Investing In US Markets vs Indian Markets: The Pros and Cons

“Never invest in a business you cannot understand”. An oft repeated quote from Warren Buffet, but one that perhaps takes different interpretations now as Indian 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 by statements such as “The US indices have outperformed Indian markets by 8-15% in the last decade”. 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.” This statement by 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 the ongoing coronavirus pandemic, equities globally fell together, with decline 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, the S&P500 had already recovered all 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 been less volatile in 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 by investing in US markets can 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.


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.

Our team members at Vested may own investments in some of the aforementioned companies. 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 circumstances.

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