The outbreak of COVID-19 in 2020 shifted the world to a new normal. It not only changed the way we consume, spend, and travel, but also the way we invest.
New-age investors, who joined D-Street in 2020, as well as seasoned investors are looking at more than one way to diversify their portfolio and go global.
The average age of investors who invested in the US markets in 2020 is between 30 and 40 years, according to brokerage estimates.
The concept to diversify into US markets started last year as many discount brokerage firms facilitated the investment process, and there is a greater awareness among investors over the last several years about the strong performance of the US equity markets. The S&P 500 index has risen more than 50 per cent in FY21.
Investors who want to diversify towards global markets should look at investing at least 15-20 per cent of their portfolio there. Experts see this percentage going up to 50-70 per cent in the near future.
“For savvy and existing Indian stock market investors, a 15 per cent diversification will be good. For investors who are just starting out, it may not be a bad idea to begin with some mega-cap exposure in the US markets,” Sitashwa Srivastava, Co-founder & Co-CEO, Stockal Inc, told Moneycontrol.
“Diversified mega-cap exposure is not available in Indian markets. So even 60-70 per cent US exposure will not be odd. Over time, this can be brought down,” he said.
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If you are new to investing, especially in global markets, follow a milestone approach.
“Investors may adopt a milestone-based approach for global diversification, starting from 10 per cent of the portfolio and gradually increasing it to 30-40 per cent,” Viraj Nanda, CEO, Globalise, told Moneycontrol.
“In this journey, as they become more confident about the idea, they can take a strategic view of their overall portfolio and start building truly global portfolios with more meaningful international exposure, based on global equity dynamics rather than home market considerations only,” he said.
Data suggests that Indian and US equities have a very low correlation. This makes them ideal for diversification. Further, the return of US equities in the last 1, 3, 5, and 10 years and even longer have been much higher than Indian equities, data from OmniScience Capital showed.
“Investors can start with 5-10 per cent initially and take it to 20-25 per cent. Of course, each specific individual allocation should always depend on their specific investment objectives, time horizon, risk tolerance, and product suitability,” Dr Vikas V Gupta, CEO & Chief Investment Strategist, OmniScience Capital, told Moneycontrol.
“Global diversification makes sense, both for enhancing safety and returns. Allocating to US equities makes sense,” he said.
Love for US markets will continue in FY22
The love for global markets, especially US markets, for Indian investors will only continue in FY22, say experts.
The trend will grow exponentially in the coming years as investments made in 2020 start to throw benefits.
The overall equity environment remains positive for global investment, primarily supported by low-interest rates, abundant liquidity, and fiscal stimuli from governments across the world to support economic expansion.
Greater awareness among investors over the last several years about the strong performance of US equity markets also helped sentiments, suggest experts.
“We strongly believe that international diversification is here to stay. We’re still at day zero in terms of Indian investors diversifying their investments beyond our local market,” Viram Shah, CEO and Co-Founder, Vested Finance, told Moneycontrol.
“If you look at investors outside India, a majority of them have at least 15-20 per cent of their wealth invested in foreign markets. We’re also witnessing a worldwide retail revolution,” he said.
Aided by COVID and lockdowns, retail investor participation in the markets has increased by leaps and bounds, explains Shah.
He further added that a large number of Indian retail investors dipped their toes into the global markets for the first time. More than 180,000 people signed up on the Vested platform over the last 12 months, and we processed close to $ 175 million in trades in FY21.
Another global investment firm, Stockal, said that it had opened about 15,000 accounts for Indian investors by April 2020. By end-March 2021, the estimate is that we will have about 45,000 overseas investing accounts from India.
“Investing audience in India grew 300 per cent in just one financial year. In terms of volumes, Stockal processed about $ 400 million in transactions during this FY. We were doing about $ 12-13 million in monthly transactions until April 2020. By March 2021, the number has shot up to about $ 50 million in monthly transactions,” says Srivastava of Stockal Inc.
According to Stockal insights, 21 per cent of total subscribers on the platform are between 30-34 years of age, followed by 35-39 years and 25-29 years, with a contribution of 18 per cent and 17 per cent, respectively.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.