S&P 500 outperforms Sensex over 1, 3, 5 and 10-year; Should Indian investors invest in US markets?

By Atul Singh

The U.S. markets are experiencing significant volatility driven by inflation, Federal Reserve policies, and global uncertainties. However, despite these challenges, the S&P 500 has outperformed the Sensex over 1, 3, 5, and 10-year horizons, underscoring its resilience and growth potential. For Indian investors, this presents both risks and opportunities, emphasizing the need for a diversified portfolio with exposure to U.S. equities.

The Current State of U.S. Markets

Despite recent market volatility, the U.S. markets, particularly the S&P 500, continue to offer compelling opportunities for investors. While much of the index’s gains in 2024 have been driven by the top 7 tech giants like Apple, Microsoft, and NVIDIA, the broader S&P 500, excluding these mega-cap stocks, remains at attractive valuations.

The price-to-earnings (P/E) ratio for the rest of the index is below its historical average, indicating potential upside for diversified investors. This presents a unique opportunity for Indian investors to capitalize on undervalued sectors within the U.S. market, beyond the well-known tech leaders.

Sectors Like Technology and Healthcare: Evaluating Their Potential

Both technology and healthcare sectors present promising opportunities amid current market conditions. The technology sector is witnessing growth driven by AI, cloud computing, and digital transformation, with companies like NVIDIA and Microsoft leading the charge. The AI market is expected to grow significantly, creating investment potential. Meanwhile, healthcare, particularly biotech and pharmaceuticals, remains a defensive yet innovative sector.

As a highly capital-intensive industry, healthcare stands to benefit from the recent rate cuts, which reduce borrowing costs for research, development, and infrastructure. This combination of stability and growth makes healthcare a strong choice for Indian investors seeking exposure to U.S. markets.

Impact of U.S. Federal Reserve Policies on Global Market Sentiment

With the U.S. Federal Reserve having implemented rate cuts to counter slowing economic growth, global market sentiment has started to improve. Lower interest rates have eased liquidity pressures, contributing to a more favorable environment for equities.

For Indian investors with U.S. exposure, these rate cuts have led to renewed optimism in sectors sensitive to interest rates, such as technology and real estate.

Additionally, the rupee’s depreciation against the U.S. dollar continues to provide currency gains, enhancing returns from U.S. assets. Staying informed on further policy changes will be essential for managing U.S. investments effectively.

The Importance of Diversifying into U.S. and International Markets

Diversification across U.S. and international markets is critical for Indian investors looking to reduce risk and capture growth opportunities. The U.S. remains a global leader in sectors like technology, healthcare, and clean energy, offering unmatched exposure to innovation and stability. Relying solely on domestic investments exposes investors to country-specific risks, whereas diversifying into U.S. assets adds balance and stability. The U.S. market’s depth and liquidity make it an essential part of a globally diversified portfolio.

(Author is MD and CEO LGT Wealth India)

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