Nasdaq 100 was the most watched and widely tracked index during the pandemic-led lockdown period of 2020-21. The spectacular price rise, in technology and communication stocks that constitute the Nasdaq 100 index, was largely attributed to the global liquidity unleashed by central banks leading to higher valuations of these stocks.
The situation in 2022 is different as global central banks including US Fed tighten liquidity in response to runaway inflation in most economies.
As a result, the higher valuations being enjoyed by the tech-heavy Nasdaq 100 companies had to fall and they did come down. So far in 2022, Nasdaq 100 is lower by 30% and is trading around 10950. Incidentally, the 52-week range of the Nasdaq 100 is 10,088.83 – 16,212.23.
Sunil Dhawan of financialexpress.com recently caught up with Ashwin Patni, Head Products & Alternatives, Axis AMC to understand the investment opportunities Nasdaq 100 offers to Indian investors and why the current dip could be an interesting opportunity to invest in Nasdaq 100 index.
What constitutes Nasdaq 100 and what makes it different from other leading US stock market indices?
The Nasdaq 100 TRI is its kind of index, investing in 100 of the largest (by Market Cap) non-financial companies. These companies have overseas businesses and aim to generate the bulk of their revenue from different countries with a focus on being disruptors, game changers, and forward thinkers.
As US economic growth is shifting from capital-intensive, traditional industries to new economic sectors such as healthcare, technology, and consumer, the Nasdaq 100 TRI can provide exposure to these new economic sectors.
In addition to investing in Indian stocks, should Indian investors consider investing in Nasdaq 100 index?
We have witnessed multiple unpredictable events in the last few years. One of the lessons that we all took from it was to keep a diversified portfolio across asset classes, market capitalization, and geographies to be able to mitigate risk. While the first two options are relatively well talked about, we believe that investors can consider the latter option, that is diversification across geographies, more acutely.
The Nasdaq 100 TRI provides an opportunity for global diversification with a flavor of high-growth and innovative large-cap companies based on Market Capitalisation. It is home to global growth and innovation from popular sectors like technology, healthcare, consumer goods & services, and industrials, and more. It gives exposure to companies that have revolutionized the use of technology, influenced our daily lives, and continue to be at the center of innovation.
Indian investors stand to potentially gain from rupee depreciation. Nasdaq 100 TRI which is down by 31% (CYTD- 27th Sept 2020), is down by only 24% in rupee terms – this is due to the depreciation in home currency. (Source: Bloomberg and Axis MF Internal Research)
Nasdaq 100 TRI has fallen almost 30% in 2022. What could be the compelling reasons for Indian investors to look at the index from a long-term perspective?
There are clearly a variety of meaningful headwinds but the market is forward-looking and has mostly discounted this noise already. A few years from now, if we look back at this point, this dip might seem like an interesting opportunity to enter the Nasdaq 100 TRI.
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From the prospect of raising interest rates leading to the elevated cost of capital, the Index appears to be minimally exposed to the risk of increased financing costs impacting its earnings, (thereby depressing valuations further). This is mainly on account of its long-running fundamentally strong trend of Index top holding. Over the years, companies in the NASDAQ 100 TRI have improved their operating leverage and pricing power. These cash-rich companies have the potential to weather volatile periods.