Express news service
CHENNAI: Indian retail investors have matured rapidly over the past decade and the new generation of market participants is no longer content to remain confined to the limited opportunities offered by the Indian stock markets. In the past year, in particular, market leaders say the number of retail participants has exploded, as has their interest in foreign securities.
The increased demand for access to international securities has also led to the proliferation of mutual funds focused on investing abroad. And just recently, the two Indian exchanges – BSE and NSE – announced that they would each allow an international trading platform to allow Indian investors to take stakes in US stocks.
But why is this trend towards geographic portfolio diversification accelerating? And how to invest in foreign securities? Here’s what several portfolio management and wealth management experts who spoke to TNIE have to say:
The main driving force behind increased overseas participation is diversification. Because, at its core, a more diversified investment portfolio offers both opportunities for wider gains and some protection in the event that one or more investments start to do badly. For example, while the average annual returns of Indian stock markets have moderated to single digits over the past five years, some markets like Taiwan and the United States have offered nearly 18-20% annualized gains over the past five years. same period.
“Allocating part of your portfolio to foreign securities acts as a hedge,” said Pratik Oswal, head of passive funds, asset management company at Motilal Oswal Financial Services. According to Ashish Ranawade, Product Manager, Emkay Wealth Management, investing overseas has many benefits. “The first is the ability to invest in companies that cater to a large global market. This means that the investments are made in very large cap market companies offering huge opportunities… And to that extent the investments can be considered less risky, ”he said.
“These are opportunities that may not be available in Indian markets. Eg. Opportunities in materials science, space technologies, AI and ML. Some markets may be more mature than India for certain types of products. The ability to invest in this type of business (like Walt Disney in entertainment, or Estée Lauder and LVMH in luxury goods, or Tesla for electric vehicles), ”added Ranawade.
India has several foreign-focused mutual funds that have exclusive or partial exposure to international securities. These include Edelweiss Greater China Equity Off-Shore Fund, Motilal Oswal Nasdaq 100 ETF, Franklin India Feeder – Franklin US Opportunities Fund, PGIM India Global Opportunities Fund, etc.
According to Aashish P Somaiyaa, CEO of White Oak Capital Management, aside from the standard risks associated with investing in stocks, there are no major downsides that should prevent investors from venturing overseas. Another important factor to consider is the effect of currency movements on investments abroad. For example, the trend for the Indian rupee to depreciate against the dollar before the onset of the pandemic made returns on dollar-denominated securities much more attractive. “So far, the depreciation of the INR has added 4 to 5% more per year to returns abroad. How it works in the future will always be a matter of uncertainty, ”said Ranawade.
But how do you make such investments abroad? Experts say there are two main avenues: First, the DIY method, where you create a foreign currency bank and brokerage accounts under the Liberal Remittance System (LRS) of the RBI and directly buys foreign securities. The other is to go through mutual fund systems that directly buy stocks abroad or act as feeders for international funds.
For new investors and those with a smaller investment body, the consensus of experts is to go the mutual fund route. “Some overseas stocks can be quite expensive… Amazon Inc is valued at $ 3,200 per share (Rs 2.4 lakh),” Oswal said, noting that MFs can help defray this cost barrier.
According to Somaiyaa, besides the benefit of getting professional assistance while going through FPs, there are two other reasons for doing so. “The first is that, among mutual funds, the variety and choice of international funds, geographies and asset classes are quite large. Second, if we go through the opening of LRS accounts, there is a 5% tax collected at source on the payment. This can be claimed when filing computer returns, but it is a source of friction and inefficiency when investing.