As Indian equities navigate a phase of subdued returns and the US market continues to outperform on the back of the AI-driven rally, many NRIs are questioning whether India still deserves a place in their long-term portfolios.
Concerns around rupee depreciation, weaker dollar returns and slowing corporate earnings have further fueled the debate. However, according to Feroze Azeez, Joint CEO of Anand Rathi Wealth, these concerns are largely driven by short-term market cycles.
In an interaction with Kshitij Anand of ETMarkets, he explains why India's structural growth story remains intact, why rupee depreciation is often overstated, and why Indian equities continue to offer attractive long-term dollar returns for global investors. Edited Excerpts –
Q) Thanks for taking the time out. How are NRIs looking at India, especially after giving flattish returns for the past 2 years? What are the queries that you are receiving?
A) The main queries from NRIs today are around the recent underperformance of Indian equities, the impact of Rupee depreciation on Dollar returns, and whether capital should be allocated to markets such as the US that have delivered stronger recent performance.
Many investors also question whether India's slower earnings growth is a concern and whether the recent AI led rally in global markets has reduced India's attractiveness. Most of these questions are influenced by recent market performance rather than long term wealth creation.
The right way to evaluate India is through a long term investment horizon of at least 3 to 5 years and not by reacting to short term cycles.
While many investors believe the Rupee depreciates by 5 to 6% every year, the long-term average has been closer to 3%, with actual depreciation across multiple periods ranging between 2.4 and 2.7%. This means a 14% return in Rupees still translates into an attractive Dollar return.
Similarly, recent underperformance of Indian equities is temporary rather than structural. Although global markets have benefited from an AI driven rally, India's market is supported by a much broader set of sectors and structural growth drivers.
Corporate earnings are also expected to improve, with Nifty 50 earnings projected to grow by around 12% in FY27 and 14% in FY28.
Over longer periods, the Sensex has delivered an average 5-year return of around 11.5%, along with a Jensen's alpha of nearly 3%, the highest among major global markets, highlighting its superior long-term risk adjusted performance.
Q) Despite global uncertainty and periodic market corrections, India continues to attract capital. What is the biggest reason NRIs should remain invested in India over the next decade?
A) The biggest reason is that India is still in the early stages of its long-term growth journey, while many developed economies are entering a phase of slower structural growth.
A young population, rising domestic consumption, expanding manufacturing and continued policy reforms provide a strong foundation for long term earnings growth.
With India's nominal GDP expected to grow at around 11 to 12% over the long term, the economy offers a favourable environment for sustained corporate earnings growth.
At the same time, fiscal discipline, moderate inflation and healthy foreign exchange reserves support earnings visibility and valuation stability. For NRIs with a long-term investment horizon, India offers the opportunity to participate in one of the world's fastest growing major economies.
The investment case for India is therefore based on long term structural growth and compounding, rather than short term market movements.
Q) India's economy is expected to remain one of the fastest-growing major economies. Which structural themes—manufacturing, digitalization, financialization, infrastructure, or consumption—offer the most compelling opportunities for NRIs?
A) All these themes are structural drivers of India's long term growth story and are expected to complement each other over the coming decade.
Among them, consumption, infrastructure and manufacturing are likely to lead the next phase of economic growth, supported by rising domestic demand, sustained public capital expenditure and continued policy support for domestic manufacturing.
At the same time, India has witnessed a significant financialisation of household savings over the past decade, with more investors participating in mutual funds and capital markets, while digitalisation continues to improve productivity across sectors.
Rather than focusing on any one theme, NRIs should consider a diversified portfolio that participates across these structural drivers, as long term wealth creation is more likely to come from India's overall growth than from identifying the single best performing sector.
Q) Many NRIs already have significant exposure to developed markets through their earnings and retirement portfolios. How should they think about India within their overall asset-allocation framework?
A) India should be viewed as part of the overall asset allocation strategy rather than as a standalone investment. The objective is to build a portfolio that delivers the desired risk adjusted outcome through the right mix of asset classes.
Historically, Indian equities have generated around 11% annual returns over the long term, with the potential to generate additional 3 to 4% alpha through active mutual funds management.
Even after factoring in an average Rupee depreciation of around 3%, India continues to offer attractive long term Dollar returns. At the same time, if future financial goals such as children's education or retirement are denominated in foreign currencies, a right allocation to international market can be considered.
The optimal allocation should be determined through a well-defined investment strategy that evaluates different asset allocation scenarios and their expected risk adjusted outcomes, ensuring the portfolio is aligned with long term financial goals rather than short term market movements.
Q) The US dollar has appreciated against most currencies over the past decade. How should NRIs evaluate returns from Indian assets after adjusting for currency movements?
A) NRIs should evaluate returns from Indian assets after adjusting for currency movements, but the adjustment should be based on long term averages rather than recent fluctuations. There is a perception that the Rupee depreciates by 5 to 6% every year, however, the long-term average has been closer to 3%.
Historically, Indian equities have generated around 11% annual returns over the long term, which still continues to translate into attractive Dollar returns even after accounting for currency depreciation if you consider alpha generation through mutual funds.
More importantly, the Indian Rupee has been one of the more stable currencies against the US Dollar, with significantly lower volatility than many major emerging market currencies in recent years.
As India's external position continues to strengthen through resilient services exports, stable remittance inflows, diversified capital flows and reduced dependence on imported oil, the outlook for Rupee stability has also improved.
Recent policy measures such as the RBI's initiatives to encourage FCNR(B) deposits and the Government's tax exemption for foreign investors investing in Government Securities are also expected to attract stable foreign capital, support the balance of payments and improve Rupee stability.
For long term investors, currency should therefore be viewed as an adjustment to returns, not a reason to avoid India's structural growth opportunity.
Q) What are the biggest mistakes NRIs make when comparing returns between dollar-denominated and rupee-denominated investments?
A) The biggest mistake is evaluating a long-term investment through a short-term lens. Many NRIs make investment decisions based on recent market performance, comparing one year's Dollar returns with one year's Rupee returns, instead of studying how markets have performed across different economic and market cycles.
This is a classic example of recency bias. The right comparison should be across complete market cycles. Over longer investment horizons, Indian equities have delivered the highest average 5 year average returns among major international markets, with the Sensex generating an average 5 year average return of around 11.5%.
Q) What are the most common tax and regulatory mistakes NRIs make while investing in India?
A) NRIs should pay as much attention to tax planning as they do to investment planning. They should first check whether the benefits available under the Double Taxation Avoidance Agreement apply in their country of residence, as this can help avoid paying tax twice on the same income.
Filing income tax returns in India on time is equally important, even where tax has already been deducted at source. They should also review whether excess TDS has been deducted and claim eligible refunds wherever applicable. A disciplined approach to tax planning and compliance can meaningfully improve post tax investment returns.
Q) If an NRI were building a fresh India-focused portfolio today for say Rs 50 cr, how would you allocate across equities, debt, alternatives, real estate, and global assets?
A) Any portfolio should begin with a clear understanding of the investor's financial goals, investment horizon and risk profile, with the asset allocation strategy built around these factors.
If this is an India focused portfolio with long term wealth creation as the objective, an allocation of around 65% to equity mutual funds and 35% to structured products would be an appropriate strategy.
While structured products may not be directly accessible to all NRIs, there are routes available that can provide access.
Based on long term market expectations, investors can expect returns of around 12 to 13% even after accounting for long term Rupee depreciation, making Indian equities an attractive proposition compared with many international markets.
If there are future financial goals denominated in foreign currencies, such as children's education overseas, some allocation to international markets can also be considered.
Otherwise, an India focused portfolio should remain invested mainly in Indian equity to participate fully in the country's long term growth opportunity.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
