How to Invest in the Indian Stock Market in 2023 • Benzinga (2024)

Indian stocks could be an excellent way to capitalize on emerging markets. With a correlation factor of +0.29 versus U.S. stock markets, investing in the Indian stock market could be an excellent choice for diversifying your portfolio if buying foreign stocks fits your investment objectives.

India has the seventh-largest economy in the world by nominal GDP and has become a major center for foreign investment. Here’s how to begin investing in the Indian stock market.

Main Takeaways: How to Invest in the Indian Stock Market

• Method 1: You can invest in Indian stock GDRs and ADRs.
• Method 2: Find an international broker to invest with.
• Method 3: Explore investing in Indian stock ETFs.
• Method 4: Find an Indian stockbroker to conduct trades with.

Overview: Investing in the Indian Stock Market

Foreign investment in India began in the 1990s, when the country began allowing foreigners to participate in 2 major categories: foreign direct investment (FDI) and foreign portfolio investment (FPI).

FDIs are active investments and you can get involved in management. FPIs are passive investments made by foreigners who primarily buy Indian equities.

The stock markets in India are dominated by its largest exchanges: the Bombay Stock Exchange (BSE) and the smaller National Stock Exchange (NSE), which are both based in Mumbai (formerly known as Bombay). All stock exchanges in India have to submit to oversight by the Securities and Exchange Board of India (SEBI).

These 2 major exchanges both list the same securities and follow the same clearing and settlement process. This can benefit investors since the exchanges vie for order flow, which tens to add liquidity and make the pricing of securities more competitive.You’ll need an international broker that has access to these markets or open an account with an Indian stockbroker in India if you live outside of India.

Another popular way to participate in the Indian stock market involves buying American or global depositary receipts (ADRs or GDRs). Investors can also acquire shares in exchange-traded funds (ETFs) and mutual funds based on Indian stocks.

Make sure the Indian stockbroker has oversight from the SEBI. If you select a foreign broker, then you should make sure that it’s overseen by a major regulator, such as the U.S. Securities and Exchange Commission (SEC) or the U.K. Financial Conduct Authority (FCA).

Research the Indian stock market thoroughly. A decent amount of background knowledge in stocks, mutual funds or ETFs you plan on investing in can increase your profitability. Then, put together a clear investment plan with an investment horizon and expected return on investment (ROI) to find the appropriate stocks for your investment goals.

Here are 4 different methods for investing in Indian stocks.

Method 1: Invest in Indian Stock ADRs and GDRs

You may already have access to the Indian stock market through ADRs and GDRs through your current brokerage.

Some of the largest publicly held companies in India list their shares on U.S. and U.K. exchanges through these depositary receipts.

You could buy these depositary receipts through a commission-free broker like Webull or Robinhood, which offer free stock trading. Indian ADRs are listed on the New York Stock Exchange (NYSE) and the NASDAQ exchange, while GDRs trade on the London Stock Exchange (LSE). Some Indian stock ADRs trade on the over-the-counter market (OTCQX) in the United States.

You could also buy the stocks directly from an Indian exchange in an international account, through brokerages like Fidelity Investments or Charles Schwab. You’ll pay additional commissions and possibly currency conversion costs. You might also end up with foreign exchange risk if you live outside of India since stocks are generally priced in Indian rupees on India’s exchanges.

Method 2: Open an Account with an International Broker

Among the various international brokers, U.S.-based Interactive Brokers has a presence on the NSE and offers trading in Indian shares, indices, futures and stock options listed on that exchange. They also offers specific account structures for non-resident Indians (NRIs) living abroad, as well as for Indian residents in India. These accounts allow Indian traders to access NSE stocks and derivatives depending on their location.

Indians living abroad must meet the requirements for an NRI and have a Permanent Account Number card (PAN) issued by the Indian Tax Authority to qualify for these accounts. After verifying all of the applicant’s information, Interactive Brokers performs a one-time Know Your Client (KYC) interview, which is a condition imposed by SEBI for anyone trading in the Indian markets.

Interactive Brokers also offers a Demat account for clients to hold Indian securities electronically. A Demat account is an account at a depository agency that issues a unique account number used for trading purposes. The Demat account is where your Indian securities are held in a paperless digital format.

NSE trades cost a low flat rate of Rs 20 per order for stocks, futures and options. In addition to the broker’s $10,000 minimum deposit, you can expect to pay a fee of $500 to $2,000 for a subscription to market data and research for NSE listed stocks and derivatives.

Furthermore, Interactive Brokers provides some of the best trading platforms in the industry. It offers a web-based platform, its premiere Trader Workstation (TWS) with advanced features and a mobile option available for both Android and iOS smart devices.

Keep in mind that Interactive Brokers charges an inactivity fee if a minimum brokerage charge of $10 per month is not met for traders operating in the Indian markets. You can contact the customer service staff 24/6 through email, live chat and phone.

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Method 3: Invest in Indian Stock ETFs

Another excellent way to invest in Indian stocks is through ETFs. These funds combine the qualities of mutual funds with the flexibility of stock trading. Furthermore, unlike mutual funds that have to be purchased from a fund company and are priced at the end of the day, ETFs trade throughout the day like stocks.

ETFs are also diversified and passively managed. This means that instead of concentrating on investing in one or two stocks, they generally track a broad basket of stocks or a benchmark index, which improves the diversification of your investment.

Another major advantage of buying shares in an ETF is that you can purchase them through reputable brokers, such as Interactive Brokers, E*TRADE and TD Ameritrade for a low commission cost. You can also purchase them through digital wealth management firms like Betterment or Wealthfront for a 0.25% management fee.

Some of the top ETFs that include Indian stocks are:

• iShares India 50 ETF (INDY)
• iShares MSCI India ETF (INDA)
• WisdomTree India Earnings ETF (IXSE)
• Franklin FTSE India ETF (FLIN)
• Invesco India ETF (PIN)
• iPath MSCI India ETN (INPTF)
• First Trust India NIFTY 50 Equal Wtd ETF (NFTY)
• WisdomTree India ex-State-Owned Entrprs (IXSE)

Method 4: Open an Account with an Indian Stockbroker

You can also open an account with a SEBI-regulated broker in India. Depending on the amount of money you plan to invest in India, you may have to register with SEBI as a Foreign Institutional Investor (FII).

You must first register for a PAN card that allows Indian tax authorities to track your investments and tax liabilities. You will also need to open a bank account in India since one is required to transfer funds to your broker in order to buy Indian stocks and to deposit money in after you have sold your stocks. You will also be required to open a Demat account.

You might be better off opening an account with a full-service broker in India that can give you access to research and tailored guidance on investing if you need advice on which stocks to buy and what kind of investments would suit you best.

This kind of broker can give you an idea of how your investments will be taxed and so can an accountant. Keep in mind that if you hold an investment in India for more than one year, you may not be liable for capital gains tax.

Some of India’s best stock brokerages include:

• ICICI Direct
• Zerodha
• 5Paisa
• Sharekhan

Start Investing in India Today

India is the “I” in BRICS, which consists of the strongly growing economies of Brazil, Russia, India, China and South Africa. India’s economy has grown exponentially over the past 20 years, and the country could be a great place to invest for the next 20 years as well.

Technology and tech startup stocks have exploded in India over the last 5 years, attracting more than $20 billion in investments. India has also attracted large investments from the United States, Japan, the United Arab Emirates, France and Canada, and the country shows great promise for both individual and institutional investors.

Nevertheless, India still suffers from stifling bureaucratic rules and regulations, corruption, inadequate infrastructure and underdeveloped institutions, all of which can present challenges, as well as opportunities for future improvement and growth.

Investing in India is easy and highly accessible to anyone who can trade ETFs and ADRs. Doing so does not need to be prohibitively expensive either, especially if you use some of the newer commission-free brokerages.

Finally, since Indian stock markets have a low correlation to other major world markets, they offer a good opportunity for investors outside of India to diversify their investment portfolios and provide exposure to attractive foreign equity markets.

If you're looking to expand your portfolio to include international markets, check out Benzinga's guides on how to invest in Japanese stocks, how to participate in the German stock market, or how to purchase Mexican stocks.

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