JOIN USThe world in your portfolio: Investing in global equities
An American Apple pie or Chinese Chowmein on your plate needn’t necessarily be your only global exposure. You can also turn to the world of equities to get a glimpse of other countries. With the IT and healthcare sectors booming, investors can have a slice of foreign firms if they want their wealth to grow.
While the liberalised remittance scheme or LRS route was brought in by the government to facilitate this, investors can consider other routes such as fund of funds route as well, say wealth managers who also feel that exposure to foreign equity could be around 15% of the portfolio.
Wealth managers point out that this exposure is important in modern times not only to diversify investments but also to prepare for future needs such as funding a child’s education. As per RBI statistics, remittances through LRS for education constitute a substantial part.
In fact, in 2019-20, $4.9 billion was transferred abroad for education. Investment purposes, however, have so far been a minuscule part of transfer through LRS. Only $431.41 million has been remitted for investment.
Asking yourself how investing in foreign markets would help?
One of the main reasons for this, wealth managers say, is to hedge against the dollar fluctuation. Let’s say you want to send your child abroad for his or her higher education 15 years from now. With a portfolio abroad, you have already saved in dollar terms.
Analysts also say that while the Indian markets are growing, markets globally are also growing, especially with developed markets that have been able to recover from the Coronavirus pandemic. “We have seen how foreign markets are doing much better now during the second wave of Covid-19,” says Hemant Rustagi, founder of Wiseinvest Private Limited. “This definitely makes a case for geographical diversification as various economies will react in different ways.”
“One can start investing in markets like the US which will do well in the next few years. Investors can begin with the US and move on to other markets.”
But he stresses that one should first understand how equity markets function before jumping into international space.
While analysts are bullish on Indian firms especially in the IT sector, they explain how the sheer size of global IT firms like Amazon, Apple, Google, Tesla, Facebook, Alibaba, Twitter, and Netflix can help investors.
“In the US and China, technology has around 26% market share as opposed to India where it is only 14%, and healthcare is 14% while we are only around 3%. In the coming years, technology will take over,” says Kshitiz Mahajan, co-founder, Complete Circles Private Limited.
The size of the NYSE FANG+ Index is almost three times of Indian equities listed on BSE with Apple having a market cap of $2 trillion, Amazon $1.6 trillion, Google with $1.41 trillion among others, as per one of the brochures circulated by Mirae Asset when the new NYSE FANG+ ETF was launched.
However, wealth managers state that unless and until the investment is a significant 10 to 15% of the portfolio, exposure to foreign equity will not yield many returns.
Now, if you’re wondering how you can invest in international funds, the answer is simple- one can invest in domestic funds that invest 30% in international markets, fund of funds that are invested in markets, and directly buying equity in these geographies.
And, if you thought cryptocurrency is the only item that can be bought in fractions, then you are mistaken. Equities in the US can be bought even in fractions too. “We do not have that system in India, but since the US has that provision, those who want to invest directly in foreign equities can buy even fractions of various stocks,” Mahajan points out.