Top Banker Tells Rich Indians to Load Up on Foreign Stocks

(Bloomberg) -- The top private banker to India's wealthiest is advising its clients to load up on overseas equities as a softening of rules makes it easier to access higher returns available in other parts of the world. 

“The returns offered by some overseas markets are higher than what investors can get from Indian equities,” said Srikanth Subramanian, chief executive officer for private wealth at Kotak Investment Advisors Ltd. “This is not a short-term call, but a deeper, structural call, and as our conviction has increased, our model portfolio has seen a four-fold jump in allocation to overseas equities over the last 15-18 months.”

While the wealth adviser has increased its allocation to overseas equities, it's been neutral on Indian shares since March 2020.

“We had gone back to neutral from bullish on Indian equities in March 2020 to take away any direction bias while the pandemic plays out and have stuck to that call,” Subramanian said.

Record-low interest rates and stimulus packages around the world have pushed global equities to all-time highs during the pandemic. A local rule change by India's market regulator earlier this year increased the amount each mutual-fund firm is able to buy in overseas equity to $1 billion, from $600 million, boosting appetite among Indians, Subramanian said.

Feeder Funds

The total amount invested in foreign shares surged more than 10-fold in the last 17 months to about 250 billion rupees ($3.4 billion) as Indians took to feeder funds to access the asset class, Subramanian said, citing industry data. That could increase further, according to Kotak Mahindra Bank Ltd.'s wealth unit, the biggest in India with more than 4 trillion rupees under management.

Some have also been using the so-called liberalized remittance scheme that allows an individual to send as much as $250,000 overseas, every year. The growing appetite for overseas stocks has also attracted some of India's biggest financial firms to offer international equity trading. 

Here's a look at Kotak's model portfolio for an aggressive investor:

• About 80% to equities, of which 20% is allocated to international equities and 15% to passive funds or smart beta ETFs
• 10% of the portfolio is for fixed income and another 10% to alternate investments

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