For A Few Dollars More!

It’s an ideal time to invest in the US: Besides profiting from large cap stocks, new market movements indicate that a fund rotation is afoot.

By YOGESH KANSAL

Now is a great time to be invested in the US markets. The inflation trajectory is on a downhill, and everybody is counting on the possibility of a rate cut in September. Meanwhile, the market correction of August 5 gave a much-needed breather to the markets, and since then, the US indices have been vaulting upwards.

Our new report ‘From Dalal Street to Wall Street’ aims to help Indian investors looking to diversify and find strong pools of value in the US markets. The technology, semiconductors, financials and pharmaceutical segments have been delivering stellar returns, and if the September rate cuts come through — as is largely anticipated — then the US party will likely be longer and louder.

A glance at the gains delivered by US ETFs last year shows that they have outperformed many of the Indian mutual funds. Take, for instance, the Nasdaq 100 Technology Sector index which gave close to 70% returns last year. The VanEck Semiconductors ETF managed to top that by delivering around 75% returns. Investors who are accommodating of more risk can opt for alternative asset ETFs like the First Trust SkyBridge Digital Economy ETF, which delivered stunning 193% gains last year, albeit with higher volatility.

In any case, the performance of players like Nvidia (169% returns in 1 year), Super Micro Computer (138%) KKR & Co (100%) or Spotify (157%) or Meta (84.38%) speaks for itself. Several US stocks have delivered such outsized returns, and Indian investors can amp up their gains, by spreading their investments to the US shores. Further, domestic investors also benefit from the consistent trend of USD appreciation, which adds 3-5% to the total annual returns in addition to portfolio gains.

Besides profiting from large cap stocks, new market movements indicate that a fund rotation is afoot, and profits booked by institutional players are finding their way to the small-cap segment. The small-cap space is still under-valued, and discerning Indian retail investors can build wealth by zeroing in on quality small-cap stocks.
Here are a few highlights from the report:

• Investment Landscape: Investing in the US markets from anywhere in India is now a reality, and more and more investors are taking their first step towards diversifying their portfolios by investing in the US.
• Diversification Benefits: Your portfolio can take a hit if it is diversified only within the Indian market. This is where having allocation towards US equities can act as a hedge against the domestic market fall.
• Comparison of the performance of non-diversified and diversified portfolios during recent economic downturns in India: 2016 Demonetisation & 2020 COVID-19 Pandemic
• Historical Performance Comparison (2009 – 2019): In contrast, the S&P 500 fell by about 8%. During the same period, the S&P 500 grew by about 119 points or 5.7%.
• Rupee Depreciation: Between 2010 and 2020, the Indian rupee depreciated significantly against the US dollar: In 2010, the exchange rate was approximately 45.70 INR per USD; by 2020, this had increased to around 74.00 INR per USD.
• Liberalised Remittance Scheme: Indian residents can remit up to $250,000 per financial year for various purposes, including investing in foreign stocks and bonds.
• Growth in Outward Remittances: India’s outward remittances have been growing at an unprecedented pace. They hit a peak of $31.73 billion in FY24, up 16.91% Y-o-Y.
• US Market Potential: The total market cap of the US stock market is $50.8 trillion! The market cap of some of the biggest US companies beats the GDPs of some countries like France and the UK.
• Current Economic Indicators: The US GDP grew by 1.4% in the first quarter of 2024, following a robust 3.4% increase in the fourth quarter of 2023.
• AI Sector Growth: In a remarkable turn of events, Nvidia has emerged as the unrivalled leader in the AI space and achieved a market valuation of $3.34 trillion.
• Inflation Trends: As of June 2024, the US inflation stood at 3%. As inflation falls, the Fed will also start reducing interest rates to encourage more credit.
• Analysis of key individual sectors and how they’re performing: Technology, Healthcare, Energy, Semiconductors & Data centers
• Taxation Overview: Income from foreign investments, including capital gains and dividends, is taxable in India as ‘Income from Other Sources’. For listed US securities held up to 24 months, tax is based on your income bracket (STCG). For holdings over 24 months, a 12.5% Long-Term Capital Gains tax (LTCG) applies.
• Foreign Tax Credit: Indian investors can claim a tax credit for US taxes paid under the Double Taxation Avoidance Agreement (DTAA) between India and the US.
• The Securities Investor Protection Corporation (SIPC) provides insurance for portfolios. The aim is to protect investors against the loss of cash and securities at financially troubled brokerage firms.
• Most popular asset classes one can consider: Equities, Bonds, MFs, Real Estate & Alternative Investments.

• Advantages & Challenges: Diversification Benefits, High Growth Potential, Currency Appreciation, Fractional Ownership & Stable Market (The author is Cofounder & CMO, Appreciate)