This has prompted investment advisers to reassess their strategies for NRI investors exposed to Indian securities and property markets in the face of waning investment appetite.
The International Monetary Fund (IMF), in its latest World Economic Outlook, lowered the 2020 growth forecast for India to 7% from 7.3%, reflecting a weaker-than-expected outlook for domestic demand.
A similarly gloomy picture is being painted by others, including Moody’s Investors Service, which has cautioned that economic growth in India over the next 12-18 months will remain weaker than the previous years.
This will, in turn, lead to the creation of new non-performing loans (NPLs) in the retail and SME segment. Though there is stability in the country’s macro fundamentals, stress among non-banking financial institutions will continue to constrain economic growth.
Then there are the external factors; such as the feeble global economic outlook, trade war, rising crude oil prices following the US-Iran tussle, sanctions and large-scale exit of foreign institutional investors from the Indian market after certain adverse budget proposals.
The cumulative effect has impacted the stock markets and investors are scurrying for cover.
NRI investment appetite
As it is, advisers are witnessing a lack of investment appetite among NRIs. More than the economic outlook or behaviour of the Indian economy, NRI investment propensity is influenced by perceived future risks.
“In fact, the gloomy outlook is creating scepticism among NRIs said Manoj Vallikudiyil, partner Manjul Associates, securities and investment consultants, Dubai, who early this year said that scepticism was ruling the market and the local investment advisory community was facing a grim situation.
“In such a juncture, investors should rethink their strategies as the present condition offers opportunities and risks alike.”
Manoj added that average NRIs were cautious to commit fresh investments in view of the economic growth slowdown, uncertainty in the job market and rising cost of living.
“What we have seen at the beginning of the year still holds good. We will see assets shrinking because of the weakness in the economy and a gloomy outlook, both in the home and the host countries.
“Apart from compulsory and regular payments such as insurance premiums, SIPs and loan repayments, NRIs are non-committal on new investments even when the market outlook is rosy,” he said.
Slowdown in comsumption
So, what are the opportunities and risks awaiting NRI investors?
It’s a mixed bag.
“As slowdown bites, corporates are getting ready to cut costs, as most expect a turnaround soon. It should impact corporate earnings and stock prices. The ideal mix should be mutuals through SIPs and select scrips,” said Saji George, chief executive of Dubai-based investment advisory and auditing firm SGY.
“Better keep away from auto stocks, and your portfolio should do well without them,” he said.
The auto industry has been one of the biggest casualties of India’s current slowdown.
The June quarter saw the steepest volume contraction in a three-month period since 2000/01. It is the hardest hit among major manufacturing sectors because of the consumption slowdown.
Sluggish sales are causing job losses everywhere in the country with big car manufacturers paring back production and temporarily closing factories.
Meanwhile, advisers are of the view that NRIs should grab the opportunity to subscribe to the forthcoming initial public offerings (IPOs) like that of India’s largest state-owned insurance behemoth, Life Insurance Corporation of India (LIC) which controls two-thirds share of India’s life insurance market.
The listing of the 63-year-old insurance giant will unlock shareholder value and it will be the most valued company.
It’s going to be a blue chip.