By Anupam Guha
Indian economy is anticipated to record a sharp V-shaped recovery as the organization atmosphere normalizes. Despite this, Indians need to overcome the property nation bias and ideally think about diversification of portfolio via investment possibilities in international markets. This will diversify the extant geopolitical danger linked with emerging economies, in particular throughout periods of worldwide/ regional monetary crisis (i.e., East Asian crisis (96-97), 9/11 terror attacks and worldwide monetary crisis of 2008-09). So need to kind element of investor’s portfolio as element of as a prudent asset allocation and danger mitigation approach
Indian economy has witnessed above typical development price amongst the G-20 significant economies, next only to China, more than the final 20 years. This trend is anticipated to continue for the foreseeable future. According to the IMF, Indian economy contributes about 3.3% to the worldwide Gross Domestic Product (GDP). Countries such as the USA and China contribute 23.6% and 15.5% to the worldwide GDP, respectively.
It brings to fore a pertinent query in the minds of most investors, “Should we really be considering investments in overseas markets?” Clearly, India presents decent broad-primarily based possibilities for development, as corporate profitability normally tracks the GDP development and the stock costs comply with suit.
While the query remains a pertinent one particular, Indian investors nevertheless have a lot to advantage by investing in overseas markets. Here is my take on a handful of significant points which corroborate the want for investing in overseas markets.
An in depth array of investment possibilities
Whenever you feel about the top rated brands in the globe or brands of solutions and services you use on a everyday basis, more usually than not, you will feel about Apple, Google, Facebook, Microsoft, Samsung, Amazon, Netflix and the likes of these. And you will notice that brands that function mainly prominently in your list, are not listed on the Indian Stock Exchanges.
So, regardless of India becoming amongst the quickest expanding economies, it does not home some of the most effective brands a.k.a. providers in the globe. Thus most of the possibilities for wealth creation arising out of the development of such providers is not accessible for domestic investors. The major providers of actually worldwide nature, in particular cutting edge technologies and customer net/electronics space, which get pleasure from a deep moat are listed predominantly on the US stock exchanges. Also, exposure to next-gen innovation-led sectors like electric/autonomous automobiles (EV/AV), AI & ML (Artificial Intelligence & Machine Learning), robotics and bio-healthcare/ pharma can be taken via these markets. Also the United States, for instance, homes several of the biggest customer, banking and services providers, which are globe leaders in their sectors.
So as an investor, allocating a element of the all round equity allocation to international equities can prove to be advantageous for boosting the all round returns of the portfolio.
Benefits of Geographical Diversification
Most investors are conscious of the energy of diversification and prudently handle diversification across asset classes, like equity, debt, gold, and so forth. Within equities as well, investors with guidance from their advisors or wealth managers handle effectively allocation amongst significant cap or mid & tiny cap.
Similarly, investing a portion of your asset in overseas markets will add the advantage of diversification in your portfolio by not absolutely based on the Indian stock markets or Indian economy, but by putting bets on the worldwide GDP development and customer/technologies invest and the providers/sectors which will ride on the wave for organization and profitability.
This will assist an investor mitigate the variables which effect the domestic stock markets and the all round economy in common. These variables could be each nearby or worldwide, e.g. foreign investors pull cash out from the emerging economies due to some worldwide exigency and shifting assets to a safer haven investments like US treasuries or Gold, or modifications in domestic regulations or policies which could have a knee jerk reaction in the stock industry.
Thus adding an overseas flavor to an investors’ portfolio would give a geographical diversification primarily based cushion to the investors all round portfolio.
Profit Rupee depreciation
There is a verified lengthy term trend of depreciation of rupee versus currencies of created economies which adds to investors’ returns year on year. It is nicely recognized that US dollar is the protected haven currency for worldwide investors in particular in occasions of a worldwide crisis. This was evident as when the current Covid-19 pandemic hit the globe with a shock, Indian rupee depreciated practically 8.5% from the higher on January 13, 2020 to the low on April 22, 2020.
Indian economy, historically has constantly been in a state of existing account deficit and coupled with higher structural inflation price thereby major to a greater interest price regime compared to the created economies, the Rupee constantly remains below depreciating stress.
The lengthy term rupee depreciation is in the variety of 3-4% p.a. and this straight away bumps up the returns an investor tends to make on worldwide/dollar investments.
Building a worldwide currency pool
There has been a steady transform in social and demographic profile of Indian investors. Now most of us are aligned to the worldwide economy in terms of our consumption, hence creating significant substantial direct or indirect costs in foreign currency. These contain either kids’ education or healthcare costs or organization / travel specifications. So one particular could defend themselves from currency danger when preparing for such future costs by investing in foreign currency assets.
What are the several techniques for Indian investors to invest globally?
One of the easiest techniques for an Indian investor to invest in overseas markets is via Indian Mutual Fund homes supplying feeder funds route into International Funds.
Such Feeder funds are a quite hassle-free route to achieve exposure to overseas markets investments, as there is no ceiling in terms of the quantity an person can invest and also the taxation remedy is extensively recognized and hence the compliance and account opening requirement is minimal. Although this route is gaining prominence, in particular right after the current pandemic situation, there are quite restricted possibilities accessible to an investor to pick out from the current feeder funds.
This tends to make the alternate route which is using the Liberalised Remittance Scheme (LRS) of RBI, a quite sought right after avenue to diversify globally. Under the LRS route, a resident Indian is permitted to remit up to US$ 250,000 in a monetary year. This route as well has been steadily expanding more than the years and is mainly applied by HNIs. However, several broking firms, like ICICI Securities and so forth., are foraying into this space to present a lot easier access to all investors and get a taste of overseas investments. ICICI securities, for instance, permits shoppers to invest digitally and seamlessly in equities, fixed revenue and ETFs listed in the US markets via a tie-up with a major US-primarily based broker/dealer.
In summary, when investors constantly have an inward hunting property bias, it is significant to take into consideration several altering dynamics of globalization. We are today more a worldwide citizen then only Indians and hence producing a holistic worldwide portfolio is the want of the hour.
(Anupam Guha is the head of Private Wealth Management, ICICI Securities. Views expressed are the author’s personal.)