When the Tatas were fighting the Brazilian CSN for buying the UK steel giant Corus, in a remote corner of West Bengal, Sanjiv Biswas knew that no matter who eventually took over the company, buying shares of Corus would not be a wrong move. And, in a few easy steps, that's exactly what he did. He remitted money from his bank account in India to his broker in London and bought 850 shares of Corus at 663 pence a share at the London Stock Exchange (LSE). The next morning, he sold them all at 706 pence a share and netted an overnight profit of over six per cent. Not bad for less than a day's work, or, more specifically, for a few double-clicks on his computer.
With the Reserve Bank of India (RBI) easing the norms for Indians investing abroad, Biswas is a part of a growing tribe of people making money through offshore transactions. Resident Indians were first permitted to invest abroad in 2004, when a Budget announcement allowed remittances of up to $25,000 a calendar year. However, regulatory clearances came through only last year. Now, there is clarity on how you can go about buying shares of Coca-Cola or arbitraging in the pound sterling. In April this year, the RBI raised the amount individual Indians can remit abroad every financial year for any permitted current or capital account transaction to $1,00,000.
This has thrown open many asset categories to investment. You can buy equity directly at any foreign stock market, or buy mutual funds, insurance policies, commodities, foreign currency and even real estate. The advantage of making these investments, especially for high net worth individuals, is that they can cover geographical and currency risks. If you feel that an impending eventuality, such as an election, is making the Indian market volatile, then you can avoid the risk that comes with investing in it by putting your money in the Nasdaq or LSE or Hong Kong Stock Exchange. Similarly, you can invest in the Euro or the pound sterling or the dollar if the rupee is threatened by global or macroeconomic factors. However, you need to be very aware of these markets and track them carefully if you invest in them.
Mumbai-based Vishal Shah started trading on the London Metal Exchange (LME) as he was familiar with the market and it offered an easy way of diversifying his portfolio. Vishal and his wife Bhavi have been running a silver jewellery store in Mumbai for the last seven years. "I first tried hedging on silver through the platform provided by the Multi-commodity Exchange of India, but that was very difficult and I could not understand that," says Vishal. "Then, Reliance Money brought me access to the LME through a platform called CMC, a London-based company. It was really easy to understand and use and that's how I started hedging on silver in the international market. I can see the price movement on a second-by-second basis."
Shah uses his understanding and experience of the domestic silver market to invest in the metal internationally. He pays 1 per cent margin and hedges on the price.
How do you begin? Procedurally, it is rather easy for you to get started. All you need is a bank account with a branch that allows foreign remittances and an account with a provider like Reliance Money or Man Financial, or a large bank which provides options for global investments.
Indian service providers have tie-ups with international equity, commodity and currency brokers, who allow you to use their platform for trading. You remit the money to your account with them by filling up Form A2 and the money is wire transferred in a day or two. Once it's there, you can use it to invest in stocks, commodities, indices, derivatives or currency. Popular areas of investment currently are equity, indices,