NEW DELHI: Even as most fund managers are betting big on emerging markets such as the Indian equity market to generate super returns, some market experts believe that one should not ignore the US stock market, also known as the mother market, owing to the quality of the companies listed there and consistent wealth created by them.
“People from India are diversifying in different asset classes such as mutual funds and bonds, but geographically they have been missing out on getting exposure to other markets,” said Viram Shah, CEO of Vested Finance, a platform specialising in US investment. Shah added that while portfolio managers look at emerging markets, US markets should be a part of the portfolio.
“It does not need to be 100% of their total allocations but can be a good 30-35%...We have been contributing to the top line and bottom line of the US companies but we have not been able to participate in the value they have created. Why should this be the case when we have the technology to solve this?” said Shah.
While Vested did not provide information on the number of investors they have on their platform, the company said that they are close to almost a billion dollars in trading volume over the last four years they have been in the business. According to industry experts, there is a very small number of people from India who invest directly in US stocks but this number is growing at a fast pace.
Shah explained that it has become very easy for Indian investors to invest in US equities. At present, investors, following the Reserve Bank of India’s (RBI) released guidelines under the Liberalized Revenue Scheme (LRS), can invest up to $250,000 per year without any special permission.
Healthy returns in the last 10 years
V K Vijayak’umar, Chief Investment Strategist at Geojit Financial Services, said that diversification across asset classes is always good and desirable now that the liberal investment rules and guidelines offer opportunities for geographical diversification.
“This reduces the risks associated with domestic bias in investment. US equities have delivered superior returns to investors consistently. During the last 10 years, S&P 500 has delivered the best return in dollar terms. So it makes sense to invest in US equities,” said K Vijayakumar. US benchmarks such as The Dow Jones Industrial Average, S&P 500 and tech-heavy Nasdaq Composite have surged 132%, 165% and 272% in the last 10 years, respectively. Among the constituents, the tech stocks have seen a strong bull run with shares of Amazon, Apple and Tesla rising more than 800%, 900% and 2000%, respectively, in the last one decade. “If you compare the last 10 years, then even being a developed market, the US stocks have given sort of equal CAGR returns compared to the India market. Because the quality of companies is so good there that if you have a horizon of 5-10 years, you should remain invested in them,” said Shah of Vested Finance.
Volatility in the short-term
Since the onset of covid-19 pandemic, US markets, like most global markets, have been very volatile. From the lows of March 2020, the US benchmarks witnessed a sharp rally till December 2021. In the calendar year 2022, most US equities, especially the tech stocks, saw heavy selling amidst rising inflation and consecutive interest rate hikes by the Federal Reserve. While 2023 so far has been favourable for the US equities, there are fears of a correction. Most experts believe that the US equities will remain volatile until there is a clear indication of the soft landing of the economy. A soft landing is considered a slowdown in economic growth that avoids a recession.
“As the US Federal Reserve Chair Jerome Powell, in his keynote speech at the annual Jackson Hole on Friday maintained a hawkish tone on future rate hikes, this may well impact the lending cost and earnings of companies, making the shares less desirable…The other key factor that will keep the market volatile is the commencement of the US Presidential election. I feel the US market may see a big correction in the near term,” said a leading fund manager requesting anonymity. Powell warned that the US central bank is ready to take additional measures to curb inflation, including raising
interest rates further until inflation comes in the target range of 2%.
American Dream
US Benchmark 10-yr returns
Dow Jones 132%
S&P 500 165%
Nasdaq Composite 272%
How to invest in the US Stock Market from India?
Direct investment in stocks (Invest directly by opening an overseas trading account with a domestic or foreign broker.
Indirect investment in stocks via mutual funds or ETFs (It can be in MFs, ETFs and Investing via new-age apps)
Capital Gains & Dividend Tax
In the US, dividends are taxed at a rate of 25% for Indian citizens.
Owing to the Double Tax Avoidance Agreement (DTAA), the investor can claim credit for taxes paid abroad so that he/she doesn’t have to pay tax on the same income twice.
There is no capital gains tax on your investments in the US. But you are liable to pay tax on the capital gains in India.
How much can I invest in US Stocks?
The RBI guideline permits Indian Residents to invest up to $250000 per year without any special permissions.