Strong US dollar: a double-edged currency for UAE expats

The strengthening of the US dollar against the Indian rupee in recent years has allowed many UAE-based Indian expatriates to reap the benefits of a strong dirhamw exchange rate when sending money to their home country.

But not all non-resident Indians (NRIs) are celebrating the greenback’s rise, which has caused the rupee to fall from 58.5 to the dollar last May to above 62.

Glenn Selwyn, the managing director of Ambit Advertising, an agency in Dubai, says the rupee’s weakness has weighed on his investment portfolio in India.

He explains that high inflation in India has eroded any gains from the exchange rate, while the rise of the dollar means that investments and savings made before the rupee’s decline are worth less.

“I have a lot of NRI deposits, so in real terms that value goes down. I also have a lot of property investments, so in real terms that also goes down,” says Mr Selwyn, who is from Mumbai and has lived in Dubai for 18 years.

“A weaker rupee is OK for short-term gains for people who have a fixed amount to send every month such as labourers and low-income groups. For them, seeing that value going up is probably a good sign. But definitely not for me, because I’ve got too much going on in India.”

When Mr Selwyn invested heavily in stock markets in India in 2011, for example, the exchange rate was about 45 rupees to the dollar.

A weaker currency fuels inflation because it pushes up import costs. Inflation between January 2012 and 2015 has averaged about 9 per cent annually.

Mr Selwyn says he is now hanging back from new investments in India, having focused on buying property there over the past three years – the instalments for which he is still paying off.

Srikanth Meenakshi, the co-founder and chief operating officer of, an online investment platform, says that post-economic downturn inflows into India under various NRI deposit plans jumped 13-fold from US$2.9 billion in the financial year between 2009 and 2010 to $38.4bn in the financial year of 2013-14.

“Most NRIs wanted to send home more money when the rupee was depreciating against major currencies – the rupee depreciated 33 per cent in absolute terms against the dollar between March 2010 and March 2014,” he says. But many NRIs have not necessarily boosted their wealth as a result, Mr Meenakshi points out.

“While they would have got more rupees for every foreign currency remitted, what NRIs may have missed out by merely focusing on NRI deposits is that the local interest rate, post-inflation, remained low to negative over the above period. The consumer price inflation index increased 40 per cent in absolute terms over the same period.”

Ajit Khasnis, the director of Wealth Managers in Pune, describes the strength of the dollar against the rupee as “a double-edged sword”.

“I feel the weak currency may give an opportunity to earn additional returns on currency movement,” he says. “This will be true provided the Indian rupee appreciates during the tenure of the investments. The India growth story will give the opportunity of currency appreciation over a longer tenure.” But he adds that “this hypothesis may not hold true if we face higher inflation in India”.

Girish Iyer, a relationship manager at Invest Bank, comes from Trivandrum in Kerala and has lived in Dubai for the past two decades. He has divided his investments in India between property, fixed deposits, and equities, but believes that a stronger dollar has not been to his benefit.

“At the end of the day, it’s one and the same thing,” he says. “Maybe I can enhance my investments in India at this point of time – but what about the inflation in India? It’s going to nullify whatever enhancement we get in the exchange rate.”

This year, he says he plans to split his investments in India equally between property and stock markets, as he aims to secure better returns.

“I want the Indian rupee to get stronger,” Mr Iyer says. “I want my country to grow in leaps and bounds.”

A number of NRIs have also borrowed money in the UAE at low interest rates to invest in the rupee and India.

Over the past few years, Indian property has been another popular option for expatriates because of prices rallying and the rupee-to-dollar exchange rate.

Raghvendra Nath, the managing director and chief executive of Ladderup Wealth Management, however, recommends NRIs to invest in stocks instead to secure higher returns.

“We are now standing at an inflexion point,” he says. “Smart investors should book profits in real estate and invest the profits in Indian equities.

“The real estate rally is almost done with. Here onwards at best you can expect low single-digit returns in the next five years. In contrast, the equity markets are just warming up. If the economic recovery is strong, its benefits would directly reflect in the stock prices. It wouldn’t be an exaggeration to say that investors can expect similar returns in equities in the next five years.”

Mr Khasnis agrees that equities and equity-linked products are the best long-term investments for NRIs.

But for those who believe the rupee will fall even further, Mr Nath warns that this is unlikely.

“While there has been significant depreciation of the rupee versus the dollar, we shouldn’t witness a runaway depreciation in next few years,” says Mr Nath. “This is because not only are the macro parameters such as inflation and current account deficit becoming favourable, but we also expect foreign portfolio investments to grow significantly.”

While many NRIs are hoping the dollar strengthens further to help their dirhams fetch more rupees when they send lump sums home, Mr Selwyn wants the opposite to raise the security and value of his wealth in India.

“I would always like – and I hope [India’s prime minister Narendra] Modi helps there – to get the rupee to around the 53 to 55 level,” he adds.

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