Portfolio managers pin growth hopes on Budget proposal for NRIs

The Rs 13-trillion portfolio-management services industry, which has grown steadily over the past few years, is pinning its hope on the smooth implementation of the Budget proposal for the non-resident Indians (NRIs) for its growth.

While presenting Union Budget for 2019-2020, Finance Minister Nirmala Sitharaman, said, “With a view to provide NRIs with seamless access to Indian equities, I propose to merge the NRI-Portfolio Investment Scheme (PIS) Route with the Foreign Portfolio Investment Route.” Currently, NRIs can assign only one designated bank for the purpose of routing transactions under PIS-route.

“Under the current framework, NRIs find it operationally difficult to invest in multiple products as they are required to report investments to Reserve Bank of India (RBI), which can get quite complex if the investments are parked with multiple players,” said Samit Vartak, partner and chief investment officer of SageOne Investment Advisors.

At present, market intermediaries are required to report NRI investments to the RBI, which ensures that these are within the permissible limits. NRI investments are also limited to 10 per cent of the paid-up capital of a company.

According to industry experts, the Budget proposal can potentially put NRI investments in portfolio management services products under the ambit of the Securities and Exchange Board of India (Sebi).

“The Budget proposal indicates that the non-repatriable funds can come through Sebi’s FPI regime. This would make it easier for NRIs to allocate funds and redeem investments as the FPI framework can work through a pooled fund akin to a net asset value-linked structure,” said head of a portfolio-management services firm, requesting anonymity.

Market participants said the industry can tap into NRI investments waiting on the sidelines, which is yet to translate into flows on account of some of these operational challenges.

“The Budget proposals on simplifying investments from NRIs can be a significant positive for the investment management space, especially the portfolio management services schemes. NRIs are keen to allocate capital to domestic boutique fund managers. This increases the options available for NRIs and can drive additional flows in the medium- to long-term,” said Sandeep Jethwani, managing partner at IIFL Wealth.

Over the past three years, the portfolio management services industry’s discretionary asset base has compounded at annual rate of 17 per cent. Industry players added easing of NRI investments can trigger a stronger growth momentum.

Experts point out lower investment limits under the NRI framework has also been one of the challenges.

“There have been instances where the NRI limit is already exhausted, preventing fresh allocation in a stock. Merging it with the FPI route, can relax these investment limits,” said business head of a Mumbai-based wealth management firm.

Industry players say smooth implementation of the merger would depend upon inter-regulatory understanding between the RBI and Sebi and further directions from the finance ministry.