nri: What a depreciating rupee means for NRI investors


The Indian Rupee has depreciated 3.5 percent against the US dollar in 2022. In this past month alone, the Rupee has depreciated by over 1.2%. Five years ago, year-to-date in 2017, the Rupee stood at Rs. 64.60 against the dollar .

The causes of this quick fall are the ongoing global geopolitical tensions, the rise in oil prices, a lack of food imports, and the subsequent rise in inflation. While investing in assets or spending in Indian currency value in a foreign land may turn more expensive, for an NRI, there are opportunities to capitalize on. If you are an NRI investing in your home country, India, then with the depreciation in the value of the Indian currency, every dollar repatriated home by you is worth so much more.

Historically, a reduction in the value of the Rupee has resulted in an increase in NRI remittances from nations such as the United States, the United Arab Emirates, the United Kingdom, and a few Asian countries. Because of the growing value of the US dollar, investment in India has become significantly more lucrative. Despite the fact that remittances from overseas are increasing, NRIs should pay close attention to the channels through which they execute their investments in order to maximize monetary benefits.

Taxes and tariffs can eat into your gains.

Ground reality

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The rise in inflation has encouraged Central Banks globally to reduce liquidity in the markets, which has in turn led to an interest rate hike. This move has made investments in domestic fixed deposits more lucrative, with a 10 to 20 basis points increase in interest rates applicable to NRE and NRO accounts for specific investment tenures. A similar effect is seen in new bonds issued at higher interest rates, making debt mutual funds more lucrative for NRIs as well.

Stock market play

NRIs frequently borrow money from overseas and invest it in India, where interest rates are lower, and the value of the US dollar is strengthening. The lure of the Indian stock market during the lockdown had attracted many NRIs in the Gulf to borrow from UAE-based financial institutions and invest the funds in the Indian stock market. These low lending rates abroad and higher returns on investments in the Indian stock markets may have been a smart move until the rise of the Ukraine-Russian war and its after-effects of price hikes, supply disruptions, and inflation. With lending rates on the rise and the current volatility in the Indian stock market, it may not prove profitable.

Every investor should be cognizant of the fact that an investment in equity is subject to market volatility. Money pitfalls like borrowing to invest in risky assets should be avoided. Investments here should be made keeping in mind the risk appetite, time horizon, and the market cycle.

Home loans

When the Rupee is falling in value, real estate is a good investment. Real estate has been the most devoured asset by NRIs, especially by those in the Gulf who plan to return to their home country post-retirement. With the depreciation of the Rupee, NRIs with existing home loans in India can now pay off higher values on loans at the same value of EMIs as before.

Income Accrual

Taxation and inflation are the two main factors that erode your savings. While inflation cannot be controlled, the right portfolio allocation can assist in mitigating risks. Furthermore, the efficient management of investments can contribute to lower tax payments and higher savings.

ET Online

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