The wealthiest Indians have been invested in property abroad for diversification.
Sachin P Mampatta reports.
The amount of money Indians invested in foreign securities, property, and deposits in 2022 was likely the highest on record.
At $2.1 billion, it was the largest spend for any 12-month period according to the Reserve Bank of India’s (RBI’s) data going back over a decade.
The amount spent for each individual segment was also the highest.
Foreign deposits, property, as well as shares and other investments each hit a new peak in December 2022 on a rolling 12-month basis.
The government allows Indians to spend $250,000 for various purposes abroad under the liberalised remittance scheme (LRS).
This can also be used for education, medical expenses, gifts, donations, travel and maintenance of close relatives or other purposes, in addition to the investments mentioned above.
Data for investments is available in a continuous form since April 2011.
The analysis of some available data before 2011, going back to 2009, shows that cumulative 12-month rolling investments in foreign deposits, property or equity or debt then did not exceed $350 million.
Investments in foreign equity or debt hit a record-high of $969.5 million for the rolling 12-month period ended December.
The monthly figure of $119.58 million for December was also the highest on record, amid a significant increase in interest in foreign stocks.
A large number of brokerages have had tie-ups that allow their clients to hold shares in companies like Google parent Alphabet, Microsoft, and Amazon.
A number of investors have also invested in such companies through the mutual fund route.
The value of MF holdings was in excess of Rs 27,055 crore as of December, according to data from primemfdatabase.com.
The data for January showed the value of MF holdings in foreign securities had risen to Rs 29,012 crore.
However, Regulatory curbs have affected MFs’ ability to take more exposure to foreign securities.
Additionally, a government provision to introduce 20 per cent tax deduction at source for remittances over a certain sum is also reportedly expected to be a dampener for investments abroad.
The value of deposits was $985.7 million, though much of the increase occurred in March and April.
Incremental investments have not witnessed the steady rise seen in equity and debt investments, though the 12-month figure was still at a record as of December.
Immovable property investments amounted to at least $100 million on a 12-month rolling basis since December 2021.
The latest figure of $157.6 million in December 2022 was also a record.
The wealthiest Indians, or ultra high networth individuals (UHNIs), have been invested in property abroad for diversification as well as the higher rental yields available in developed markets, according to Nipun Mehta, founder and chief executive officer of multifamily office BlueOcean Capital Advisors, even as many Indian have seen prices stagnate in recent years.
Many of the less wealthy HNIs would begin to diversify abroad using equity since the ticket size is smaller compared to buying property and the process is simpler.
The tailwind of high returns in developed markets also may have acted as an incentive, according to Mehta.
“Partly it could be that US equity markets did very well,” he said.
The US markets delivered in excess of 20 per cent returns for three years in a row since 2019.
The rising wealth of many Indians, ease of access to foreign assets through multiple platforms and greater awareness of global opportunities are among the reasons for the surge in investments abroad, according to Anshu Kapoor, president and head of investment management at Nuvama Wealth Management.
The trend has increased exposure to foreign currencies and markets, helping to correct a long-standing concentration risk among many of India’s wealthy elite, according to Kapoor.
“Indian customers are not diversified,” he said.
