Not only gold, add some global stocks to your portfolio to hedge against rupee volatility

By: | Updated: December 21, 2018 5:18 PM

As the rupee fell against the US dollar from 0.015 on August 8 to 0.013 on October 10, the BSE Sensex fell from 37,887.56 points to 34,760.89 points in that period.

rupee volatility, hedge against volatile rupee, gold, global stocks, BSE Sensex, Nasdaq, Indian markets, US markets, US dollar, Indian rupee, Google, Microsoft, Apple, Amazon, Facebook, Cisco, Intel, McDonald, Coca Cola, P&G, Oracle, NikeIf we compare last one year?s CAGR, Nasdaq has given about 6.64 per cent return, while that of BSE Sensex is about 2.32 per cent.

Gold is considered as a safe haven when any crisis hits the economy and the markets. But when the US dollar gains against the rupee due to positive cues from the US economy, FIIs and other global investors pull out of Indian markets and invest in the US markets. At this time presence of some good global stocks, especially of the US-based companies, may prove to be a better hedge against the weak domestic stocks in the falling Indian markets than gold, as the crisis didn’t triggered due to the crisis in the Indian economy.

For instance, as the rupee fell against the US dollar from 0.015 on August 8 to 0.013 on October 10, the BSE Sensex fell from 37,887.56 points to 34,760.89 points in that period. If we compare last one year’s CAGR, Nasdaq has given about 6.64 per cent return, while that of BSE Sensex is about 2.32 per cent.

The slow but steady nature is the main attraction of the US markets. Even at the time of the 2008 global crisis, investors pull out of emerging markets to seek refuge under the US dollar and treasuries despite the fact that the sub-prime crisis that snowballed into global economic crisis was triggered in the US itself. So, wild volatility is very rare in the US markets.

But don’t go overboard with global investments, because ultimately it’s the growth rate of economy that attracts the investors and with the GDP growth rate of about 7 per cent, India is among the top nations and far more attractive than the US growth rate of about 3 per cent. However, China is an exception with stock market CAGR of only about 5 per cent, despite the country’s GDP growth rate of about 12 per cent, which may be explained as lack of holistic growth in the country.

But the India story is a positive one, as with over 12 per cent CAGR, the BSE Sensex has outperformed the GDP growth comprehensively in the last 10 years, which, apart from drawing in global investors, has also generated interest among domestic retail investors.

So, keep faith in the Indian markets, but along with gold, have some top companies like Microsoft, Apple, Amazon, Facebook, Cisco, Intel etc in your portfolio to make it more stable at the time when the rupee turns volatile.

If you are unable to invest in individual stocks, you may invest in a good global fund that some AMCs have. Some AMCs invest in global stocks through fund of funds and some may tie up with foreign investment houses to invest through them. Such funds may be open ended or close ended. For example, Sundaram MF launched a close-ended fund named Sundaram World Brand Fund in December 2014 by tying up with a foreign investment house and invested in top 25 companies of the world including Google, Microsoft, Apple, Amazon, Facebook, Cisco, Intel, McDonald, Coca Cola, P&G, Oracle, Nike etc. Although the return has not been very high, but it was stable and never turned into negative despite Indian markets and most of the funds turned red.

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