Investors in India who look for more broad-based and low volatility exposure in US stocks should go for S&P500, while those who are comfortable with higher volatility may consider investing in Nasdaq.
Invest in US stocks from India: There are a plethora of choices for an Indian investor to invest in the US stocks. From the old-economy stocks and sectors to the new-age companies, an Indian investor has some of the best global stocks to add to one’s portfolio. By investing in leading US companies, there’s an advantage of global diversification that one is able to bring into one’s portfolio.
In addition to individual stocks, there are IPOs, ETFs available on US stock exchanges to invest and reap long-term benefits from them. So, how should an investor from India, who wants to invest for the first time in the US stocks, begin selecting investments? “A nice way to diversify is to look at a wider range of ETFs. There are commodity-focused ETFs, Asia-focused ETFs, sectoral ETFs and a wide variety of thematic portfolios available on Stockal which are great for diversification,” says Sitashwa Srivastava, Founder and CEO, Stockal, an international investing platform.
One can open a US brokerage account with a global stock trading platform and start trading in the US stocks from India. For a beginner, it’s also better to stick to index stocks which are large-cap in nature. The three leading US indices – Dow Jones Industrial Average (Dow), S&P 500 and Nasdaq 100 – represent a major chunk of the favourite US stocks for global investors with billions of dollars in market capitalisation.
Before picking stocks from any of these indices, here’s a primer. S&P 500 is considered to be the top-most single indicator of large-cap US stocks and includes nearly 500 leading corporates across 11 sectors and covers about 80 per cent of the market capitalisation of the US stock exchanges.
The Nasdaq 100 is a large-cap index and includes one of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization. Some of the world’s most innovative companies including Apple, Microsoft, Starbucks, Google, Intel, and Tesla are listed on Nasdaq 100.
On the other hand, the Dow Jones consists of top 30 blue-chip companies but unlike some of the leading indices, it represents companies that are only based in the US.
But, the performance of these three indices may not be necessarily in-line with each other. Over most periods, there will be a divergence between Dow, S&P 500 and Nasdaq 100 indices. This is how Dow, S&P 500 and Nasdaq 100 have moved in 2020 till date – 6 per cent, 14.6 per cent and 45 per cent, respectively.
The divergence in S&P 500 and Nasdaq 100 was not prominently noticeable over the previous few years as it can be seen now. “There is a divergence between S&P 500 and NASDAQ because S&P 500 has many non-tech companies, which tend to be less volatile. So people who are looking for more broad-based and low volatility exposure should go for S&P 500 and people who are comfortable with higher volatility and more bullish on technology companies leading the world forward, should probably look at investing in NASDAQ,” says Sitashwa Srivastava, Founder and CEO, Stockal, an international investing platform.
The chart below shows how the break-free momentum in new age stocks has taken the Nasdaq 100 index to a new zone altogether especially after the pandemic fall of March.
(Source: Tradingeconomics.com ; As on December 28, 2020)
Even while the global economy is still not out-of-the woods and the full economic impact of the coronavirus vaccine is yet to be seen, the global economic transformation is already underway. The consumer preferences are believed to see a change and even the manner in which corporates conduct business is expected to witness some big changes in the years ahead. No wonder, FAANG stocks have been at the frontline of the pull-back since the lows of March 2020.
If you think you are missing on the action in the US stocks, avoid any further procrastination. Opening an international trading account is simple and easy from India and helps you to diversify your portfolio across geographies. As an Indian investor looking to invest in the US stocks, the new leader stocks of Nasdaq 100 can be a good starting point. Some of the leading stocks in Dow 30 and S&P 500 may also be added for further diversification. A tinge of US stocks in your Indian stock portfolio can provide you with more stable returns with proper diversification across industries, stocks and markets.