Here's how NRIs can navigate global trends to make most of their India investments

Investment strategies that NRIs can consider in the current economic scenario

Global economic conditions are intricately connected to investment opportunities, and for non-resident Indians (NRIs), these patterns play a significant part in driving their financial decisions.

From currency fluctuations and inflation to international strains and rising investment classes, NRIs explore a complex environment that requires careful planning and adaptation. Understanding what these patterns mean for investments in India is critical for NRI investors looking to boost returns and preserve capital.  Here's a guide to navigating global economic trends to maximise gains:

Interest rate movements and inflation pressures

The US Federal Reserve, as expected, went for another 25 basis points interest rate cut to ease inflationary pressures. The cut aims to recalibrate monetary policy towards a more neutral stance while maintaining economic stability.

NRIs have the opportunity to invest in dollar-denominated assets such as equity and bonds, which can offer diversification and also reduce exposure to a volatile rupee, which sank to a record low of 85 on December 19.

Gujarat International Finance Tec-City, or GIFT City, as it is better known, offers a favourable investment environment with tax incentives for both NRIs and US citizens, encouraging investments in foreign currency-denominated financial instruments.

The Reserve Bank of India (RBI) in its December policy review held the the repo rate steady at 6.5 percent for the eleventh time. This decision aligned with a neutral stance focussed on controlling inflation and supporting economic growth.

For NRIs, rupee-denominated investments like fixed deposits and bonds remain attractive due to relatively stable interest rates and a favourable macroeconomic environment. India's improving external sector and robust financial system also enhance the appeal of such investments.

The RBI’s cautious stance ensures that instruments like Non-Resident External (NRE) and Foreign Currency Non-Resident (FCNR) accounts remain appealing. These options offer stable, inflation-adjusted returns while mitigating heavy currency risk, making them an attractive choice for NRIs seeking relatively high returns.

Investing in India is a great opportunity but NRIs from US can use the Gift City route instead of repatriation to avoid exchange rate differentials and tax deduction on investments.

This combination of currency fluctuations, investment opportunities in both rupee and dollar-denominated assets, and the benefits of GIFT City creates a robust environment for NRIs to maximise returns while managing currency risks.

Also read: GIFT City to real estate: 5 ways NRIs can invest in India to maximise returns

Dollar strength and exchange-rate volatility

A strong dollar continues to be a huge factor for NRIs, especially as it continues to climb new highs against several currencies, including the rupee.

In the first three quarters of 2024, the rupee slipped 5.9 percent against the dollar, driven by global economic vulnerability and strong demand for dollar-backed assets.

For NRIs, this pattern makes remittances better, giving a lift to their investments when converted from dollars to rupees.

To navigate the currency risk, some NRIs hedging strategies or putting resources in diversified global assets to balance possible losses in any one currency.

RBI's policy measures

On December 6, the RBI kept the repo rate unchanged at 6.5 percent, reflecting its focus on balancing inflation control with economic growth. Its decision to reduce Cash Reserve Ratio (CRR) by 50 basis points to 4 percent is expected to infuse Rs 1.16 lakh crore into the banking system to address liquidity concerns. The move will bolster credit growth, especially in sectors such as real estate and infrastructure, which are traditionally favoured by NRIs.

The central bank revised the inflation forecast for FY25 to 4.8 percent and lowered the growth projection from 7.2 percent to 6.6 percent, acknowledging global economic headwinds and a moderation in domestic demand.​

For NRIs, these policy adjustments provide clarity and stability for rupee-denominated investments such as NRE and FCNR accounts. These instruments, offering inflation-adjusted returns, remain attractive in the current scenario​.

Also read: RBI holds repo rate again. Here’s what fixed-income investors should do

Navigating exchange rate volatility

The CRR cut indirectly supports currency market dynamics, crucial for NRIs dealing with exchange rate fluctuations.

The rupee has weakened against the dollar this year, increasing the purchasing power of remittances. For NRIs, this makes investments in Indian assets more favourable. However, the volatility also underscores the importance of hedging strategies and exploring avenues such as investments in GIFT City, which offers foreign currency-denominated instruments free from exchange rate risks​.

Broader implications for investments

India’s robust macroeconomic fundamentals create a conducive environment for NRI investments.

The infusion of liquidity through the CRR cut is expected to enhance credit availability for high-growth sectors like technology, renewable energy, and infrastructure, which align with India’s economic trajectory.

A steady repo rate supports long-term investments in sectors such as real estate, which benefit from stable interest rates ​.

Geopolitical uncertainty and shifting market dynamics

Geopolitical events, especially the war in Ukraine, affect markets. Energy costs have spiralled and supply chains disrupted, leading to increased volatility in developing business sectors. India's political stability and development viewpoint make it an attractive destination for NRI investments.

According to the World Bank, India's GDP is projected to grow at 6.3 percent in 2024, making it one of the fastest-developing economies and a key destination for both long and short-term investments.

Why NRIs must diversify their portfolios

As NRIs navigate a rapidly shifting global economy, strategic investment planning is a must. Global trends— going from high interest rates and a strong dollar to the appeal of sustainable and real estate investments in India — offer challenges as well as opportunities.

By diversifying their portfolios and remaining informed about economic shifts, NRIs can better position themselves to augment returns while being part of India's growth story.