Volatile Rupee and Investing in the Indian Real Estate Sector
It is a wrong perception that NRIs make good returns by locking in high-yielding deposit.
How much more will the rupee depreciate?
Considering the current political scenario wherein the
central government is looking forward to bring in legislation for the
food security bill that further increases the subsidy bill for the
nation and many more such populist measures that will be helpful for the
political parties keeping in mind the Lok Sabha election in 2014, the
overall medium-term financials of the country are not looking exciting.
The Reserve Bank of India is still not looking to intervene to control
the sliding rupee but may soon come into action to bring interim
stability.
Overall in the medium term, we may continue to see
volatility but over the long term, we cannot afford to see rupee sliding
further as many other critical parameters such as fuel import will
start hurting the economy.
How does it impact NRIs?
Very often we find non-resident Indians (NRIs) are
approached when rupee depreciates to bring in foreign exchange and
capitalize on the sliding rupee. All bankers, developers and host of
financial institutions bring schemes that are made to look attractive
for NRIs when the rupee is volatile. Interest rates on non-resident
external account and foreign currency non-residential account deposits
look very lucrative when NRIs take into account stand-alone rupee
returns.
In the last two decades, data show that NRIs have only
lost out whenever they bought foreign exchange into India in such
volatile times thinking they are capitalizing the volatility in currency
and locking into high-yielding deposits.
When we look back, bringing in foreign currency to
capitalize the high interest rate scenario has not helped NRIs as they
have lost out on the overall capital return basis. High interest rates
get compensated by depreciating rupee. It is a wrong perception that
NRIs make good returns by locking in high-yielding deposit.
What options are available?
NRIs have always been the soft targets when it comes to
tricky situations. NRIs have rarely made money when they have got sold
to ideas that are very special or not standard offerings in the market.
Very often they start believing that they are being pitched the best
options that money can buy in India.
Unfortunately not all such options are in the best
interest of someone who is not physically in India and lacks active
management and nimble-footed action given the dynamic economic scenario.
It is strongly recommended that NRIs should never take decisions based
on emotional aspects such as buying real estate in hometowns with
expectation of high returns.
Real estate decisions ought to be based on sound and
judgemental advise from a professional with pure investment objectives
and with no emotional aspect attached to it. Markets such as Hyderabad,
Bangalore and Pune currently offer decent opportunities in terms of
value. Chennai also offers good opportunities.
Falling rupee should not always be seen as an opportunity
but certainly can be seen an option to explore good investment options
with 8-10 years investment horizon.
by Om Ahuja is CEO (residential services), Jones Lang LaSalle India for MINT
