By Rahul Bhutoria
The United States of America is often called the land of opportunities. Its financial markets have also lived up to this promise, delivering impressive returns for investors, with S&P500 delivering almost 10% annual returns in the last 30 years.
Warren Buffet once said, “In the world of business, the most successful people are those who are doing what they love.” This sentiment is shared by many successful investors who have made their fortunes in the US markets.
With so much potential for growth and success, it’s no wonder why investors worldwide flock to the US markets in search of investing opportunities, and Indian investors have also taken notice of the same.
Here are the reasons that make US markets a popular destination from an Indian investor’s vantage point:
The US stock market is well-regulated, and investors can be assured that their investments will be protected. The US Securities and Exchange Commission (SEC) is the primary regulatory body that oversees the stock market. The SEC ensures that companies listed on the stock exchange comply with all rules and regulations and that investors are protected from fraud and manipulation. The SIPC program insures securities & cash of up to USD 500,000 in the brokerage accounts.
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Size & Liquidity
The NYSE is the largest stock exchange in the world by market capitalization, with a total market capitalization of USD 25 trillion as of March 2023. Such a large size also comes with high liquidity; on NYSE, the average daily volume in H1 2022 was 38.3M contracts. This means that investors can buy and sell stocks quickly and easily. This ensures that there is good price discovery for investors.
Access to true diversification
The US stock market offers an unmatched capability to diversify portfolios across a variety of stocks, bonds, mutual funds, and exchange-traded funds (ETFs). This diversity of investment options allows investors to create a well-diversified investment portfolio and manage risk effectively.
Also Read: Global ETFs: A powerful tool for diversification of Indian portfolios
The US stock market also offers a wide range of sectors to invest in, including technology, healthcare, consumer goods, and energy. Investors also can get exposure to many sunrise sectors that are simply not present in Indian markets, like Semiconductor, SpaceTech, Biotech, Artificial Intelligence, and SaaS, to name a few.
Some of the world’s largest Global companies are based in the US, including Apple, Microsoft, Amazon, Alphabet (Google), and Facebook. While these companies are listed in the US, they have their revenue coming from across the world, which gives investors an opportunity to own a global business. Many of them have also started to increase their presence and commitment to the Indian market. For example, we saw Apple stores opening in India, which was attended by Tim Cook, Ceo of Apple.
While its influence may be waning, the US dollar is still the world’s reserve currency, which means that it is the most widely used currency for international trade and transactions. This makes investing in the US stock market popular for Indian investors looking to diversify their portfolios and reduce currency risk. Investing in USD-denominated investments also gives significant protection against geopolitical risks.
De-risking from INR depreciation
Due to India being a net importer and USD still commanding the position of reserve currency, INR tends to be on a depreciating trend against USD as history has shown. Diversifying a part of the portfolio in USD provides much-needed protection against currency depreciation.
Indian investors benefit from the tax treaty between India and the US, which allows them to avoid double taxation on their investments. This means Indian investors will only be taxed in one country on their investments, reducing the tax burden.
While India is surely the rising star in the global markets and will deliver good returns for investors in the coming decade, the US Markets will also continue to remain a force to reckon with. With the new wave of Industrialisation that is now starting in the US along with the deep-rooted focus on R&D in their industries & academics, there will be new opportunities for Indian investors to capitalize on in US markets and hence it should be a part of asset allocation.
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(Author is Director and Founder, Valtrust- A Bespoke Multi-Family Office)