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Trading in financial markets involves significant risk of loss which can exceed deposits and may not be suitable for all investors.
Before trading, please ensure that you fully understand the risks involved
Trading in financial markets involves significant risk of loss which can exceed deposits and may not be suitable for all investors. Before trading, please ensure that you fully understand the risks involved

Thursday, May 14, 2020

Why Indians need to consider investing in global markets?

by Century Financial in Investment Insights

Why Indians need to consider investing in...
Why Indians need to consider investing in global markets?

It may be surprising, but it is a fact! Despite the 82% rally in Nifty 50 Index over the last 12 years, an investor would have lost 4% of his/her wealth in dollar terms, if invested in the index, due to currency depreciation. Over the past 12 years the rupee has depreciated over 85% against the Dollar.

Infact, it turns out, Indian investors would have been better off investing in US stocks over the last couple of years.

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$25,000 invested in Nifty 50 on April 30th 2008 would have declined to $23,899 on 13th May 2020.
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On the other hand, $25,000 invested in SPX 500 on 30 April 2008 would have doubled to $50,881.
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To state it in Rupee terms - Rs. 10 lakhs invested in Nifty would have grown to Rs. 18 lakhs, while in SPX it would have grown to over Rs. 38 lakhs and in the tech heavy Nasdaq index, it would have grown to a whooping Rs.87 lakhs.
Investment in 2008 Investment in 2008

Its important to not that despite the massive run up in Nifty, a key reason why the US indices outclass the Indian market is the Indian currency’s depreciation.

Across the board and across different time horizons, Indian equities have clearly underperformed the global markets. The world of global equities is dominated by US listed companies, which account for over 50% of the total market capitalization. Likewise, the table below compares the performance of Indian benchmark indices with US benchmark indices over different time horizons in Dollar Terms.

Buy & Hold Dollar Returns
Buy & Hold Dollar Returns Buy & Hold Dollar Returns

As seen in the table above, US benchmark indices have outperformed the Indian indices over all the different time periods. While currency risks can work both ways, over a long term, emerging market currencies have generally depreciated. If therefore makes sense for Indian investors to diversify their portfolio and invest in global markets. Besides, U.S. is the world major superpower and has some leading Multinational companies and other tech giants of the world such as the Alphabet, Amazon, Microsoft and Facebook, that are not listed in India. Many of these themes have had an incredible run in the last decade, leading to a robust performance of the US Indices.

The past is, of course, not a reliable guide to the future, but technology has and will continue to occupy a bigger share of our lives. To capitalize on the same and to hedge against currency depreciation, it is time more Indians consider the option of diversifying and investing in assets outside the country.

Data Source: Bloomberg

Arun Leslie John
Chief Market Analyst

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