Nris In UAE: Will The Rupee Reverse Its Bearish Trend This Year?

(MENAFN- Khaleej Times)

Question: Many NRIs have a gloomy view of the exchange rate on account of foreign portfolio outflows from India which has weakened the rupee. In your earlier column you had mentioned that 2026 will see a reversal in this trend. On what basis are you taking this optimistic view?

ANSWER: There is some room for optimism considering the commitments made by multinational corporations pertaining to foreign direct investment. The bulk of the foreign direct investment is coming in the tech space with new sectors such as semi-conductors seeing traction. Energy players and financial services entities are also investing in the next few months. During the period April to September 2025, foreign direct investment inflows rose by 16 per cent to $50.4 billion. The recent mega investment announcements by Google, Microsoft and Amazon aggregate to nearly $70 billion. Other investment proposals from companies like Foxconn, Vinfast, Shell Energy, Hynfra and many others will result in an investment of over $65 billion, aggregating to $135 billion.

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Global investors see a large opportunity in the Indian market not just to meet the consumption requirement of the country but to use it as a base for their exports to global markets. Their strategy is based on the large pool of talent comprising engineers and other technical professionals. The recent amendment to the law which allows hundred percent foreign direct investment in the insurance sector is expected to give a boost to capital inflows. This will not only deepen the market but promote employment of agents, brokers and intermediaries by three times. Further, insurance companies will now be able to invest directly in unlisted companies which are special purpose vehicles used in infrastructure projects. Moreover, foreign direct investment is expected to increase in 2026 in startups with private equity funds and venture capital players taking the lead. Therefore, the substantial FDI inflows will help to reverse the current trend and neutralize the outflow of funds by foreign portfolio investors.

Question: With India signing an agreement with Oman, will it benefit Indian workers and professionals? What will be the impact on trade between the two countries?

ANSWER: The Comprehensive Economic Partnership Agreement (Cepa) entered into with Oman last year will come into force in the first quarter of this year. Indian workers and professionals will benefit substantially on account of changes in visa rules. According to the Commerce Ministry of India, movement of professionals will take place in the quota assigned for intra-corporate transferees. Visas will be issued for upto four years. Independent professionals will get visas for upto 180 days. Under the agreement, Oman will allow their companies to employ upto 50 per cent Indians in their workforce, instead of 20 per cent at present.

As far as trade between the two countries is concerned, the pharmaceutical sector will gain the most as Oman has agreed to fast track approvals for Indian pharma products and medical supplies. Organic food certificates issued by Indian authorities will be accepted in Oman which will help provide easier access for farm products. The Cepa will permit 98 per cent of Indian exports to enter Oman duty free, while India will remove tariffs on 77 per cent of imports from Oman. Therefore, it is expected that the Cepa will strengthen strategic and economic relations between the two countries.

Question: Wealth managers in India are suggesting investment in Fund-of-Funds schemes on the ground that there is a capital gains tax advantage. Kindly explain what the advantage is. I also need some clarification on what such scheme actually means.

ANSWER: Fund-of-Funds (FoF) schemes are attracting many first time investors who on their own cannot decide how much to allocate to large-cap, mid-cap, or small-cap stocks. A F0F scheme is a diversified portfolio in a single scheme which is managed by professionals who take entry and exit decisions. On the other hand, a normal mutual fund scheme holds underlying stocks and securities as per the mandate given by the investor who has to take his own decision. Hence, a FoF scheme helps in navigating through market volatility because it has a mix of several mutual fund schemes. Generally, the FoF scheme manager selects schemes across fund houses and not more than two schemes from any fund house in order to minimise risks.

In addition to equity FoFs, there are asset allocator FoFs that invest in a mix of equity, fixed income and commodities based on market trends. There are also debt FoFs like the income-plus arbitrage FoFs. The tax advantage of investing in FoFs is that if they are held for at least two years, the long-term capital gains tax chargeable is a flat rate of 12.5 per cent. Therefore, FoFs have become popular with investors as they have the benefit of tax efficiency as well as professional management.

The writer is a practising lawyer, specialising in corporate and fiscal laws of India

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