‘Emerging New India,’ the fastest-growing economy in the world, will soon be the new global powerhouse. Since the beginning of this year, we have been focusing on the theme of India overtaking the US as the second-largest economy in the world by 2075.

This means that India will be a part of the asset allocation strategies of global investors who wish to take exposure to the three largest economies of this decade. A reinforcement of our conviction in the long-term story of India came recently in the form of a report from Goldman Sachs, which stated that India will become the world’s second-largest economy by 2075, and our GDP will be USD 52.5 trillion.

On the other hand, China will be the largest economy in the world, with a GDP of USD 57 trillion, while the US will be in the third spot, with its GDP projected to be USD 51.5 trillion.

India’s favorable macro and micro factors have put the country in a bright spot while the world’s three largest economies are going through a slowdown or recession. In the current scenario, the global economies face major issues like the mixed signals given by the Central banks across the globe, with a few of them continuing to increase the rates while some of them getting into a pause mode, the weekly bankruptcy filings in the US, which is the highest level seen since the COVID-19 crisis in 2020 and the slew of problems in the world’s second-largest economy, all of which points towards a fragile global economy.

Options to diversify outside India

The global economic outlook looks gloomy, but international investments will continue to be a part of the asset allocation strategies of our clients. From an international investment perspective, we are more positive on equities, and here, we suggest increasing the exposure to emerging markets. This is because, in the last ten years, emerging markets have not done well; hence, from a valuation perspective, they are relatively cheap. In such a scenario, whenever there is a rebalancing that will happen globally, these markets have the potential to catch up on a relative basis.

For instance, If an investor has a long-term horizon and the asset allocation model stipulates 50% allocation into the US, 25% into other developed markets, and 25% into emerging markets, then in the current scenario, the share of the US and other developed markets can come down to 40% and 20% respectively. At the same time, the allocation into emerging markets can increase to 40%.

Regarding fixed income, as the yields are fairly decent, we can consider bonds from developed markets and avoid emerging markets. The ideal way to take exposure to emerging markets is by investing in funds that focus on this theme. At the beginning of this year, fund houses had stopped accepting fresh inflows into international funds as the industry was almost reaching the overseas investment limits.

However, a few of them have recently opened up these funds for subscription, hence, investors can use this option to diversify across geographies.

Investors can also consider another option for investing globally: the LRS (Liberalised Remittance Scheme). This allows Indians to transfer USD 250,000 outside India in a financial year. Earlier investors had only to pay a TCS of 5%, but from the first of October this year, the TCS will be 20%, hurting the portfolio returns. Hence investors are using the next three months to build up their international portfolios via this route.

The most recent option available for international investments is the GIFT City, wherein NRIs and corporates can participate with a much more relaxed limit. The limit for Resident Indians is still USD 250,000.

A non-individual entity, like an LLP, can look at investing 50% of its net worth through this option. The taxation on redemption is fairly attractive, allowing investors to participate in international markets through this route. If after 3-4 years, the investor wishes to redeem their surplus, they can do so from their domestic or overseas account.

In reality, GIFT City is becoming good competition to Mauritius, Singapore, or even Dubai as there is a chance for NRIs to participate in an institutional asset class where they have exposure or limits available with a smaller amount of money as compared to other investment options where only institutional investors can participate. Although investing via this route has just started, we see a lot more interest from fund houses in launching similar investment options, which will, in turn, allow investors to invest their surplus outside India and completely de-risk their investment portfolios.

To conclude, valuations have become attractive for global markets, and we should take advantage of this opportunity to invest in these markets via any of the routes mentioned above. International funds are part of our model portfolio and investors should build their global allocations systematically over the next 6-12 months.

https://www.financialexpress.com/business/investing-abroad-opportunities-for-indian-investors-to-earn-money-in-overseas-assets-3195237/