Banks and investment companies are increasingly targeting the United Arab Emirates to attract funds into Indian equities as they seek to capitalise on its large population of wealthy Indians and close trade links.
Natixis global asset management launched a new Indian equity fund in the UAE last month while Dubai’s Gold & Commodities Exchange set up a new derivative to allow investors to track India’s stock market.
While the world’s private banks have long catered for the UAE’s high net worth Indian population – appointing individual bankers to handle that specific sector – the launch of new financial products could divert more funds to Indian assets structured offshore.
The UAE is a natural place to market India funds, says Jamal Saab, head of Middle East and north Africa for Natixis global asset management. “It’s closer to home…there’s a familiarity there.”
Natixis – which is launching the new fund alongside India’s IDFC Asset Management Company – is hoping to attract investors such as life insurance companies in the UAE. With an estimated 1.4m Indians living in the country, individuals may be more inclined to divert their life insurance schemes to such a fund.
“Most of my clients who are of Indian origin prefer to invest into products in India,” says Rohit Walia, chief executive of Alpen Capital Group, the private bank.
He adds that Dubai is continuing to grow as a regional hub with more and more banks basing themselves in the emirate to serve India.
Relations between India and the UAE run deep with some of the biggest trading families having lived in the country for decades. But the countries are now focusing more on stimulating cross-border investment. In February, the two governments held their first meeting of a high level task force for investments.
But it may take time. Abu Dhabi’s Etihad Airways has yet to conclude a prospective deal to acquire a stake in Jet Airways, the Indian-low cost carrier. In February, the Abu Dhabi government-owned airline paid $70m to buy Jet’s slots at London’s Heathrow airport.
The UAE’s exchanges are also trying to stimulate investment between India and the Emirates. Dubai’s Gold & Commodities Exchange has been at the forefront of launching new India-related products to encourage trading of derivatives in the emirate.
In March, the exchange launched the MSCI India index futures, a new derivative that allows investors to buy into equity movements in India from Dubai. The contracts came after the exchange launched rupee options and rupee futures.
Since launching the rupee futures contract in 2007, it now accounts for just less than a third of the global-traded value of Indian rupee futures, according to the exchange.
“The index is just another piece of the strategy for India,” says Gary Anderson, chief executive of the exchange, who also sees potential in exploiting the gold trade between the two countries.
The appeal of offshore derivatives is clear, says Gaurav Kashyap, the head of the Dubai Multi Commodities Centre desk at Alpari ME, the Dubai-based brokerage.
“I don’t have to go through the entire bureaucracy…I will have all my money outside – parked in Dubai – I don’t have any issues about repatriation into India,” says Mr Kashyap.
But, the UAE has some stiff competition. Mauritius, despite its small population of 1.3m people, accounted for $55bn of India’s foreign direct investment from 2000-2011 – amounting to 42 per cent of the total. It remains the offshore financial hub for investing into India.
And despite the UAE’s large population of Indians, some may not want to divert their money back into India, analysts say. Currency hedging investments to account for the weak rupee or real estate in the UAE may be a bigger lure.
“There are almost no taxes in the UAE, so that acts as a magnet for money from India anyway – but it’s not necessarily going into products that are channelled back into India,” says Giyas Gokkent, chief economist at National Bank of Abu Dhabi.