What should be the investment strategy of NRI retail investors focused on the Indian market in the run-up to the installation of a new government after the ongoing phased general elections in India?
Investment advisers in the UAE are betting on continuity of the current regime and advise investors to keep invested and profit from a correction after the current volatility. They are circumspect on other asset classes.
“Today due to continuous price erosion many retail investors are considering a reduction in exposure to equities and shifting to fixed deposits or debt schemes. This is actually the opposite of what they should be doing now,” said Vinod Nair, head of research, Geojit Financial Services, in the April issue of its newsletter Market Digest.
He advises that it is the right time to increase the mix of mid and small caps in NRI portfolios over the next three to six months.
It’s widely believed that the incumbent government will come back to power, which will boost sentiment among both domestic and foreign investors.
The 2019 general election is taking place across seven phases of voting between 11 April 11 and 19 May, with the final results on 23 May.
The current rally is liquidity-driven and will get extended if the current government gets the mandate to continue, which will bring in continuity in reforms, attracting a huge number of foreign institutional investors.
Wild fluctuations expected
The market is expected to witness a fair measure of volatility in the short term. Market participants are preparing for wild fluctuations in stock indices in the next few weeks and a correction thereafter, which will be a good opportunity to buy.
Satish Bhaskaran, director of Aurum Consultants, a Dubai-based investment and M&A advisory firm, advises that investors should continue their SIPs as stocks are likely to fluctuate within a narrow range in the short run and may later move sharply in either direction based on the election results. SIPs are ideal to ride the volatility, so investors should not stop their SIPs.
“The market turbulence should be capitalised to benefit from rupee-cost averaging — a mechanism to buy more fund units when they cost less and less units when fund net asset values (NAVs) rise. If an investor stopped his SIPs during this period, he is likely to miss the opportunity to accumulate fund units at low cost, and by the time he restarts SIPs, the market may already have run up,” he said.
Keep invested in SIPs
“We believe that continuity in SIP and higher mix of quality mid and small caps will provide better gain in the long-term. It is important to note that interest rate in India is likely to reduce by 50-75bps in the coming two to four quarters,” said Vinod Nair.
For beginners, Anish Abraham, senior adviser, corporate affairs and business advisory with Kaden Boriss Corporate Services, advises consolidation for easy management of bank accounts, such as the non-resident external (NRE) savings account, non-resident ordinary (NRO) savings account and demat account, if the investor holds shares from when he was a resident in India.
And for those wanting to continue investing in India, they should open a portfolio investment scheme (PIS) account also, he said.
The general economic growth outlook is positive irrespective of whoever comes to power. The market expects earnings growth to revive with betterment in economic momentum.
The domestic slowdown in business growth has stabilised and financial liquidity has improved. This is likely to be supported by a further reduction in interest rates.
All these factors are supporting a major turnaround after the elections. There is also likelihood of further rate cuts, which will ease the prospect of a liquidity crunch.