By Rahul Bhutoria
As the world continues to face economic and geopolitical challenges, High Net Worth individuals (HNIs) in India are seeking ways to protect and grow their wealth. India’s HNIs are increasingly investing in foreign bank deposits, equity and debt instruments, and properties abroad.
According to reliable data, Indians pledged $1.69bn directly into foreign bank deposits and investments in the 2021-22 financial year. Indians transferred $20bn overseas via LRS, up from $13bn in the previous year, and $6bn between October and December 2022. The trend is expected to continue, with experts predicting that Indian HNIs will allocate even more funds to offshore investments in the coming years.
The geopolitical landscape is bound to influence investment decisions. New regulations by the Indian government have made the investment scenario even more complex. In addition, the declining value of India’s currency vs the US dollar adds to imported inflation, and investors are bound to feel the pinch.
As people reach different levels of wealth, their perception of risk and the type of risk they are willing to take also change. For Indian HNIs, diversifying internationally becomes important as it can help reduce risk and increase returns. According to a survey conducted by Knight Frank, a leading global property consultancy firm, Indian HNIs allocate an average of 28% of their portfolio to overseas investments.
While the Indian economy is viewed as robust, recent geopolitical events and allegations have led HNIs to diversify their investments and seek access to international markets. The recent changes to the LRS announced in the Indian budget have further complicated the investment scenario, as sending money outside of India will now attract a TCS
Offshore investments also provide HNIs access to international markets and currencies, allowing them to hedge against inflation and exchange rate fluctuations. In a globalised world, everything from crude oil to airline costs can affect the domestic economy, and the declining value of India’s currency against the US dollar only adds to imported inflation. As a result, any reserve currency or the option of offshore assets could be a boon during global churning or regulatory changes.
For HNIs with family businesses outside India, tax-efficient structures and investment opportunities in different asset classes and geographies can further minimise risks. Many affluent business families are migrating to Dubai and Singapore to take advantage of tax-efficient structures and plan taxes for the next generation.
Investment opportunities like long-short funds or hedge funds may also be available in more efficient tax structures outside India. There are other market-neutral strategies like life settlement funds or funds specifically managing volatility that can add to the diversification of the portfolio.
Finally, HNIs may also seek to invest in global companies that have a monopolistic attribute in India such as Facebook, Google, Netflix, Amazon
In doing so, they could take advantage of inorganic growth opportunities when the costs of capital are increasing. Investing in these companies can provide HNIs with exposure to fundamentally strong companies with high returns on capital and investment.
HNIs in India face a complex investment scenario, with changing regulations and geopolitical risks. Diversifying geographically and investing in offshore assets can provide HNIs with access to international markets and currencies while minimising risks associated with the domestic economy.
Investing in tax-efficient structures and global companies with strong fundamentals can also help HNIs protect and grow their wealth in the long term. With the trend towards offshore investments on the rise, Indian HNIs may find that international diversification is crucial to achieving their investment goals.
(Author is Director and Founder, Valtrust- a Bespoke Multi Family Office)