NRIs: Tweaking Portfolio may Offset Dollar Slide

Non Resident Indians (NRIs) returning to India are in a quandary about the impact of the falling dollar. The recent phenomenon of the rupee appreciating sharply against the U.S. dollar is having ripple effect on the UAE currency Dirham, pegged to the dollar.

The dollar has fallen by more than 13% (as compared to the rupee) and
may decline while further worsening the situation for NRIs in the U.S.
and those in Gulf countries like the UAE, Quatar and Bahrain. Apparently,
the dollar is out of favour with the currency markets anymore.

The sinking exchange rate of dollar is hurting domestic prices through
imports. UAE’s imports are from Europe, UK and Asia where currencies have appreciated against the dollar. Depegging or revaluing the dirham could well be the only solution but the Central Bank is against it.

For an expatriate population out there, which is a mix of Indians and
other nationalities, reeling under unreasonably high inflation and currency
depreciation, the recent blow has the power of wiping out more than
one -third of their earnings which have reduced to a miniscule sum already.

The effect is more pronounced for those NRIs in the Gulf, who have
huge amounts of loans and bills to settle in their home country, and
that quite includes the small and middle-income groups.

Interest rates in India are close to 9% for fixed deposits (10% for
senior citizens). Interest rates in the US are also around 5% and further
going down.

If you are an NRI in the U.S. and have an asset allocation plan consisting
of 60% diversified stock and 40% fixed income (all held in dollars)
and plan to come to India after retiring, you could look at the following
ways of refurbishing your overall portfolio to minimize any losses.

NRI investments:

If the 40% fixed income portion of your NRI portfolio (earning 4%-5% in
the US) is held in dollars, it may not keep pace with the increasing inflation
in India (which is a lot higher).

The way out of it is to move your long-term
fixed income allocation and the India part of your stock allocation
in rupees to India.

You can choose to diversify across categories of bank
fixed deposits and debt mutual funds.
You can keep the rest (diversified stock) in U.S. Mutual funds to
reap the benefits of international equity funds that invest outside
India.

Photo: Darcha Bridge NW Lahaul Himachal India Oct22 A7C 03526 by This Photo was taken by Timothy A. Gonsalves. Feel free to, licensed under CC BY-SA 4.0, via Wikimedia Commons.