Investing In US Markets vs Indian Markets: The Pros and Cons
“Never invest in a business you cannot understandâ€. An oft repeated quote from Warren Buffet, but one that perhaps takes different interpretations now asIndian investors warm up to investment opportunities outside the country– the USA, in particular. The intelligent investor would now rather understand the US market and begin his investment journey there as well, instead of skipping the market for exclusively domestic opportunities. After all, investors are often advised to diversify their investments geographically by investing in both national and international markets.
US investing is often sold bystatementssuch as “The US indices have outperformed Indian markets by 8-15% in the last decadeâ€. But if investors give into such statements on face-value and expect the same level of performance in the future, they’re likely to be met with disappointment. Past performance is no guarantee of future returns, after all. Which is why we’ve come up with some factors against which both the US markets and Indian markets can be compared, to help you make the right decision.
Portfolio Diversification
“What’s interesting about US stocks is that you not only get exposure to the United States but also to the world, as many companies have global operations but are listed there.” Thisstatementby Viram Shah, co-founder and CEO of Vested Finance, sheds light on the many advantages provided by investment opportunities in the US market.
Due to theongoing coronavirus pandemic, equities globally fell together, withdecline in the range of over 20-30%. Diversification of investments would have proven to be effective and beneficial during this time. By 8th June 2020, theS&P500 had already recoveredall of its coronavirus-induced losses. The Sensex meanwhile, was still 17% down.
US Markets:1 |Indian Markets:0
Currency
The currency you trade in and invest with can have significant implications on your portfolio, which can be both positive and negative. They play a pivotal role when it comes to investing in US markets.
Take the Indian Rupee – which has witnessed a consistent decline in value against the American Dollar. This is a major con because all investments made in the Indian markets are in INR, which means they decline in value over time.In this year alone, the dollar is up 6% against the rupee.
One of the major advantages of investing in US markets is the American Dollar. As it appreciates in value, so do your investments, even if your portfolio itself is unchanged.
US Markets:2 |Indian Markets:0
Global Factors
While the Indian startup ecosystem has been thriving, the US markets continue to host all major corporations leading their sectors with innovative offerings. For investors in India, it isn’t possible to participate in growth stories at home – since Indian laws mandate 3 years of consecutive profits before a company can go public. The story of many startups being one of deferred profits for growth and market share, this effectively shuts most Indian investors out of the opportunity to show their confidence in new business models. But relatively lax requirements in the US, means it’s possible for investors globally to participate in the journeys of many innovative models – and we’ve seen often how that plays out. Uber, Amazon, Tesla, Facebook – all these and more are the results of the US market and its model. For many investors, it can be crucial for their investment portfolio to evolve to keep up with these opportunities.
The US market therefore, is a more promising prospect as it allows global exposure and enables investors to grow with the biggest companies in the world, such as Google, Amazon, Facebook, etc.
US Markets:3 |Indian Markets:0
Research & Efforts
It is true that involving yourself in 2 markets would demand attention and research for two economics, in addition to multiple other global factors that influence these markets. To an average investor, this may well be a daunting and time-consuming task. Some may see diminishing returns in this exercise and may be willing to forego the potential for higher profits in favour of lower efforts. This concern may be addressed by investing in US markets by ETFs, which lower risk by diversification. But Indian markets do retain some edge on this aspect for the average investor.
US Markets:3 |Indian Markets:1
Volatility
(Source: ET)
When compared to Indian markets, the US markets have beenless volatilein the long run. Indian equities have shown great volatility, with bigger swings in returns over the years. This is another reason experts recommend diversification when it comes to investing, since risks are spread out and diminished. Moreover, investors who choose to diversify byinvesting in US marketscan expect their portfolios to move differently from Indian indices.
US Markets:4 |Indian Markets:1
Investing in US Markets vs Indian Markets: Conclusion
Sure, both the Indian and the US markets have their advantages. But in a modern investing climate with access to the international market, it’s easy to see how US markets show more promise. This is in part due to their global affinity and nature, as well as the fact they host some of the most promising companies in the world. While the Indian market should certainly remain a significant part of an investor’s portfolio, there’s no denying that the US makes a strong case for a place in the Indian investor’s portfolio.
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Our team members at Vested may own investments in some of the aforementioned companies/assets. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for an investor’s portfolio. Note that past performance is not indicative of future returns. Investing in the stock market carries risk; the value of your investment can go up, or down, returning less than your original investment. Tax laws are subject to change and may vary depending on your circ*mstances.
This article is meant to be informative and not to be taken as an investment advice, and may contain certain “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, without limitation, estimates with respect to financial condition, market developments, and the success or lack of success of particular investments (and may include such words as “crash” or “collapse”). All are subject to various factors, including, without limitation, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors that could cause actual results to differ materially from projected results.
This video is meant to be informative and not to be taken as an investment advice and may contain certain “forward-looking statements” which may be identified by the use of such words as “believe”, “expect”, “anticipate”, “should”, “planned”, “estimated”, “potential” and other similar terms. Examples of forward-looking statements include, without limitation, estimates with respect to financial condition, market developments, and the success of or lack of success of particular investments (and may include such words as “crash” or “collapse”.) All are subject to various factors, including, without limitation, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors that could cause actual results to differ materially from projected results.
Indians can take advantage of the US dollar's rising stature by investing in US stocks in India. As its value increases, your US stocks investments do well too. Plus, there's no cap on the amount you can invest, and the taxation policies are crystal clear. So, invest in diversifying your portfolio.
To answer the question at large: yes, it is safe to invest in the Indian stock markets; however, as with all investments, one must research and plan accordingly. Without proper research and planning, investors tend to make unwise decisions that eventually lead to losses.
Indians lack patience when it comes to the stock markets. Most believe that it is a place to make quick money. Lack of patience usually results in investors either entering or exiting a trade at the wrong time. Such premature decisions mostly end up against the investors.
Investing in the US markets helps you diversify your portfolio as the market offers extensive avenues to invest in top sectors of Technology, Finance, Automobile and Gold. Investing a part of your assets in such markets also makes you independent of the Indian stock markets and the Indian economy.
If your Residential Status as per the Income Tax Act is 'Resident', your worldwide income is taxable in India. This would mean that Capital Gains earned on US stocks will also be taxable in India.
If the sector that you are invested in is at the receiving end of certain tax increases, then all companies can suffer and their stocks can tumble. Also, talking about tax, as an Indian investor, you need to keep the types of taxes in mind – capital gains tax and dividend tax.
The US stock market scores low on volatility, which can contribute to greater safety for long-term investments. The Indian stock market is comparatively more volatile, making long-term investments riskier. This US vs. Indian stock market comparison shows the clear benefits of US portfolio diversification.
However, as we move into 2023, the outlook for the Indian stock market prediction seems positive, with a projected growth rate of 7.5% to 8%. Know more about Indian Stock Market Prediction in 2023!
US dollar holds key. Speaking on the reason for rising Indian stock market, Anuj Gupta, Vice President — Research at IIFL Securities said, "Due to weakness in the US dollar, FIIs have been fishing out money from the currency market and pumping in Indian equities.
"You can't just invest on hope," he said in an interview with Indian newspaper Livemint at the time. Buffett says the country's huge population and rapidly growing middle class is too big to ignore. "It's a lot of people with a lot of buying power," he said.
One of the primary reasons why traders lose money is because they fail to manage their risk effectively. It's crucial to set stop-loss orders and appropriately size positions to control your losses when trading stocks.
TCS, Wipro, Infosys among 20 popular stocks that destroyed Rs 10 lakh crore investors' wealth in 2022. Nifty50 constituents saw wild swings in a weak year for equities globally. As many as 20 index stocks, led by tier I IT biggies, lost a combined market capitalisation (m-cap) of Rs 10 lakh crore in 2022.
A geography-based diversification strategy means that all your investments are not concentrated in a single geography. Investing in the US stock markets helps diversify your portfolio. This means that you move away from single country or currency risk.
The U.S. markets are the largest in the world, whether it comes to stocks, bonds, or currencies. That's due to the size of the U.S. economy and the highly regulated nature of U.S. markets.
If you are looking for a profitable way to diversify your portfolio, investing in US stocks is a great option because it will give you diversification as well as the scope for higher-than-standard returns of Indian stocks.
Long-Term Capital Gains (LTCG) on shares and equity-oriented mutual funds in India are taxed at a 10% rate (plus surcharge and cess) if they reach Rs.1 lakh in a fiscal year. LTCG is defined as profits on the sale of shares or equity-oriented mutual funds held for more than a year.
The major encouraging factor for the foreign investors to invest in India is the low wages, highly skilled workforce and liberal foreign direct investment policies. India is termed as the fastest growing economy and the capital markets of the country are also booming.
You will have to create a trading account with a brokerage house and get your KYC done by giving your PAN, Bank Account, Voter ID, Bank Statement, etc. Post this you'll need to transfer funds into your account to trade US stocks . Good to know that shares can be transferred into Indian account.
The first option for Indian investors to invest in US stocks is by opening an overseas trading account with a domestic broker. Indian investors can open an overseas trading account with a domestic broker like HDFC Securities, ICICI Direct, or Kotak Securities.
If we look at a decadal or a higher time frame, investing in Indian equity is extremely attractive. As far as the next 10-15 years are concerned, the Indian economy is likely to relatively do much better, which also means that capital allocation to India in the context of global portfolio allocation will go up.
The Sensex and Nifty 50 indexes were expected to gain 3.8% and 4.6%, respectively, from Tuesday's close to end-2023, slightly downgraded from a February poll. Over 70% of analysts believe Indian stocks will trade in a narrow range for the next three months.
In addition to this, the Indian government's green energy push has led to the renewables industry growing at an astounding rate. Moreover, the forthcoming budget for F.Y. 2023-2024 will likely push renewables even further. This makes the energy sector one of the best sectors to invest in India right now.
This means that every time there is a Fed rate hike, the Indian market will take a hit negatively. Another reason why the rate hike turns the market down is that the US treasuries will become attractive and will strengthen the US dollar. Indian rupee will weaken and this could impact the credit ratings.
Based on the latest S&P 500 monthly data, the market is overvalued somewhere in the range of 65% to 117%, depending on the indicator, up from last month's 60% to 110%.
Today, Abhishek Mishra has become one of India's youngest entrepreneurs in the trading business. He is not only limited to one company; Abhishek has recently established a Music Production Company, “SUKOON PRODUCTIONS”.
Popularly known as the “Warren Buffett of India,” Rakesh Jhunjhunwala is one of the greatest stock market investors India has ever seen. Born on July 5, 1960, Rakesh Jhunjhunwala was a stock market veteran. His father was an Income Tax Officer.
Many traders don't follow their plan due to their emotions. When their trade starts going in a negative trajectory, people will place their stop-loss lower in hope that their trade will bounce back up. Traders need to know that it takes time to estimate trades before initiating them.
One of the biggest reasons traders lose money is a lack of knowledge and education. Many people are drawn to trading because they believe it's a way to make quick money without investing much time or effort. However, this is a dangerous misconception that often leads to losses.
This single biggest reason why most traders fail to make money when trading the stock market is due to a lack of knowledge. We can also put poor education into this arena because while many seek to educate themselves, they look in all the wrong places and, therefore, end up gaining a poor education.
The Harshad Mehta scam, the Satyam affair, the Ketan Parekh scam, the NSEL scam, and the Saradha scam were some of the largest stock market scams in India, and they revealed flaws in the regulatory and legislative framework governing the stock market.
Over many decades, the investment that has provided the highest average rate of return has been stocks. But there are no guarantees of profits when you buy stock, which makes stock one of the most risky investments.
Long-term capital gains tax is a tax on profits from the sale of an asset held for longer than a year. Long-term capital gains tax rates are 0%, 15% or 20% depending on your taxable income and filing status.
International stocks can give a lift to your stock portfolio when U.S. stocks are stuck in the mud. Over the long term, this should smooth out volatility in your stock market returns, investing experts say.
In 2023, stock markets in the United States accounted for nearly 60 percent of world stocks. The next largest country by stock market share was Japan, followed by the United Kingdom. The New York Stock Exchange (NYSE) and the NASDAQ are the largest stock exchange operators worldwide.
1. New York Stock Exchange (NYSE), USA. With a market capitalisation of US$26.2 trillion, the NYSE is the world's largest stock exchange. The NYSE is one of the oldest stock exchanges that was established in 1792 and has more than 2,400 listed companies.
Indians can take advantage of the US dollar's rising stature by investing in US stocks in India. As its value increases, your US stocks investments do well too. Plus, there's no cap on the amount you can invest, and the taxation policies are crystal clear. So, invest in diversifying your portfolio.
Yes, Indians can invest in the US stock market. There is more than one way to buy and hold US stocks in your portfolio. Direct equities, ETFs, and mutual funds are just one of the few popular options. You can invest in US stocks in two ways from India – indirect and direct.
The USA has one of the best investment climates in the world. As a developed country, the USA offers a welfare environment and attracts investors with its stable management. Thanks to its mixed economic environment, large market, and investment programs, the USA attracts many investors every year.
The stock market offers a variety of financial instruments that give investors a choice of securities to invest in depending on their risk tolerance and financial objectives, such as shareholdings, securities, mutual funds, and derivatives.
This means that every time there is a Fed rate hike, the Indian market will take a hit negatively. Another reason why the rate hike turns the market down is that the US treasuries will become attractive and will strengthen the US dollar. Indian rupee will weaken and this could impact the credit ratings.
To have access to the Indian stock market from the US, you will have to either open an account with an international brokerage firm regulated by the U.S. Securities and Exchange Commission (SEC) or open an account with a SEBI-registered Indian stockbroker.
India is not only a fast-growing economy but also a market that is relatively uncorrelated with other major economies. Investing in India can reduce the overall risk of your portfolio. Attractive valuations: Despite its strong economic growth, India still offers attractive valuations compared to other emerging markets.
Fixed deposit (FD) is often hailed as one of the most stable and safe investment with high returns in India. It is advisable to invest in fixed deposit because of the following reasons: Accumulate higher returns by availing FD schemes from credible financiers.
High-quality bonds and fixed-indexed annuities are often considered the safest investments with the highest returns. However, there are many different types of bond funds and annuities, each with risks and rewards. For example, government bonds are generally more stable than corporate bonds based on past performance.
WHAT IS THE AVERAGE STOCK MARKET RETURN IN INDIA? The 2017 CRISIL report claims that the average annual return generated by a diversified equity portfolio has been 18% CAGR in the last 20 years.
Radhakrishnan Damani is the richest trader in India, with a portfolio valued at 16 stocks with a net worth of over Rs 2,04,188.62 crores as of September 2022 . Generally, he maintains a very low profile and does not appear in public.
Indian investors are subject to a flat tax rate of 25% on earnings from dividends of US stocks, which is comparatively lower than the tax treatment for other foreign investors due to the US-India tax treaty.
They said that weakness in US dollar and Indian National Rupee (INR), uncertainty over the US Fed's FOMC rate hike decision, FIIs selling from the emerging markets are some other reasons that has dragged Dalal Street for fourth straight session.
The US Fed's decisions to increase interest rates and stop buying bonds will reduce liquidity in the system. It means there will be less easy money available for investing in risky assets like equities.
Introduction: My name is Allyn Kozey, I am a outstanding, colorful, adventurous, encouraging, zealous, tender, helpful person who loves writing and wants to share my knowledge and understanding with you.
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