US indices are at a high but if one is looking from a long-term perspective, there are enough ETFs and stocks which still have room to grow.
Investors in India who only have exposure to the Indian stock market are actively considering to invest in the US stocks. After all, diversifying one’s portfolio across geographies increases the possibility of a higher risk-adjusted return in one’s portfolio. If you are also looking as to how to invest in Nasdaq from India or buy the US stocks in India, you would have already taken the first step towards global investing. The leading US stock market indices such as the S&P 500 and Nasdaq 100 are near their all-time high. Still, the momentum reflected in the stock prices seems unrelenting to give up the gains.
From the lows of March 2020, there has been a spectacular recovery in nearly all the leading global stock market indices. While the prices of some stocks have gained more than 100 per cent from the lows seen earlier this year, the leading indices have also shown greater resilience. The S&P 500 index is up by about 65 per cent while both the Nasdaq 100 and Nasdaq Composite index is up by about 80 per cent.
There are two big reasons to invest in the US stocks even while the US indices are at an all-time high.
Firstly, the dollar has weakened against the rupee in recent times. “Remitting money is best done when the US dollar is low. From that standpoint, this is a good time. USD was around Rs.76 in April, these days it’s around Rs.73. So, one can send money now and wait for the best time to deploy,” says Sitashwa Srivastava, Founder and CEO, Stockal, an international investing platform.
And, what if the rupee weakens against the dollar later on? If at the time of selling the stock even if the stock price has not changed but the rupee has weakened by 10 per cent or so against the dollar, you do not lose. While converting the dollar back to INR, you stand to gain even though the price of the stock is the same at the time of selling. If, however, the stock price has gained, you stand to gain from both currency rate and stock appreciation. What, therefore, is important to know is that the rupee-dollar exchange rate also plays a role in the returns from foreign stocks.
Secondly, if you are a long-term investor, deploying cash at any market level should be fine. Look for stocks that have the potential to grow exponential in future or sectors and themes that can shine in the years ahead. At some point in time, the US economy is to return to the pre-Covid level, with big corporations generating huge global earnings for their shareholders. “US indices are high but if one is looking from a long-term perspective, there are enough ETFs and stocks which still have room to grow. Also, considering many Covid vaccines are coming soon, the markets should remain buoyant,” feels Srivastava.
However, given the high valuations of some stocks at current levels, it’s prudent to make investment decisions based on one’s risk appetite. “It is wise for an investor to consider domestic as well as international equities to give portfolio exposure to the growth dynamics of different countries whilst diversifying the country-specific risk. However, currently, the US markets are trading at extremely high valuations. The market cap of Tesla is greater than the 9 largest automakers combined and Apple has a market cap that is very close to the size of India’s GDP,” says Rishad Manekia, Founder and MD, Kairos Capital.
Markets intermittently will show volatility but long-term investors need to take it in their stride and use opportunities to average their buying price. 2020 has been witness to such huge volatility and in a way has been a learning ground for several investors, especially those who are new to the stock market.
All eyes will be on the continuation of the US FED stimulus later this month. Also, with the vaccine taking the front seat in the fight against Coronavirus, global investors will also keep tracking its progress closely. However, these could be short-term events and as we move into 2021, the focus will be back on corporate earnings which will primarily depend on the US economic conditions.
The most simple rule to make money in stocks is to buy low and sell high. Over the long term, equity as an asset class has shown the tendency to drift upwards, even while there could be volatility in the short-to-medium time-frame. So, if you are a long-term investor, there’s no need to time the market, however, at times markets provide better opportunities to deploy funds. The golden rule still remains the same – identification of the right stock with a growing business and holding it for long.
As a beginner, keeping an eye on and tracking the leading 5 US indexes for cashing on the opportunities is important. The simple and yet the most convincing reason to invest in the US stocks is to bring in diversification in one’s portfolio. Look no further than the US stock market to reap the benefit of diversification and growth in the decade ahead.