to the portfolio, we maintain our quality/defensive bias and prefer consumption over capex. Key overweight sectors are: Consumer, private banks, insurance, IT, pharma, and telecom. Key underweight sectors are: Industrials, metals and PSUs,” Kapoor said.

The budget extended incentives to the International Finance Services Centre to improve ease of doing business, besides allowing exemptions for retail and exchange traded funds. The reforms are expected to further boost foreign investments into India on the back of a strong investment case presented by the country. “At Nuvama Asset Management, we continue to offer strategies designed to offer participation in various asset classes such as private equity, public markets & commercial real estate. We see a growing demand from foreign investors across regions looking to incrementally allocate capital to India. Our key alternative strategies across private equity and liquid alts are listed on the GIFT City IFSC platform and would be available for the investors in the GCC markets where we are seeing a lot of interest,” Kapoor said. While Nifty earnings are likely to compound by almost 15 per cent over FY24 to FY26 reaching an EPS almost of 1305, the growth is going to be led by Telecom (2Y exp CAGR of 64 per cent), Materials (2Y exp CAGR of 33 per cent) and Industrials (2Y exp CAGR of 20 per cent). Staples, Energy and IT will likely lag with 2Y sector earnings compounding at 8 per cent, 7.9 per cent and 11 per cent respectively, he added.

“Telecom earnings are going to be backed by tariff hikes taken recently and more which are likely to follow. IT earnings will be bottoming out, will still face likely headwinds due to subdued discretionary spends from their US clients,” Kapoor said.

Besides these, the largest sector within the index, i.e. financials is likely grow marginally ahead of the index at ~16 per cent over the next two years, as credit growth moderates somewhat and deposit garnering picks up pace albeit at a higher cost in the wake of savings flowing through other better performing asset classes like equities, he added.

With presidential election in the US, as the world's largest economy, later this year, Nuvama sees select areas being impacted meaningfully, depending on the outcome of US elections. These include:

1. Climate change: when it comes to the effect of the election results, green sectors may see a significant impact. This is an area where the two parties have different ideologies and the election outcome will impact the future of wide ranging sectors: from hydrocarbons to renewable energy and automobiles.

2. International trade: artificial trade barriers in the form of tariffs or subsidies are likely to impact global trade and consequently prices of commodities and global inflation and interest rates.

The near zero interest rate environment was an anomaly, Kapoor said. “These levels had appeared to be normal given the unusual duration for which the rates were tending towards the zero per cent mark. “We believe the current levels is where the normality really lies. The digression of interest rates had skewed capital allocation which would be unhealthy for the overall economy over the long term. The re-normalisation of yields will result in the allocation criteria returning to fundamental parameters like – growth, pricing power, the right capital structure, operational efficiencies among others,” he added.