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Should Indian Investors Consider US Equity In Current Market Situation?

Would it make sense for Indian equities investors to consider US stocks in the current market? Lets discuss it here…

The global equity market is suffering through a difficult period, and Indian investors’ patience is being challenged, particularly those with significant investments in offshore or US equities markets. It is due to two primary factors: i) growing inflation and the prospect of more rate hikes, and ii) the threat of a worldwide war in the wake of the Russia-Ukraine crisis.

Investors may not be able to control market movements, but they can comprehend the variables that drive market direction. As a result, it can undoubtedly assist them in making more intelligent investing decisions. 

The Current Situation Of The International Market

The Federal Reserve’s Federal Open Market Committee (FOMC) is in charge of setting and controlling the USA’s inflation objective and interest rates. In most cases, the institution aims for a 2% inflation rate. To everyone’s surprise, the inflation rate in March was 8.5 per cent on a year-over-year basis, the most in forty years! 

Inflation is now afflicting the majority of countries. The invasion of Ukraine by Russia has exacerbated the situation. Global commodity supply systems are under strain, increasing energy and other critical commodity prices.

Inflationary pressures have risen due to this predicament, which has been worsened by excess money in the system. As a result, the FOMC was forced to decide on interest rate hikes critically. The Federal Reserve intends to reduce its balance sheet by $9 trillion. As a result, more rate hikes are expected in the following months.

Significant market volatility is becoming the new normal with these hikes and ongoing conflict. So, should Indian investors consider investing in the stock market in the United States? If that’s the case, what’s the reason behind it?

Why Should You Invest In The US Stock Market?

To Make The Portfolio More Stable

After the financial crisis of 2008, the S& P 500 lost 20% of its value, while the Nifty 50 lost over 60% of its value. Examine the table to see what an investor would have experienced in the Nifty 50 or the S& P 500 in 2010 if he had invested a year before the dates listed. When we compare the Nifty 50 to the S& P 500, we can see how volatile it is.

The stock market in the United States is more developed than in emerging nations such as India. As a result, investing consistently in a well-established market can help investors achieve much-needed stock portfolio stability.

Table

Aids In The Fight Against Inflation

One of the most important factors to consider when investing is that the rate of return exceeds the rate of inflation. Adding US equities to your portfolio might provide an additional layer of growth.

Given the current market conditions, investors will undoubtedly suffer turmoil. It’s essential to keep in mind that market noises seldom outperform long-term investments.

“Courage taught me that no matter how severe a crisis gets… any smart investment would eventually pay off,” Carlos Slim Helu says. Being an investor rather than a speculative is the key.

After adjusting for currency conversion, the S& P 500’s annualised 10-year return is 15.54 per cent. The average return on the Indian stock market is between 12 and 14 per cent. However, considering the market’s volatility, US equities investments might be a safe bet. As a result, having a presence in both markets makes sense for investors.

Beneficial for Diversification

While any changes in US policy or market conditions impact the Indian market, the link between the two is relatively minimal. Correlation is the relationship between two variables and the direction in which one will move in response to a change in the other.

For 10- to 20 years, the correlation between the Nifty 50 and the S& P 500 is between 0.13 and 0.16. A correlation around 1 indicates that if the first variable changes, the second variable is more likely to move in the same direction.

The market correlation between India and the United States is relatively low (adjusting for exchange rates). This indicates that every change in the US impacts the Indian market, but the impact is minor. Because of the minimal correlation, it is an excellent way for investors to diversify their portfolios.

Last But Not Least

Investors may have to go through some paperwork under the Liberalised Remittance Scheme (LRS) requirements to explore direct investing possibilities in US equity. Indian investors can remit up to USD 2,50,000 in a Financial Year for overseas investments, according to RBI LRS norms.

Because “time in the market beats timing the market,” investors should concentrate on building wealth over time. The asset class of US equities makes a lot of sense for various wealth purposes. Investors should consider their long-term goals and risk tolerance levels before adding US equities to their portfolios.

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