Stocks vs ETFs: 58% of all new investments in 2021 on Globalise were made in ETFs: CEO Viraj Nanda

Market Outlook

Viraj Nanda, CEO, Globalise, feels that if one takes a 5-year view, low hanging fruit in small stocks seems to have gone, and one may be better placed if investors bet on large companies from here on.

Globalise is India’s first platform for guided global investing. Nanda began his career as an Investment Banker at Deutsche Bank in London. He is responsible for designing and implementing the strategic direction for expanding Globalise’s footprint in India.

In an interview with Moneycontrol’s Kshitij Anand, he said stock-specific ideas will keep on performing irrespective of size, so from here on, stock selection will matter more than blindly betting on small and mid-cap stocks.

Here are edited excerpts from that interview:

Q) Both BSE and NSE are facilitating transacting in US stocks as well as other countries that suggest that exchanges are willing to tap on investors who want to diversify portfolios globally. What are your views?

A) This is a welcome development for the entire Indian investment ecosystem. India holds tremendous potential with over 6.50 crore demat accounts and we foresee a significant surge among these towards global investing.

Recently, apart from traditional investors, there has also been a surge of millennials who are taking to new and exciting avenues of growth.

This move by NSE IFSC will help bring more investors into the fold of global investing and become a part of global growth journeys.

Q) What kind of additions (in terms of investors looking to invest overseas) you have seen so far in 2021 or the first half of 2021 compared to last year?

A) Global investing is a trend that has clearly picked up in the last year. That has been an outcome of several years of build-up as Indian investors have been warming up to the idea, while witnessing the strength of US markets, particularly in recent years.

In general, until before COVID, retail investors didn’t really participate in market returns despite frontline indices reaching new highs.

This was for several reasons, like polarised markets and the difficulty of active funds beating benchmarks. That has been contributing further to pent-up demand among investors to explore alternate investment avenues.

This really took off last year once markets stabilised post the initial COVID-related crash, as retail investment frenzy, particularly in technology stocks, generated enormous short gains, if not classical long-term wealth creation.

That further captured Indian investors’ interest and contributed to increasing numbers for international investing.

This trend has further accelerated in 2021 as more investors are looking towards the international markets. The growth is clearly visible on our platform as well as we witness increasing traction on new accounts and the value of trades.

Q) Are Indian investors glued to FAANG or the list has widened? Which are the top 10 stocks in terms of ownership you have seen Indian investors betting so far in 2021 vs what you have seen in 2020?

A) While investor interest has widened beyond the FAANG stocks, they continue to rank amongst the most popular stocks on Globalise.

As the US indices such as the S&P 500 and Nasdaq Composite continue to post new highs, Indian investors remain focused on large-cap technology stocks.

In the first half of 2021, Apple, Alphabet, Facebook, Amazon and Microsoft were the 5 most popular stocks on Globalise.

Beyond that, NVIDIA, Square, and Salesforce were among the other top technology picks by investors, along with Tesla and Pfizer in the broader market.

Q) Now with both BSE and NSE joining the party, will that impact your customers (loss of business)? What is the kind of offering you have planned or are offering currently that can be differentiators?

A) The use by NSE of unsponsored depositary receipts of US-listed companies will offer an alternative to Indian investors to own the underlying shares.

This will be an additional option for Indian investors who today already have the facility to directly acquire US stocks on US exchanges under the RBI LRS scheme.

Investing via depository receipts and investing directly in the US Stocks through platforms such as Globalise will each have its own benefits.

Direct access as available on Globalise will continue to offer benefits in terms of range of investment options, choice of asset classes, and pricing efficiency.

Q) Apart from stocks which are the ETFs that are popular among Indian investors? Please name a few of them and the kind of money riding in this category? Between stocks and ETFs which one is a more popular category?

A) ETFs are a popular investment route among investors, especially those that want to build a diversified exposure to the global markets.

For new investors, ETFs remain the preferred investment route – in the first half of 2021, 58% of all new investments on Globalise were made via ETFs.

Investors are also looking at ETFs as a way to build a diversified exposure to thematic investments. Just like with stocks, the growth-oriented technology sector seems to be the most popular among ETF investors.

However, trends like clean energy are also catching investors’ attention, evidenced by the most popular ETFs on the Globalise platform during the first half of 2021. The 5 most popular ETFs on Globalise were:
1. ARK Innnovation ETF (ARKK)
2. Renaissance IPO ETF (IPO)
3. Small Cap Growth Vanguard ETF (BBK)
4. Invesco WilderHill Clean Energy ETF (PBW)

5. Invesco QQQ Trust Series 1 (QQQ)

Q) What is the ideal portfolio allocation limit one should keep when diversifying overseas?

A) Conceptually, an investor could view his equity portfolio as a single globally diversified portfolio and, as a starting point, begin to construct it using the respective country’s share of global equity market cap as the allocation weight. That would mean allocation of close to 60% of all equity exposure to the US.

However, it is not practically possible for the Indian investor, for whom the concept of international investing is relatively new, to adopt this allocation.

So, investors may adopt a milestone-based approach for building global diversification, starting from 10% of portfolio and gradually increase it to 30% to 40% of the portfolio.

In this journey, as they become more confident about the idea of global investing, they can then take a strategic view of their overall portfolio and start building truly global portfolios with more meaningful international exposure that is based on global equity dynamics rather than home market considerations only.

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