How can one beat the effect of depreciating rupee and raise the chances of acquiring profits? This is a question investors are juggling through these days, and experts are answering on various platforms. Saurabh Mukherjea, founder and chief investment officer of Marcellus Investment Managers, has explained in detail the way to limit the damage, and further the chances of gains during his address at an event in Bengaluru.
Talking of how International Financial Services Centres Authority (IFSA) through GIFT City has opened another arena for investments and financial freedom for people, Mukherjea said that the Indian rupee has historically depreciated by around 40 per cent every decade.
“What IFSCA has done is path-breaking. It allows middle-class, upper-middle-class people like us to manage wealth globally, cost-efficiently, tax-efficiently,” he added. Mukherjea explained that the IFSCA worked very hard over the last three years to make it as easy for people to invest in Sweden, Germany, America, Taiwan “as it is to invest in, say, a local mutual fund”.
Gift City and investments abroad
Mukherjea stressed that a lot of investments these days are done abroad and Indians are choosing foreign markets to diversify their portfolios. “How much money do Indians send abroad every year? Is it A, $10 billion? B, $20 billion? C, $30 billion? Or D, $40 billion? How much money do Indians send abroad? A, B, C, D, 10, 20, 30, 40,” he asked.
But at the moment, we’re at $30 billion, he said, adding “Just imagine, right? $30 billion every year leaves the country going abroad in LRS.” He said that in the last six months, over $1 billion Indian money has gone abroad for investments to GIFT city.
“The point I was trying to begin with is there’s a wave of money, Indian money, hardworking Indian people’s money, your clients’ money leaving the country. As per the RBI’s diktat, local mutual funds can’t take that money anymore. The 7 billion cap has been hit. Unless the regulator relents, and I have no reason to believe the regulator will relent, that money will still want to go abroad. It will go abroad through the gift city,” he said.
The Money Mathematics
Calling the Indians today – the Global Indians, Saurabh Mukherjea said every individual is thinking of investing abroad. “Assume, you’re working hard in Bangalore, you’re earning 100 rupees, 100 rupees you’ve earned, right? Firstly, income tax, if you’re like me, 30 to 35 rupees income tax may be cut. Then you’ll lose around 15 to 20 rupees on GST, right? So, 55 bucks will be gone in paying tax alone. You’re left with 45 bucks in your hand, 45 rupees in your hand. In the last 10 years, rupee depreciation has taken away 30,” he added.
So, he mentioned, a typical 10-year cycle may have rupee depreciation taking away 35 to 40%. “Remember folks, the only currency worth measuring wealth is in dollars. No point telling your clients, rupees make a compounding, it’s utterly irrelevant,” he told the crowd.
Why? He said the plane he travelled to sold tickets in Rupees, but it is as per Dollars because the fuel is imported. And so is the magazine in it.
“It’s a visual illusion that our lives are in rupees, actually lives are in dollars. You got 45 rupees left from your 100 rupees, dollar rupee depreciation will take away around 15 bucks out of that. You’re only left, you’re only left with 30 rupees out of every 100 rupees you earn. With that 30 rupees, you have to finance your day-to-day living, your kid’s education and your retirement,” Mukherjea said.
Indians going abroad in large number
Sharing his research, Mukherjea said he was shocked to find out the rate with which Karnataka sends Indians to study abroad. “It’s the state next door. So, Andhra or Telangana sends the most people to study abroad,” he added.
If people are paying 10 lakhs a year for their kids to study in a foreign syllabus, they’re hardly going to be sending them to a local college, he said, they’re all going to end up in universities in the Western world.
Saurabh stressed how people are even going for vacations abroad, saying it is cheaper.
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“We created a global fund initially because I realised that sending kids abroad to study, investing in local mutual funds is not going to cut it, right? If you take the dollarized return of local mutual funds, it simply is not enough to send your kids abroad to study. Investing in desi mutual funds, dealing with the rupee depreciation, weak EPS compounding in our country, it’s not going to be able to finance global education. That’s why we started Global Compounders,” he said.
Saurabh said an investor should diversify and focus on global opportunities. “One cannot say that my entire portfolio will be Indian, I will earn, it doesn’t work like that”. He said that in today’s world, there are global companies that are making tons of money.
Citing Warren Buffet’s example, he said that he drinks Cherry Coke, he eats burgers, he eats chocolate. “I’ve never seen him have Cadbury, because Cadbury in Asia is candy, right? So he’s a patriotic guy, Warren Buffett. And he famously said, never bet against America, right? Credit to the man, he kept saying that through his career and he retired on a high when the American stock market was lowering,” Mukherjea highlighted.
But, he said, Buffett invested abroad liberally and made tons of money abroad. He invested in Europe, he invested in China. Warren Buffett and Charlie Bungers investing in BYD is legendary, he said.
Citing some data, he said that over the last two decades, India and America are the only large markets to give anyone double digit dollar compounding. So, he added, 50-50, India and America – the result will be higher than either market. India had, both India and America have given around 14.2, 14.3% over the last 20 years, but a 50-50 portfolio will make more money than either market.
The expert added that if one invests in two markets, say India is 14%, America is 15%, assume it is 50-50, if one keeps doing 50-50 each year, the return will not be a mathematical average of 14 and 15, but higher of the two markets.
“It’s one of the most breathtaking findings in finance. Something as simple as this, choose two markets with low correlation, India and America, 50-50,” Saurabh added. He advised the attendees to have diversified portfolios for their clients on a global level because “their market and our market have very different drivers”.
Disclaimer: The content in this article is based on a viral social media discussion and is intended for informational and entertainment purposes only. The financial figures and strategies mentioned are personal to the user and have not been independently verified. This story does not constitute financial advice or an endorsement of any specific investment strategy. Readers are advised to consult a SEBI-registered investment advisor before making financial decisions.