The savvy Indian investor is no longer content with restricting his investment horizon to the equity or property markets at home. A growing number of Indians are now buying property abroad and also taking an exposure to stocks of foreign firms and debt products. Hard numbers are a testimony to this fact.
From a mere $9.6 million in FY05, when the Reserve Bank of India (RBI) eased the norms for investing abroad by individuals, overseas remittances topped $440.5 million in FY08, according to recent data released by RBI. And there are signs that the momentum on outbound flows could well be carried forward. In April alone, individuals remitted $50 million abroad.
Wealthy Indians have been buying property in Dubai, a favorite location. Malaysia is another hot spot fascinating Indian investors. Those flush with funds are diversifying their portfolio to include either shares of global blue-chip firms or units of MF schemes, which have an exposure to several emerging markets. A host of firms now offer structured products to high net worth investors here.
Besides, more Indians are gifting to their relatives abroad and loosening their purse strings to see the world or to educate their kids overseas. Much of this has to do with increasing liberalization and economic well-being. For years, RBI and the government had followed a tight policy on overseas remittances, given the weakness in the external sector. But over the past five years, the pile up of forex reserves has prompted an easing of norms.
Used to close monitoring of outflows, RBI has since 2004 progressively encouraged outflows to neutralize the impact of the torrent of capital inflows. The annual limit for remittances by individuals was raised from $25,000 three years ago to $2,00,000 with leeway for investing in stocks, property and other assets.
The RBI data shows that of remittances, the amount spent in acquiring property abroad, rose from $0.5 million in FY05 to $39.5 million in FY08. Investment in overseas debt and equity went up seven-fold from $20.7 million in FY07 to $144.7 in FY08. Remittances in the form of gifts to relatives increased almost 10-fold to $70.3 million in FY08 from $7.4 million in FY07.
However, the outbound remittance figure pales in comparison with inward remittances, which is now over $30 billion, reckoned to be the highest in the world. But going by the current trend, outbound investments by individuals is gathering steam. The higher outward remittances figure may also be because of the fact that investing abroad is now a legitimate activity. It also helps that a new generation of economically well-off Indians are not hesitant to display their wealth unlike their parents.