{"id":41131,"date":"2026-06-12T16:27:57","date_gmt":"2026-06-12T10:57:57","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=41131"},"modified":"2026-06-12T16:27:57","modified_gmt":"2026-06-12T10:57:57","slug":"chasing-dollars","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/chasing-dollars\/","title":{"rendered":"Chasing Dollars"},"content":{"rendered":"

If you are a non-resident Indian or know someone who is, here\u2019s a once-in-a-decade chance to make some serious money. That too, without taking any risk. No, we are not talking about a get-rich-quick Ponzi scheme. We are talking about a perfectly legal investment window that the Reserve Bank of India opened recently to make foreign-currency deposits by NRIs more attractive.<\/span><\/p>\n

Last week, the RBI allowed banks to raise fresh three- to five-year Foreign Currency Non-Resident (Bank), or FCNR(B), deposits under a special dispensation. More importantly, it introduced a swap facility that significantly reduces the cost of hedging those deposits.<\/span><\/p>\n

The announcement offers an interesting opportunity into a broader shift taking place in global finance. FCNR(B) deposits allow non-resident Indians to place foreign-currency deposits with Indian banks without converting their money into rupees. For banks, they represent a source of overseas funding. For depositors, they compete directly with a range of dollar-denominated alternatives available abroad.<\/span><\/p>\n

How does it really help NRIs? Well, for much of the past decade, NRIs who wanted to park surplus dollars but didn\u2019t want to take risks faced a simple reality: safe dollar assets offered very little income. But investors willing to move money across borders could often earn meaningfully higher returns elsewhere.<\/span><\/p>\n

That reality has changed. Today, the risk-free US Treasuries and other dollar-denominated assets once again offer attractive yields above 4%. This has led to a drop in dollar deposits in India, contributing to pressure on the rupee and dragged it down to record lows against the greenback.<\/span><\/p>\n

The challenge is visible in the numbers. Fresh FCNR(B) inflows fell sharply in FY26, dropping to less than $1 billion from more than $7 billion a year earlier. This is not just a story about capital leaving India. It is also a story about investors demanding more attractive terms before moving their dollars across borders. Viewed through that lens, the RBI\u2019s latest move becomes easier to understand.<\/span><\/p>\n

Ordinarily, banks raising foreign-currency deposits must protect themselves against exchange-rate fluctuations. Those hedging costs make such funding more expensive and limit the rates banks can offer depositors. The RBI’s swap facility changes those economics.<\/span><\/p>\n

By lowering hedging costs, the central bank has created room for banks to offer more competitive FCNR(B) rates while preserving their margins. Several lenders such as ICICI Bank, HDFC Bank, Yes Bank, Kotak Mahindra Bank and the State Bank of India have already raised rates to as high as 6.5%, and bankers believe the scheme could attract substantial additional deposits to the tune of $50-55 billion if pricing becomes sufficiently attractive.<\/span><\/p>\n

Now, that will certainly help banks and ease pressure on the rupee. But how do the NRIs benefit?<\/span><\/p>\n

Analysts and wealth advisers say NRIs can earn as much as 20% annually on these deposits if they use leverage\u2014basically, borrow money in the US or other low-interest economies and invest that money in India.<\/span><\/p>\n

Here\u2019s how it would work: An NRI with, say, $1 million to invest, can take a leverage of say, 5x or 10x, and borrow $5 million or $10 million at an interest rate of 4% and then deposit the entire sum with Indian banks at 6-6.5%. Over a three-year period, the net gains after repaying interest on the borrowed sum of $10 million could total $1.7 million, or almost 20% annually, according to analysts at Jefferies and Emkay Global. That return sounds even more appealing considering the flat to negative returns that India\u2019s stock markets have offered over the past two years.\u00a0<\/span><\/p>\n

The RBI’s latest move is a reminder that capital responds to incentives, alternatives and relative returns. In a world where safe assets once again provide meaningful income, attracting foreign capital is no longer simply a question of growth or opportunity. It is increasingly a question of pricing. And that may be the more important signal embedded in the RBI\u2019s announcement.<\/span><\/p>\n

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\"SIP_Kuvera\"<\/b><\/strong><\/span><\/p>\n

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The Habit of Participation<\/b><\/h3>\n

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From foreign currency deposits, let us move our attention to mutual funds.<\/span><\/p>\n

The latest mutual fund flow data contained some interesting trends. Net equity fund inflows fell sharply in May, dropping nearly 40% to a one-year low of Rs 22,907 crore from Rs 38,440 crore a month earlier, according to data from the industry body AMFI.\u00a0<\/span><\/p>\n

Inflows into large-cap funds sank 36.9% to Rs 1,593 crore. Mid-cap funds recorded a 33.2% drop to Rs 4,385 crore and small-caps fell 28.2% to Rs 4,946 crore. Inflows into flexi-cap funds almost halved to Rs 5,176 crore from Rs 10,148 crore in April.<\/span><\/p>\n

However, SIP contributions were steady, at Rs 30,954 crore versus Rs 31,115 crore in April.<\/span><\/p>\n

Now, both sets of numbers measure money flowing into the same industry. But they capture different things.<\/span><\/p>\n

Net inflows reflect a combination of SIP contributions, lump-sum investments and redemptions.\u00a0<\/span><\/p>\n

For lump-sum investments and redemptions, investors look at valuations, market conditions, risks and opportunities, and their own financial requirements before committing fresh capital or taking some money off the table.<\/span><\/p>\n

An SIP is different. It is part of a financial routine. Money moves automatically each month regardless of headlines, market sentiment or short-term uncertainty. That distinction may help explain what the latest data is telling us.<\/span><\/p>\n

After a strong start to the year, investors appear to have become more selective about deploying fresh money. And after a market rally in April, which came after a sharp drop in March, some investors chose to book some gains or cut their losses. Yet the behaviour embedded in SIPs barely changed. Monthly contributions remained above Rs 30,000 crore for the third consecutive month and were still significantly higher than a year earlier.<\/span><\/p>\n

The contrast in net inflows and SIPs is interesting. For one, this indicates that some forms of retail participation may be becoming less sensitive to short-term market sentiment than others. But it also offers a glimpse of what the investment process looks like when tested.<\/span><\/p>\n

Recent months have given investors plenty to think about. Questions around global growth, interest rates, valuations and wars have all contributed to uncertainty. In such an environment, some hesitation around fresh allocations is hardly surprising. What stands out is that SIP contributions continued largely unaffected.<\/span><\/p>\n

Essentially, the latest numbers indicates that investors appear willing to delay new commitments while continuing with existing ones. They may be reassessing opportunities without abandoning the process altogether. And they are also not shy of redeeming their investments when the opportunities arise. Whether that pattern persists remains unclear. But the divergence is worth watching.<\/span><\/p>\n

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Losing Shine?<\/b><\/h3>\n

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After mutual funds, let us talk about gold.<\/span><\/p>\n

Gold\u2019s appeal should, in theory, be as strong as ever. Geopolitical tensions remain elevated. Global growth concerns have not disappeared. Central banks continue to buy gold. Markets remain alert to inflation risks and policy uncertainty. Yet investors pulled Rs 725 crore from Gold ETFs in May, the first monthly outflow in more than a year.<\/span><\/p>\n

The reversal is striking because it follows a period of exceptionally strong demand. Gold ETFs attracted Rs 24,040 crore in January alone before inflows gradually cooled and eventually turned negative.<\/span><\/p>\n

But if many of the reasons for owning gold remain intact, why are investors pulling money out now?<\/span><\/p>\n

One explanation is that investors may be reassessing not the need for protection, but the price of it. Rising gold prices boosted demand from investors, which lifted prices even more. Global spot gold prices surged 65% last year and then jumped another 30% in January to touch a high of $5,597 per troy ounce. Indian prices followed a similar trajectory with gold prices climbing to record highs near Rs 1.78 lakh per 10 grams.\u00a0<\/span><\/p>\n

However, the need for protection and the attractiveness of buying that protection are not always the same thing.<\/span><\/p>\n

An investor can remain concerned about the global outlook and still conclude that gold has become less compelling at current prices. The latest ETF data may be an example of that dynamic. Investors are not necessarily saying that uncertainty has disappeared. They may simply be questioning whether today’s prices still offer enough compensation for the risks they are trying to hedge.\u00a0<\/span><\/p>\n

Indeed, current prices reflect the new reality, with global spot gold down nearly 25% since the January highs and Indian rates falling by almost 17%. Meanwhile, the Indian government\u2019s restrictions on gold are also impacting demand. The government lifted import tariffs on gold to 15% from 6% to curb imports. And last week, several fund houses including ICICI Prudential Mutual Fund, HDFC MF and Nippon MF restricted inflows into gold ETFs.<\/span><\/p>\n

That does not mean the broader investment case for gold has disappeared. Gold ETFs still manage assets worth Rs 1.84 trillion, and many of the forces that supported demand over the past year remain in place. Nor does one month of outflows establish a trend. But the episode offers a useful reminder about how markets work.<\/span><\/p>\n

Markets rarely reward investors simply for identifying risks. The harder task is judging when those risks have already been reflected in prices. That challenge extends well beyond gold. Investors apply the same logic to government bonds, defensive equities, currencies and other assets expected to perform well during periods of uncertainty.<\/span><\/p>\n

The question is rarely whether risks exist. The question is how much investors are being asked to pay for protection against them. And that may be the more important signal in the latest gold ETF data. The sources of uncertainty have not changed very much. The price of protecting against them may have.<\/span><\/p>\n

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Checking In<\/b><\/h3>\n

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Protection has been one of the defining themes of the past year. Yet parts of the economy continue to tell a different story. Take hotel companies, for instance.<\/span><\/p>\n

Hotel companies rarely make decisions based on the next quarter. A new property can take years to develop, require significant upfront capital and often takes even longer to generate an attractive return. When a hotel chain commits to expanding its footprint, it is effectively making a judgement about demand years into the future. That is why the industry\u2019s current bet on India stands out.<\/span><\/p>\n

Marriott plans to nearly double its presence to 50,000 rooms over the next few years. The company expects India to become its third-largest market globally. Hilton, Hyatt and Accor are also expanding aggressively, collectively targeting hundreds of additional properties. The confidence reflects more than a good year for travel.<\/span><\/p>\n

India\u2019s hotel industry has enjoyed strong occupancy and rising room rates in the post-Covid era. Domestic travellers account for a majority of demand, reducing dependence on international tourism. Business travel has recovered, leisure travel remains robust and religious tourism has opened up new pockets of demand across the country.<\/span><\/p>\n

At the same time, supply has struggled to keep pace.<\/span><\/p>\n

For an economy of India’s size, branded hotel penetration remains relatively low. New room additions have lagged demand growth in many markets, helping sustain both occupancy levels and pricing power. The result is an industry where operators continue to see room for expansion even after several years of strong performance. That combination is difficult for global hotel companies to ignore.<\/span><\/p>\n

What makes the story noteworthy, however, is not simply that hotels are doing well today. It is that some of the world’s largest hospitality companies are committing capital on the assumption that today’s demand is durable. That assumption matters because the broader conversation around consumption in India often produces mixed signals. Different sectors tell different stories. Some parts of the economy continue to see uneven demand, while others remain surprisingly resilient.<\/span><\/p>\n

Hotel companies appear to be making a clearer judgement. Their expansion plans suggest they believe the long-term drivers of travel demand remain intact. Rising incomes, improving connectivity, greater mobility and the continued formalisation of the travel industry are all expected to support demand well beyond the current cycle.<\/span><\/p>\n

That does not settle the broader debate about consumption. Nor does it guarantee that occupancy and room rates will continue rising at the same pace. But it does offer a useful perspective on how long-duration capital behaves.<\/span><\/p>\n

Financial markets often focus on quarterly results, monthly indicators and short-term shifts in sentiment. A hotel room is a much longer commitment. It is a bet that demand will still be there years after construction begins and long after current economic debates have faded.\u00a0<\/span><\/p>\n

Right now, some of the world’s largest hospitality companies appear willing to make that bet. And when businesses commit capital with investment horizons measured in decades rather than quarters, the signal is often worth paying attention to.<\/span><\/p>\n

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\"FD_Kuvera\"<\/p>\n

<\/h3>\n

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Market wrap<\/b><\/h3>\n

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India\u2019s benchmark stock market indexes ended a two-week losing run to gain this week, thanks mainly to a rally on Friday after hopes of a US-Iran peace deal pushed oil prices lower.<\/span><\/p>\n

The Nifty 50 climbed 1.1% while the BSE Sensex jumped 1.7% this week. On Friday, the Nifty surged almost 2% to 23,622.90 points while the Sensex soared 2.3% to 75,527.95.<\/span><\/p>\n

Banks and non-bank lenders led gains after the Reserve Bank of India eased overseas borrowing rules. Kotak Mahindra Bank was the top Nifty performer, rising almost 6.9%. Axis Bank and ICICI Bank also climbed over 6% each while SBI gained 4% and HDFC Bank rose 3.4%. Shriram Finance and Bajaj Finance ended more than 3% each.<\/span><\/p>\n

IndiGo parent InterGlobe Aviation, Max Healthcare, Eicher Motors, Larsen & Toubro, Maruti Suzuki and Apollo Hospitals were among the other gainers.<\/span><\/p>\n

At the other end, IT shares, PSUs and metal stocks were among the top losers. Wipro was the worst performer, sinking over 9% while Infosys slipped 6.6% and HCL Tech lost 3.9% as IT companies continue to face fears related to AI disruption. Rising US inflation, which could prompt the Federal Reserve to hike rates that could dent global technology spending, added to the worries.<\/span><\/p>\n

State-run explorer ONGC dropped 7% as oil prices cooled. Among metal counters, Hindalco fell 6.5% and Tata Steel lost 4.3%. Coal India, Zomato parent Eternal, SBI Life and Adani Enterprises were among the other top losers.<\/span><\/p>\n

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Other Headlines<\/b><\/h3>\n

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