ETMarkets NRI Talk | RBI's FCNR(B) reforms could bring in over $20 billion of foreign inflows: Keyur Majmudar

The Reserve Bank of India's recent measures to ease norms for Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits and External Commercial Borrowings (ECBs) could pave the way for a significant increase in foreign capital inflows, according to Keyur Majmudar, Managing Partner & CIO, Bay Capital Investment Advisors.

In an interaction with Kshitij Anand of ETMarkets for NRI Talk, Majmudar says the regulatory changes have the potential to attract more than $20 billion into India over the coming months as banks step up overseas deposit mobilisation and corporates tap the revised borrowing framework.

He also shares why India deserves a place in every diversified global portfolio, the structural themes that could drive wealth creation over the next decade, and the role alternative investments can play in strengthening NRI portfolios. Edited Excerpts –

Q) Thanks for taking the time out. Has the sentiment changed recently towards India, especially since the domestic market has failed to generate substantial returns over the past two years?

A) There has been a noticeable improvement in sentiment since March, driven largely by developments in West Asia. The relative easing of geopolitical tensions, notwithstanding more recent events, has helped improve investor confidence.

While this optimism is not yet fully reflected in the headline indices or some of the frontline large-cap stocks, there are several businesses across sectors that continue to perform well.

We are also seeing encouraging quarterly results from a number of companies, which suggests that underlying corporate fundamentals remain healthy.

As always, markets tend to paint a broad picture, but beneath the surface there are several businesses continuing to execute well and create long-term value.

Q) The RBI has relaxed norms to attract FCNR(B) deposits. Do you expect this move to materially increase foreign currency inflows into India over the next 12 months?

A) Yes, we believe the RBI's recent measures have the potential to support meaningful foreign currency inflows.

While the relaxation in FCNR(B) deposit norms is one driver, the easing of External Commercial Borrowing (ECB) norms is also likely to contribute.

Recent estimates already indicate potential inflows exceeding US$20 billion. Given the attractiveness of these measures, it is possible that the eventual inflows could be significantly higher over the coming months as banks actively mobilise overseas deposits and corporates take advantage of the revised borrowing framework.

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Q) At 7.50% p.a., how attractive are USD FCNR(B) deposits compared with similar fixed-income options available in the US, Middle East, and other key NRI markets?

A) The interest rate mentioned appears to be on the higher side, as current market estimates suggest somewhat lower effective rates. That said, the overall proposition remains attractive, particularly when viewed in the context of the regulatory relaxations.

Once the cost of the foreign exchange hedge is fully absorbed and investors are able to utilise leverage of up to nine times, the effective return profile becomes considerably more compelling.

This explains why expectations around higher FCNR(B) inflows have strengthened in recent weeks.

Q) Which sectors in India look most attractive for NRI investors over the next 5–10 years?

A) We generally do not approach investing from a purely sectoral perspective. Instead, we focus on identifying high-quality businesses that can benefit from enduring structural trends.

Over the next five to ten years, we believe businesses that are well positioned to capture India's consumption growth and premiumisation trends should continue to offer attractive opportunities.

Similarly, financialisation of savings, the expanding digital ecosystem, and companies with strong capabilities in precision manufacturing and high-end engineering are areas where we see long-term potential.

Ultimately, our preference is always for businesses with sustainable competitive advantages rather than making top-down sector calls.

Q) How should NRIs think about India in their global asset allocation today, and what percentage of an NRI's overall portfolio should ideally be allocated to Indian assets?

A) India deserves a place in any well-diversified global portfolio. The country offers access to one of the world's fastest-growing large economies, supported by favourable long-term structural drivers and opportunities across a broad range of sectors and market capitalisations.

While there may be periods when other markets outperform India over shorter time horizons, we believe India's long-term growth story remains compelling. Therefore, maintaining an allocation to Indian assets makes strategic sense as part of a diversified global portfolio.

The precise allocation, however, will depend on each investor's individual circumstances, financial objectives, risk appetite and overall asset allocation strategy.

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Q) If an NRI has ₹5 crore to invest in India today, how would you allocate it across equities, debt, real estate, gold, REITs, and alternative investments?

A) We would prefer not to comment on specific asset allocation recommendations.

There is no one-size-fits-all allocation, as it depends on factors such as the investor's age, financial goals, liquidity requirements, existing global portfolio and risk tolerance.

From a broader perspective, a balanced portfolio should include a mix of growth assets and capital preservation assets.

Q) What role can alternatives such as PMS, AIFs, and private credit play in an NRI's portfolio?

A) Alternative investment strategies can provide investors with differentiated access to opportunities that may not be readily available through traditional investment vehicles.

Depending on the strategy, they can also offer meaningful diversification within an overall portfolio.

However, investors should carefully evaluate the underlying investment philosophy, portfolio construction approach and the source of differentiation before allocating capital.

Understanding how an alternative strategy complements the rest of the portfolio is critical. When selected thoughtfully, alternatives can enhance diversification and provide exposure to unique long-term investment opportunities.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)