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Investments in US Markets

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In CY2019, when the Nifty clocked 12.02%, the NASDAQ 100 index gained 39.98%. Being an Indian Investor definitely helped as the rupee weakness further added a couple of percentage points in returns. US markets especially in the areas of tech and healthcare have done well and also have significant upside potential for growth. The US market has been perceived as the ‘Mother Market’, and has attracted many investors worldwide.

It’s smart to diversify your risk across multiple geographies allocating a portion of your Investment Portfolio. Select Indian brokerages took the cue and tied up with US based brokerages to offer access to US stock markets. Global brokerages along with local Fintech players have leveraged on technology to create online investment platforms with great user experience for fulfilment. These investments are through the LRS (Liberalized Investment Window) that was introduced by the RBI to facilitate Resident Individuals freely remit funds up to $ 2,50,000 for specified purposes. Though ‘home bias’s – the tendency to invest in the local stock market is strong for most Indian investors, the shift in investments in the US markets is also rapidly gaining traction.

The market capitalization of US stock market accounts for approximately 40% of global market capitalization. The US stock market is home to many companies that own well-established brands. Many Indian investors are familiar with names like Facebook, Amazon, Apple, Netflix and Alphabet (formerly Google) — FAANG— are on the buying list of many Indian investors. However, this is more to do with the familiarity than any understanding of the underlying business or valuations. There are many sectors and stocks beyond the popular tech stocks that one may consider and do their research before deciding to invest. US Securities Law allows investors to own fractions of shares. This makes purchase of these stocks easier.

Investors must build their individual strategy, based on their risk profile and asset allocation needs. And should invest in companies whose businesses they understand well. Besides this, investors should have some sense on the future growth prospects of a company to arrive at its fair valuations. However, in a more efficient market such as the US, it is likely that an average Indian investor will find a larger universe of quality stocks, well governed companies with strong corporate governance and competitive edge.

Investing in the US markets also helps investors participate in global growth along with the growth of the US Economy. As many US companies get their revenues from countries across the world, search for better returns also convinces many investors to look at the US Markets. But the real value addition comes from the ‘quality’ of the portfolio. Investing in the US gives investors exposure to new lines of businesses such as search engines, online marketplace, defense, services, consumer, basic materials, utilities, capital goods and new age technologies. However, investing in a combination of stocks is prudent than taking single stock exposure to hedge during periods of sharp drawdown.

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