International Equity Investment: Time to rally on the global investment growth story
October 3, 2020 10:34 AM
Exposure to global economies provides opportunistic growth prospects, reduced risk, and better risk adjusted global returns.
The investments were also up, though marginally, from around 3 billion dollars in Q3 2019.
The current pandemic has definitely cemented the importance of secure investments in the mind of the Indian consumer. Most of us are endeavouring to rejig our portfolios or initiate a new one that is best suited to our financial goals and can withstand emergencies of any magnitude. However, when it comes to international equity investments, the horizon continues to remain largely untapped, despite the soon diminishing global boundaries.
Right from the time we wake up to the time we go to sleep, we are surrounded by multinational brands that have created a strong loyalty base, mostly led by the assurance of global standards and the promise of superior quality. Unfortunately, this trust has not transpired into our investment options, as yet; which is rather contradictory to our increasing need for wanting the best of everything, and the willingness to even pay extra for premium services!
As per a 2019 study by the World Bank, Indians have an astonishing 99.8% of their investments in the home market and contribute only 3% to the world market cap. In comparison, developed economies contribute a larger share on the world market cap, USA leading it at 41%. Things are evolving at a rapid space and we need to insulate our investments against the expected turbulent times that lie ahead. Exposure to global economies provides opportunistic growth prospects, reduced risk, and better risk adjusted global returns.
There are multiple factors that push the global investment landscape in our favours. The most prominent one being that it helps reduce risk by building exposure in multiple countries. Different markets respond differently to risks. Indian markets have been swinging from one end to the other, even before the pandemic started. Allocating a part of our investment portfolio to different countries, allows investors to mitigate risks in an efficient manner. Global consumer and technology giants that are listed on international stock exchanges allow Indian investors to invest in themes that are not available on Indian exchanges. Adding a pinch of overseas flavour will help generate a robust alpha portfolio so that even if the Indian market may be fluctuating, a part of your investments that is overseas is still secure.
Another aspect that we need to consider is that equity returns from developed markets tend to lean on the higher side. Consistent outperformance and resilience shown by the global markets (steadying themselves after the COVID-19 blow) are clear reflections of their persistent growth stories. Most global economies are overseen by vigorous corporate governance practices that often ensure a greater and more secure degree of protection to foreign investors from frauds and other risks. It also helps that many of us also have current or future liabilities in foreign currencies (owing to our remittances) and want to reduce the rupee risk by investing in dollar assets.
Countries like USA, Canada, UK, Germany, France, Hong Kong, and Japan are home to some of the most powerful companies and widely popular brands. The strong resonance and trust placed in these companies (most of which are not available on the Indian exchanges) bring in a sense of familiarity and confidence for the investors. As digital empowerment continues to lay the foundation for all our processes, technology-enabled solutions enable a seamless experience. It is far easier for investors to look for global opportunities than it was just a decade ago! Newer platforms too have emerged that allow for investments at a fraction of the cost, thereby unburdening investors from the troubles of high entry commission fees, lack of technical and logistic support, limited information etc. It has become increasingly convenient for investors to invest in overseas markets.
While certain challenges like currency movement or limited understanding of statutory compliances may remain, the positives far outweigh these snags. It is, however, imperative to seek the guidance of financial advisors to identify the correct investment avenues in a different ecosystems and understand the risk spectrums. Diversification in global instruments for long-term wealth creation is one of the most prudent steps for Indian investors as there is huge money to be made (to put it in the simplest of words).
If one were to look at the past, innovation and a closer connect with humanity globally, has been the direct result of any major crisis. People who have been quick to adapt to change have been able to capitalise the most and even earn handsome returns out of it. As global boundaries diminish rapidly, Indians need to strike the iron when it is hot, to not only significantly increase the chances of long-term value creation but also make our presence felt on the global investing landscape.
(By Chandresh Kumar Nigam, MD & CEO, Axis AMC)
Disclaimer: This is the view of the author. Readers are advised to consult their financial planners before making any investment.