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Best returns for NRI investors in 2007

In 2007, NRIs can get the best returns for their investments in stocks in Brazil, Russia, India and China.

india Updated: Jan 01, 2007 12:53 IST

In 2007, where can NRIs get the best returns for their investments in stocks? The quick answer is, in the BRIC (Brazil, Russia, India and China) countries - away from the traditional markets of the US, Britain, Japan and Europe that offer more security but lower returns.

In 2006, the highest returns were from the BRIC countries; the other three BRIC countries had higher returns than those from India! Since these four economies are on sound growth path, it is reasonable to assume that their stock markets, barring any catastrophe, will keep growing in 2007.

Since money flows instantly to obtain the best returns, the entire telecom-linked globe is one investment market today. So bankers and financial advisors keep tracking every economy for best investment returns. Some developing economies such as Hong Kong, Singapore and Mexico also offer healthy returns. In this scenario, 25 million NRIs living in over 110 countries have to be alert where their funds can get the top returns.

"Another major factor for NRIs is the exchange rate," said Sanjay Durgan, a certified financial planner and CEO of AbunDanze. "NRIs have to take (note of) the exchange rates of the country from where they are investing and the country in which they are investing. The gains from the stocks can be increased or wiped out by currency movements.

"A crucial factor is the period of staying invested," he said. "An analysis of historical data shows that the probability of losing money diminishes greatly as we increase the investment horizon. What is risky over a one-year period may not be so risky over a five-year period.

"The negative return in a given year is averaged out by positive returns in another year. But the time horizon of investment must be looked into within the overall economic scenario. Equity investments over a short period are always risky and one could lose or make money depending on when one exits.

"Finally, does the NRI investor have the time to research the markets and the stocks he should be investing in?" asks Durgan, who specialises in mutual fund investments for NRIs. "It takes training, time and patience to research the market and NRIs are very busy people and cannot devote this much time daily. So a practical solution is not to take 'the direct route' by investing in stocks but 'the indirect route' and go for mutual funds where professionals manage your investment."

Then the million-dollar question: where to invest? Why not the other BRIC countries?

"Of course yes, if there is a fund giving access to these markets. The Indian story is a familiar story, something the NRIs can relate to. Today, NRIs are proud of India and want to be a part of this success story."

But the Sensitive Index (Sensex) of the Bomaby Stock Exchange can give heart attacks to any investor as it moved in the year gone by. Though it gained dramatically from 9,390 points to 14,035 during the year before easing off to close 2006 at 13,787, it's the volatility of the kind seen in May/June that needs to be managed.

That is where the time frame comes in. Over a one-year, or better still, a three-year period, these ups and down get averaged out. Sensex returns on a CAGR (compounded annualised growth rate) basis are 48 per cent in one year, 33 percent in three years, and 34 per cent in five years.

In comparison, FTSE of the London Stock Exchange shows CAGR returns of 10, 12, and three per cent while Nasdaq of New York is at nine, six and four per cent over these periods.

Moreover, top five performing diversified equity funds in India have given CAGR returns of above 60 per cent in one year, 50 per cent in three years and above 60 percent in five years.

For the first time, India's economic growth has crossed nine per cent in the first half of 2006-07. The corporate sector is reporting returns of 25-30 per cent. The Sensex has recorded its fifth straight year of growth.

India is now more aligned to the global economy as its market reflected in the summer meltdown. But due to its strong economic foundation with domestic demand, savings and investment, the market bounced back strongly to climb a new peak.

And the economy shows no signs of slowing down with more investment. The Indian industry is globally competitive showing a 24 per cent growth in exports. The services are the major success saga. Agriculture lags but needs more private investment. So a basic reason for India's growth is the capacity to absorb almost unlimited investment in different areas - infrastructure, industry, services and agriculture.

And NRIs want to invest in this growth and cannot be left out of this exciting action and also reap good returns in 2007.

(A media consultant to a UN Agency, Kul Bhushan previously worked abroad as a newspaper editor)

First Published: Jan 01, 2007 12:53 IST