After two continuous years of significant investments in Indian equities, the participation of non-resident Indians (NRIs) has significantly cooled off in 2012.
According to data available on the BSE website, NRIs are net buyers at only R3.8 crore so far in this calendar year. This is the lowest compared with 2011 and 2010, when NRIs net bought shares worth R95.07 crore and R78.1 crore, respectively. In 2009, NRIs net sold R49.05 crore worth of Indian equities. Data related to NRI trades on the NSE were not available.
Experts managing NRI portfolios attributed this slowdown to market conditions and weak corporate earnings. In addition, interest rates offered on fixed deposits were high, which lured foreign nationals of Indian origin to sell risky assets and park their funds in FDs.
?Market conditions, not just in India but throughout the world, were gloomy in December last year. Also, importantly, FD rates offered to NRIs were very attractive, which prompted them to liquidate their holdings in equities and mutual funds, and park their funds in Indian FDs,? said CJ George, MD, Geojit BNP Paribas Financial Services. George said that rupee?s depreciation against the dollar played a huge role in diverting NRI investments from equities to FD.
Experts said that a majority of Indian banks offered rates of 9.75% on fixed deposits to NRIs compared with near sub-zero rates in the US and many European nations, and 1-5% in several of the West Asian countries. A majority of Indian banks are still offering interest rates of 7.50-7.75% on one -year fixed deposits to NRIs.
Interestingly, remittances from NRIs have seen a steady increase in the years gone by as RBI started its rate-hike spree in late 2010-early 2011. Reports, quoting RBI data, suggest that inward remittances defeated FDI inflows in the country. In 2011-12, NRI remittances were $66.13 billion (R342,884.05 crore), against an FDI inflow of $46.84 billion.
Experts were of the view that the decline in NRI inflows was temporary. With the recent announcements made by the government on fiscal reforms, the market could see a revival in NRI stockmarket turnover late November or early December.
?NRIs were halting their investments in Indian equities as corporate earnings were not impressive in the previous few quarters and due to adverse market conditions, we witnessed huge amount of profit-booking. However, NRIs are showing interest in investing in Indian equities on expectations of improvement in third and fourth quarter earnings,? said Sajith Kumar PK, CEO and director of Dubai-based JRG International Brokerage DMCC.
Kumar also said that the reforms process has bolstered sentiments of foreign investors towards India and that he was in discussions with several clients wanting to invest in India?s growth story.