By Akshaya Bhargava
From Dalal Street to Wall Street, facilitated by technology, Indian investors have started making their way into the US stock market. Latent demand is now turning into real demand with Indian investors reaching out to different markets, continuing the wave of digital investment that swept the world during the pandemic.
In 2021, the S&P 500 gave returns of over 26%, making it one of the best years in the US stock market. This not only attracted Indian investors but also benefitted Indian investors who have previously invested in the S&P 500. Their investments more than doubled in that year.
The need to diversify your investment portfolios to balance out risk and rewards is essential for any successful investor. Until recently, geographically diversifying your portfolio out of India was difficult and most investors stayed with Indian markets despite overseas investment being permitted under LRS. However, with increasing volatility, this has become essential, due to the different market movements in each country. Tesla, Facebook and Google, were the most popular stocks amongst Indian investors.
The US stock market holds some of the largest companies in the world, this gives Indian investors the opportunity to tap into a market that is not controlled by the Indian financial sphere. It increases the chance for investors to get higher returns and minimise the risks due to the optimal divarication of their portfolios.
Luckily, we come from an era of technology, so investing in the US stock market is now easier than ever. Through multiple platforms, we can get more information and research about global markets at the tip of our fingertips. From opening an account to low transaction fees, it has not only created a sense of comfort for the Indian investors but also encourages international trading.
One other thing a lot of investors do not know is that it is possible to buy fractional shares in the US market. For instance, you could invest $10 in Tesla, despite the stock trading at $770 per share. This makes it easier to build diversified portfolios for smaller amounts.
Risks you should be aware of
1. Currency exchange risks
When investing from India, the rupee amount is converted into dollars before you purchase stock from the US stock market, the same applies when you sell the stock.
Due to constant fluctuations in the currency exchanges, sometimes investors can miscalculate their gains and losses. So, make sure to keep an eye out for this!
2. Interest rate risks
Always do your research about the company you are investing in! We all know that the US economy is debt-heavy, due to the ease of which small and big companies can take a loan. This causes rising interest rates for the company, which affects the economy.
Keeping an eye out for regulations is something any good investor would do. But especially when you are investing out of your home ground. Changes in regulations or implementations of new regulations in the country or a particular sector can directly impact your investments and the sector you are investing in.
Tips for Indian investors in the US stock market
1. Investing in companies you believe in
This is a universal rule for investors. Always invest in companies you believe in! Having a personal feel with the company not only allows you to make wiser decisions about your investment but also keeps you aware of what is happening behind the scenes.
2. Diversification of Portfolios
The US stock market listed companies account for almost 40% of the world’s capitalisation. That means Indian investors who are investing in the US stock market are playing in a much larger field than the Indian stock market. To be accurate, almost 10 times larger. This is will naturally enable geographical diversification.
Hence, Indian investors should take advantage of this space, by diversifying their portfolios to minimise the risk of their portfolio.
3. Brokerage app
To link yourself with a broker to enable trading of US stocks from India. You will have to go through an identity verification process (KYC), by declaring your PAN, Bank Statement and Voter ID.
4. Use modern tools
There are several AI-powered tools available to help your research. These are invaluable for an equity investor looking at new markets. Simply Wall Street and InvestorAi are among our favourites.
To invest in the US stock market, you should be aware of the RBI’s Liberalised Remittance Scheme. This scheme allows Indian investors to invest up to $250,000 (per financial year) in the US stock market.
(The author is Founder & Executive Chairman, Bridgeweave)