By Arihant Bardia
In a year marked by transformative investment strategies, one figure has captured the imagination of investors: 78%. That’s the staggering year-on-year increase in overseas equity and debt investments under the Liberalised Remittance Scheme (LRS) for 2024. This surge is not just a statistic but a story of Indian investors stepping onto the global stage with purpose and ambition.
A Telling Shift in Investment Patterns
Recent Reserve Bank of India (RBI) data for October 2024 reveals a fascinating narrative. Total outward remittances reached $2.4 billion, underscoring Indians’ growing appetite for international opportunities.
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While travel continues to dominate remittance flows, the investment component has quietly but significantly gained ground.
Looking at the August-October quarter, total remittances amounted to $8.37 billion. Within this, equity and debt investments have emerged as the dark horse, with a remarkable 78% rise.
This shift toward international portfolio diversification reflects a growing recognition among investors that global markets offer untapped potential. Alongside this trend, global property investments have surged, and overseas deposits have maintained steady growth, indicating a broader diversification strategy.
Taxation Parity: A Game-Changer
The evolution of the LRS framework has played a pivotal role in this trend. Recent changes in capital gains taxation have introduced parity between domestic and international assets, leveling the playing field for Indian investors.
This has created a parallel avenue for those seeking to broaden their equity and debt exposures. What’s more, direct overseas investment via LRS has emerged as a cost-effective way to access global markets, bypassing some of the inefficiencies of domestic investment vehicles.
The Technology Premium Conundrum
The dominance of the technology sector in 2024, particularly within the Nasdaq 100, has added another layer of complexity. Domestic exchange-traded funds (ETFs) tracking international indices have started trading at significant premiums, creating a paradox for investors. While the allure of tech stocks remains strong, savvy investors are finding ways to sidestep these inflated costs by investing directly in international markets through the LRS route.
Consider this scenario: An investor looking to tap into the U.S. tech boom is faced with premium pricing in both the underlying market and domestic ETFs. This double-cost burden can erode returns, making the LRS route—which provides direct market access—an attractive alternative.
Why 2025 Could Continue This Momentum
As we step into 2025, several factors suggest that the trend of increased global investments will persist. For starters, the regulatory environment governing international ETFs listed in India remains unchanged, perpetuating supply constraints that drive premium pricing. This means investors seeking cost efficiency will continue to favor direct investments.
Additionally, while the 20% Tax Collected at Source (TCS) on remittances under LRS might appear daunting, it’s important to view this as a recoverable tax credit rather than a financial deterrent. For investors with a long-term horizon, this is more of a timing issue than a true cost barrier.
The Bigger Picture: Holistic Global Exposure
The surge in LRS investments is ultimately about access and efficiency. As global markets evolve, new opportunities are emerging across sectors and market capitalizations. For Indian investors, the ability to invest directly in these opportunities is becoming a crucial part of portfolio strategy.
For 2025, the choice between international ETFs through Asset Management Companies (AMCs) and direct purchases from international exchanges shouldn’t be an either-or decision. Instead, factors like investment size, holding period, and rebalancing requirements should guide this decision. For instance, a seasoned investor with a larger portfolio might find the flexibility of direct investments more appealing, while those with smaller amounts to invest could benefit from the simplicity of domestic ETFs.
The Road Ahead
The 78% surge in global investment flows through LRS isn’t just a trend—it’s a signal of things to come. As Indian investors grow more sophisticated, their strategies will likely continue evolving to capture global opportunities efficiently. For 2025, the focus should remain on building a well-balanced portfolio that leverages the best of both domestic and international markets.
As the world becomes more interconnected, the opportunities for Indian investors are boundless. With the right tools, strategies, and insights, 2025 could very well mirror—or even exceed—the remarkable shifts witnessed this year.
(Author is CIO and Founder, Valtrust)
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