Both capital and currency markets globally have been volatile for the last few weeks triggering serious turbulence in the indian currency. Current account deficit and foreign institutional investors selling heavily in the Indian bond market has been the key trigger for rupee depreciation. Data points such as negative export and industrial growth has further triggered the uncertainty. The banking regulator and the finance ministry has not come out aggressively to support the falling rupee and have continued their bond sale programme further affecting the sentiment.
How much more will the rupee depreciate?
Considering the current political scenario wherein the central government is looking forward to bring in legislation for the food security bill that further increases the subsidy bill for the nation and many more such populist measures that will be helpful for the political parties keeping in mind the Lok Sabha election in 2014, the overall medium-term financials of the country are not looking exciting. The Reserve Bank of India is still not looking to intervene to control the sliding rupee but may soon come into action to bring interim stability.
Overall in the medium term, we may continue to see volatility but over the long term, we cannot afford to see rupee sliding further as many other critical parameters such as fuel import will start hurting the economy.
How does it impact NRIs?
Very often we find non-resident Indians (NRIs) are approached when rupee depreciates to bring in foreign exchange and capitalize on the sliding rupee. All bankers, developers and host of financial institutions bring schemes that are made to look attractive for NRIs when the rupee is volatile. Interest rates on non-resident external account and foreign currency non-residential account deposits look very lucrative when NRIs take into account stand-alone rupee returns.
In the last two decades, data show that NRIs have only lost out whenever they bought foreign exchange into India in such volatile times thinking they are capitalizing the volatility in currency and locking into high-yielding deposits.
When we look back, bringing in foreign currency to capitalize the high interest rate scenario has not helped NRIs as they have lost out on the overall capital return basis. High interest rates get compensated by depreciating rupee. It is a wrong perception that NRIs make good returns by locking in high-yielding deposit.
What options are available?
NRIs have always been the soft targets when it comes to tricky situations. NRIs have rarely made money when they have got sold to ideas that are very special or not standard offerings in the market. Very often they start believing that they are being pitched the best options that money can buy in India.
Unfortunately not all such options are in the best interest of someone who is not physically in India and lacks active management and nimble-footed action given the dynamic economic scenario. It is strongly recommended that NRIs should never take decisions based on emotional aspects such as buying real estate in hometowns with expectation of high returns.
Real estate decisions ought to be based on sound and judgemental advise from a professional with pure investment objectives and with no emotional aspect attached to it. Markets such as Hyderabad, Bangalore and Pune currently offer decent opportunities in terms of value. Chennai also offers good opportunities.
Falling rupee should not always be seen as an opportunity but certainly can be seen an option to explore good investment options with 8-10 years investment horizon.
Om Ahuja is CEO (residential services), Jones Lang LaSalle India.
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Published: 27 Jun 2013, 07:36 PM IST
