Investing in Indian Stock Market for a GCC Expat!

Stock Market Investing
Expats in GCC countries, may not have invested in Indian stock market and feel it was lost opportunity. Let's analyze if it was really a missed opportunity?..

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Indian Stock Market Pre-Covid

Till recent past , Indian market were performing quite magnificently with BSE Sensex at 17,473 in Jan 2010. Then rising to 39,087 in end of Feb 2020 i.e an increase of 124%. This comes out to be an annual return of 9.36% (Excel IRR Formulae). One can reasonably argue that it was a good 10 year run of Indian stock market with 2008-09 financial crisis over and country being in an economic and political stable environment.

Many of us, expats in GCC countries, who may not have invested in Indian market may have a feeling of losing on good opportunity. But lets analyze this in little details, is it really a missed opportunity?

We assume a situation where an expat is investing AED 5,000.00 every month. From Jan 2010 till Apr 2020 in Indian market, this results in an investment of AED 620,000.00 over a time horizon of 124 months.

Exchange rates impact

Though 620k at current INR-AED rate comes out be approx 1.3 Cr, the investments was made since 2010 and exchange rate has varied actual investment in INR comes out to be approx 1.02 Cr. We may not realize ; however, currency exchange rate has a big impact on investment return. Especially when most of GCC currencies are pegged with USD while INR is a depreciating currency against USD. In Jan 2010 USD to INR conversion rate was 45.26 and since then it has depreciated to 73.05 as of end of April 2020 i.e. a depreciation of 61.4%.

This INR 1.02 crore of total investment, has increased to 1.60 crore because of increase in BSE Sensex (39k in Feb,2020 End), i.e. a return of 57.29% after ten years of regular investment. This comes out an annual rate of return (IRR) of 9.46% before tax and 8.43% after tax. This does not sound like a bad investment.

But then we must convert it back to AED to assess the actual returns, as the originating currency of the investment was AED.

If we convert back 1.6 Cr of INR into AED at an exchange rate of 20.69 (June,2020 end exchange rate) we receive back AED 746,608 against an investment of AED 620,000 i.e. an absolute return of approx. 20%, and an IRR of 3.53%

ROI from AED Investment in Indian Stock Exchange
Investment CycleMonthlyInvestment HorizonJan 2010 to April 2020
AmountAED 5000/MonthDay11th of every month
Total Investment(AED)620,000Total Investment (INR)10,192,868.
Tax10%   
Return basis Feb End BSE Sensex (39,087) 
Fund Value (INR)Return Pre TaxReturn Post TaxIRR (Pre-Tax)IRR (Post Tax)
16,032,4085,839,5405,255,5869.16%8.43%
Fund Value (AED)ReturnIRR (AED)  
746,608126,6073.53%  
Table 1:ROI in AED Terms

As calculated under such an investment methodology, even after considering the best time of Indian stock market the return expected for a USD/AED based investment is far too less.

If we may consider the market as on 23rd Mar 2020 i.e. post covid impact the situation changes drastically and returns appear as below:

ROI Post Covid Impact
Return basis 23rd Mar BSE Sensex (27,609) 
Fund Value (INR)Return Pre TaxReturn Post TaxIRR (Pre-Tax)IRR (Post Tax)
11,324,2311,131,3631,018,2262.18%1.97%
Fund Value (AED)ReturnIRR (AED)  
     541,820  (78,179)-2.62%  
Table 2: ROI Post Covid Impact

As presented, after the Covid sell off even when it appears that there is no loss on the investment in INR terms, in AED terms a substantial annual return loss of -2.62% is observed.

ROI as per June 2020

Lets consider a final scenario of most recent market i.e. 26th June 2020

Return basis 26th Jun BSE Sensex (35,171) 
Fund Value (INR)Return Pre TaxReturn Post TaxIRR (Pre-Tax)IRR (Post Tax)
       14,425,999              4,233,131           3,809,818  7.07%6.48%
Fund Value (AED)ReturnIRR (AED)  
      676,735     56,7351.67%  
Table 3: ROI as per most recent market

As presented, in current market situation which might represent a more realistic picture of Indian stock market for some time to come, the return expected is as low as 1.67%/annum.

So for GCC Expats when they are earning in USD (almost) it might not be best strategy to invest in Indian Stock Market. Next question is then where to spend, I will explore this in my further posts.

Thank you for your time and do give your feedback!

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