Anil Sharma, an Indian expat living in Dubai, is hoping he will one day retire very comfortably to New Delhi or his home city of Dehradun.
The insurance consultant, 42, is investing in the Indian stock markets to diversify his savings with the aim of securing good returns to facilitate this dream.
Having put money into Indian shares for the past seven years, he says his investments have grown annually in a range of 15 to 20 per cent.
Investing in equities is now an attractive option for non-resident Indians (NRIs), analysts say. With the Indian rupee trading at weak levels – meaning more rupees for each dirham or dollar – and widespread expectations that the Indian stock market could rally this year as the country’s economy looks set to improve, it’s easy to see why.
Mr Sharma says he is “a big believer” in the Indian growth story and thinks there will be scope for further gains if a stable government comes to power following the general elections, due by May.
“During the downturn there have been some bad stocks, but I do extensive research through various websites and I pick and choose good stocks and I’ve been able to make decent profits,” Mr Sharma says, explaining that he trades online through HDFC, one of the major Indian retail banks. He does not use the services of an adviser, preferring to select his own stocks, and is currently investing about 200,000 rupees (Dh11,939) a month in equities.
“I’m a long-term investor,” he says. “Half of my investment is in mid-cap companies and half in blue-chip companies. The blue-chip companies give me stability and mid-cap would give me more growth in 10 to 15 years. I don’t have time for short-term trading, so it’s better to buy and hold on.” The best profits are coming from his pharmaceutical and banking stocks, he adds.
The benchmark S&P BSE Sensex, which tracks 30 major stocks on the Bombay Stock Exchange, hit a record high last month of 21,483.74. Karvy Stock Broking, based in Mumbai, is predicting that the index could reach fresh highs, with a year-end target of 24,800.
“We see 2014 bringing a new bull cycle into existence,” says Varun Goel, the head of portfolio management services at Karvy. “A good monsoon, strong export sector, continued recovery in the US and a stable euro area are significant positives for equity markets. With domestic macroeconomic data also on the mend, we are aggressive buyers of Indian equity.”
Mr Goel highlights a few sectors that are likely to perform well this year.
“With interest rates not expected to increase a lot, we have turned positive on interest rate sensitive sectors like banks and automobiles,” he explains. “Public sector banks are trading at quite cheap valuations and we expect significant outperformance from that space in the next two to three years.
“We expect export-orientated sectors like IT to continue to benefit from the significant rupee depreciation seen this year. Telecom is another sector which might deliver strong earnings due to the return of pricing power and reduction in competitive intensity.”
Raghvendra Nath, the managing director of Ladderup Wealth Management in Mumbai, agrees that there is upside potential for stocks.
“Yes, it is definitely a good time to start investing in Indian equities,” Mr Nath says. “The economy seems to be bottoming out now. Most economists believe that India would see a revival in growth over the next one to two years. Any such revival would also lead to higher earnings in the corporate sector. I feel we are at a juncture, where even a mild recovery can lead to substantial gains over the next three to four years.”
He cautions that first-time investors should be careful about investing directly in equities.
Gaurav Mashruwala, a financial planner in Mumbai, says that for NRIs who do not have time to study the markets, it might be better to invest in other options such as mutual funds where the potential returns might not be as high but you can be “a bit more hands-off”.
He warns that there is also a foreign exchange risk if an Indian expat plans to eventually use the money in their country of residence rather than India, which could result in them losing out if the rupee depreciates further.
“You should have skills and time because Indian markets are more volatile,” says Mr Mashruwala. “In your overall financial goals and in your financial realm of things, is it going to make sense? If it is, you bring your money into the country, open a demat account, and you look out for a stockbroker who would advise you.”
Demat accounts or “dematerialised accounts” are where shares are held electronically instead of in the form of physical certificates.
The accounts can be opened through banks and stockbroking companies. Online trading accounts can be set up at the same time through the institution with the necessary documents, including a Pan (permanent account number) card issued by the Indian income tax department. It is normally free of charge to open a demat account, but there are various associated costs.
Kotak Securities, for example, charges NRIs a monthly maintenance charge of 75 rupees for a demat account compared with 50 rupees a month for resident Indians. An online trading account with a bank or stockbroking firm in India typically costs about 500 to 1,000 rupees to open and then there is an annual charge of a few hundred rupees. Brokerage fees are typically between 0.3 and 0.5 per cent.
These costs are not particularly high but Mr Mashruwala says that the risks of investing in stocks should be carefully weighed.
“At the end of the day it’s your hard-earned money,” he adds.
The ABCs of investing in the Indian market
Sonam Udasi, the senior vice president and head of research at IDBI Capital, discusses the best strategies for investing in Indian stocks.
What approach is best this year?
In the first half of the year it’s likely to be quite volatile. What we are advising clients coming from abroad or domestically is that it is a good time to continue looking at opportunities. We don’t think stock markets in India are very expensive. Keep your eyes open from here until May [when the Indian general election is due] and whenever you find there’s a huge dip, go ahead and start investing. Historically, it has always happened that pre-election there’s a low point in the Indian market.
Which sectors in the stock markets look good?
We are telling clients to look at areas such as private-sector banks. Another sector we are recommending is information technology for the simple reason that if the United States is recovering and Europe is looking OK, then the total order book for these guys will get better and better as we go into the year.
Which sectors should be avoided?
We think there is still some pain in the realty space.
What other investments might Indian expats want to consider?
Interest rates in India are quite high, so there are bonds that are available that are offering quite a high yield. Even those can be looked at with a view that if the economy starts to recover then the interest rate cycle would start to come off after a year or so. There you’ll make money because you’ve bought a high-yielding bond and the value of the bond would go up next year.