Despite recent underperformance in Indian equities and sustained foreign portfolio investor (FPI) outflows, India continues to offer one of the strongest long-term structural growth stories for global investors.
While market sentiment has cooled amid valuation corrections and currency pressures, improving earnings, resilient domestic SIP inflows and attractive valuations are creating fresh opportunities for patient investors.
In an interview with Kshitij Anand of ETMarkets, Pradeep Gupta, Chairman & Managing Director, Anand Rathi Share and Stock Brokers Limited, shares why NRIs should consider allocating 25–35% of their global portfolio to Indian assets for long-term wealth creation.
He also discusses his preferred sectors, the case for midcaps, the role of Indian fixed income and REITs, tax considerations for NRIs, and how alternatives such as PMS, AIFs and private credit can help build a diversified India-focused portfolio. Edited Excerpts –
Q) Has sentiment changed towards India, given the domestic market has failed to generate substantial returns for the past two years?
A) Sentiment has cooled, and the numbers back that up. The Nifty returned about 10% in local currency in 2025, but MSCI India delivered barely 2–4% in dollar terms, its worst showing versus emerging markets in over a decade, and by some measures the weakest relative performance since 1994.
FPIs pulled out a record ~$18 billion (₹1.7 lakh crore) that year. 2026 has been worse, rupee returns are down 10% from the year's high, and FPIs have now taken out close to $28 billion (₹2.6 lakh crore).
India was among the best-performing major markets globally between 2021 and 2024, and over 20 years it has still outperformed most global peers even in dollar terms.
This is mean reversion after a period of valuation excess, not a break in the structural story. Earnings growth is re-accelerating, valuations have come down to sensible levels, and domestic SIP flows above ₹30,000 crore a month haven't wavered.
Stretches like this have historically been better entry points than exit points, and this one isn’t any different.
Q) Which sectors look most attractive for NRI investors over the next 5–10 years?
A) Over that horizon, we want exposure to India's domestic growth engine, not to global cycles. Banking and financial services top the list, credit penetration is still low, financialization of savings is a multi-decade trend, and quality lenders are priced at levels that make sense again.
Infrastructure and construction ride a sustained public capex cycle, with private capex now showing signs of life. Manufacturing, capital goods, defence, electronics, is a structural beneficiary of supply-chain diversification and PLI schemes.
Consumer discretionary compounds as per-capita GDP moves from roughly $2,800 toward $5,000 over the decade. Healthcare rounds this out as a durable compounder.
On market cap, we are leaning mid-cap right now, earnings growth is superior there, and the valuation premium to large-caps has narrowed sharply since the correction.
Also Read: ETMarkets Smart Talk | Manufacturing and financialisation could create the most wealth over the next five years: Siddhartha Khemka
Q) With global interest rates evolving, do Indian bonds offer attractive opportunities for NRIs?
A) The RBI's repo rate stands at 5.25% after the December cut, and the 10-year G-sec trades around 6.8–7.1%. That gives a real yield of roughly 2.5–3% over inflation — among the most attractive in major economies.
India's inclusion in global bond indices has institutionalised foreign demand; overseas investors bought about $4.5 billion of government bonds over June and July alone.
The honest arithmetic for NRIs: expected total returns from Indian debt are around 7–8% annualised in rupees, which translates to roughly 3–5% in dollar terms after accounting for currency depreciation of 2–4% a year.
That is respectable versus developed-market bonds, but it will likely fall short of Indian equities, where we expect 12–14% rupee and 8–11% dollar annualised returns.
Q) Can Indian fixed-income products become a reliable source of passive income for NRIs? If yes, how?
A) Three building blocks work well. First, government securities and target-maturity debt funds — at around 7% yields with sovereign credit quality, these are the cleanest income core; holding to maturity removes interest-rate risk.
Second, high-grade corporate bonds and NCDs — AAA PSU paper trades around 7.0–7.5% and select AA paper at 8.5–9.5%, offering a meaningful spread for modest incremental risk.
Third, NRE fixed deposits, where interest is tax-free in India and the principal is fully repatriable — an underappreciated advantage.
The practical structure is a laddered portfolio across maturities, generating predictable rupee cash flows, with the NRE/FCNR route used where repatriation and tax efficiency matter.
Two caveats: keep credit quality high — do not chase 10–11% yields into weak credits — and recognise that in dollar terms the income stream is worth 2–4% less annually due to currency.
Q) Does Indian real estate still deserve a place in an NRI portfolio, or have financial assets become more attractive?
A) The residential cycle has been strong since 2021, particularly in premium and luxury segments where NRI demand is concentrated.
But look at long-run data: residential real estate in India has delivered roughly 6–9% annualised over long horizons — below equities, with far worse liquidity, high transaction costs (stamp duty, registration, brokerage of 7–10% round-trip), concentration risk, and management burden from abroad.
Financial assets have clearly become more attractive on a risk-adjusted, liquidity-adjusted basis. If real-estate exposure is desired, REITs are the more sensible vehicle for most NRIs — 6–7% distribution yields plus modest capital appreciation, with daily liquidity and no property management headaches.
My rule of thumb: real estate should be a consumption or emotional-anchor decision (a home in India), not the primary investment vehicle. As an investment, cap it at 10–15% of the India portfolio, preferably via REITs.
Q) How should NRIs think about India in their global asset allocation, and what percentage should ideally be allocated to Indian assets?
A) India is roughly 8% of world GDP in PPP terms, around 4% of global market capitalisation, but likely to contribute 15–20% of incremental global growth over the next decade. Yet India's weight in global benchmark indices is far smaller than its economic weight.
An NRI has natural advantages here — familiarity, rupee liabilities or aspirations, and access to domestic products — that justify a structural overweight versus what a global index would assign.
For an NRI with genuine long-term India connectivity, I would suggest 25–35% of the overall global portfolio in Indian assets, calibrated to whether they intend to return to India (higher end) or are permanently settled abroad (lower end).
Within that India allocation, the core 60–65% should be in equities — that is where the 12–14% rupee compounding lives — with the balance across debt, gold and alternatives for diversification and risk management.
The recent underperformance improves, rather than weakens, the entry case: valuations have normalised and foreign positioning is at multi-year lows.
Also Read: ETMarkets Smart Talk | Build a portfolio with 50% large caps, 30% midcaps and 20% small caps: Roop Bhootra
Q) What are the biggest tax misconceptions NRIs have when investing in India?
A) The first is "I'll be taxed twice." Almost never holds up, DTAAs and foreign tax credits mean the tax you pay in India is creditable back in your country of residence.
The second is that NRIs pay a higher capital gains rate than residents do. They don't, it's the same 12.5% LTCG above ₹1.25 lakh, same 20% STCG.
Third: people assume NRE deposit interest is taxable. It isn't, fully exempt in India. Fourth is the idea that money put into India is stuck there. Not true. NRO balances allow repatriation up to $1 million a year, and NRE/FCNR funds move freely with no cap at all.
Fifth: "mutual funds won't take NRI money." They will, nearly every major fund house accepts it. The only extra paperwork is for US and Canada residents, and that's a FATCA requirement, not a fund-house restriction.
Q) What role do DTAAs play in investment decisions?
A) India has treaties with over 95 countries, they cap withholding rates: interest income that would face 30% TDS domestically may be capped at 10–15% under treaties with the UAE, Singapore, the US or the UK.
Second, they determine which country has taxing rights on capital gains — a decisive input for investors in jurisdictions like the UAE with no personal income tax, where treaty relief can make Indian debt income substantially more efficient.
Third, the tax residency certificate (TRC) is the key that unlocks all of this; without it, treaty benefits are unavailable and default rates apply.
An NRI's country of residence can change the post-tax return on the same Indian instrument by 100–200 basis points annually. So asset location — which assets to hold in which wrapper, and whether NRE, NRO or the GIFT City route is optimal — deserves as much attention as asset selection.
Q) If an NRI has ₹5 crore to invest in India today, how would you allocate it?
A) For a ₹5 crore corpus, the starting point isn't the number, it's the NRI's repatriation intent and tax jurisdiction, since that decides the vehicle more than the amount does.
As a rough base case for a moderate-risk, 7-plus year horizon, I'd suggest around 40-45% in Indian equities through large and flexi-cap funds or AIF or PMS given the ticket size, 25-30% in fixed income via AAA corporate bonds and target maturity funds, 10-15% in alternatives such as Category II AIFs for clients comfortable with longer lock-ins, and the rest split between gold and a liquid buffer for near-term needs.
For US-based NRIs specifically, direct exposure to Indian mutual funds can trigger PFIC reporting complications, so routing through AIFs, PMS, or GIFT City structures tends to be cleaner.
The honest answer, though, is that no two ₹5 crore allocations should look identical, the right mix depends on whether this is fresh remittance or money already sitting in India, and what else the client holds outside the country.
Q) What role can alternatives such as PMS, AIFs and private credit play in an NRI's portfolio?
A) For NRIs, alternatives like PMS, AIFs and private credit typically play a satellite role rather than a core one — they add differentiated, less liquid exposure once the foundational equity and debt allocation is in place.
PMS suits NRIs who want concentrated, benchmark-agnostic equity exposure with the transparency of direct stock holding, and it also sidesteps some of the reporting complications that pooled mutual fund structures create for certain tax jurisdictions, notably PFIC treatment for US-based NRIs.
Category II AIFs — private credit, structured credit, pre-IPO strategies — offer a return profile that's less correlated to listed markets, which is genuinely useful diversification, but they come with 3-5 year lock-ins and lower liquidity, so they only make sense for the portion of the corpus the client won't need to touch or repatriate in the near term.
Private credit specifically has become a bigger conversation over the last couple of years as NRIs look for yield above traditional fixed income, but the underwriting quality and manager track record matter far more here than in listed debt, since there's no daily NAV discipline forcing transparency.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
