More and more Indian investors have begun investing directly in the United States stock markets this year, in the hunt for overseas equities exposure and geographical diversification of portfolios amid a freefall in domestic share markets.
More and more Indian investors have begun investing directly in the United States stock markets this year, in the hunt for overseas equities exposure and geographical diversification of portfolios amid a freefall in domestic share markets. Starting the trading journey in a foreign stock market has always been a fraught task but with new age investing methods making it less taxing, those FAANG stocks that investors always wanted are rapidly becoming a part of their portfolios. Stockal, a platform that enables investments in a diverse set of global assets from a single account, saw over 17,000 retail investors from India register on its platform.
“In September-October last year we saw interest from people who purely wanted to diversify their portfolio. During this time investments worth $2,000-$5,000 were coming; from January though, the median investment went up to $8,000-$9,000. This was what they were sending to their US brokerage accounts,” Sitashwa Srivastava, Founder and CEO, Stockal Inc, told Financial Express Online. January onwards, investors have been more frequent on Stockal’s platforms sending in more and more money to their US brokerage accounts where they invest in various instruments of various sizes.
Crossing the Chasm
Outward remittances under the Liberalised Remittance Scheme (LRS) for Indian residents have also risen, the RBI data shows. LRS remittances in the month of February — the latest month for which the data is available with the RBI — for investments into overseas debt and equity markets rose to nearly $30 million, from $26 million a month ago. A year ago, In February 2019, the amount remitted for investment in equity and debt stood at $24.5 million. In a similar trend, Stockal saw investments worth Rs 22 crore in four months during September-December 2019. This amount rose to as much as Rs 69.75 crore in just two months of March and April of 2020.
Indian asset management company Motilal Oswal has also seen the demand for international investment options. “We have seen high demand for international funds over the last 6-12 months. We have been educating our investor base on the benefits of International diversification – which is relatively new but could be a part of every investor’s portfolio in the long-run,” Pratik Oswal, Head – Passive Funds, Motilal Oswal Asset Management Company, told Financial Express Online. Pratik Oswal said that a good portion of their investor base has been looking to invest 10-15% of their equity corpus into international funds. Motilal Oswal’s recently opened S&P 500 index fund. The NFO saw over 50,000 applicants over a short period.
Why is Uncle Sam so lucrative?
The US equity markets have a wide range of offerings and some items that an Indian consumer depends on are listed in the United States. “A lot of technologies we use as consumers in India don’t have any listed companies from India in which we can invest. For example, we use Amazon for shopping, Android or Apple phones, we use google search, use WhatsApp, Instagram, Facebook for social media, Netflix Youtube and Prime for entertainment but we can’t participate in any of these trends as investors in India because none of these companies are listed here. The US market provides a lot of such unique investment opportunities that represent new consumption trends,” said Raunak Onkar, Fund Manager, PPFAS Mutual Fund. Onkar said that a percentage of an investor’s portfolio can be allocated to take advantage of such opportunities.
More than just diversifying the egg baskets
Investing in foreign stock markets is largely about diversifying investment portfolios, however, the recent trend has more than one justification. “As 2020 started more diversification was on the mind so that one idea, the dollar was also marching up so people wanted to send money out while it was rising,” said Sitashwa Srivastava. The surge in new registrations for Stockal has been aided by these reasons coupled with the firm’s growing customer base. Investing in the big names could also be one of the reasons with half the population investing using Stockal’s platforms hunting the big names.
The low performance of Indian mutual funds has also pushed investors towards exploring other avenues, said Pratik Oswal. “The rupee has fallen 4.5-5% every year over the last decade and is expected to weaken in the future too. As a hedge against this devaluation – international funds offer two advantages – buying some of the best companies out there and buying the dollar. Companies like Facebook, Amazon, Google, Netflix etc. have become household names in India over the last decade,” he added.