A Sunday afternoon in lockdowns can be perfectly visualized with one seamlessly listening on to the action-packed Money heist seasons, again and again, using vibrant AirPods, sipping the sparkling Pepsi and swiping left the Instagram stories and scrolling down google feed every hour with most of them only flexing about Dogecoin and the Visionary Elon Musk’s future take on crypto and Tesla cars!
Did you notice that our lifestyle is influenced by a variety of foreign products, which are backed by flourishing foreign companies, including Netflix, Apple, Alphabet, Facebook, Tesla; to name a few. Have you ever wanted to own a stake of at least 0.0000001% in the top-notch US companies whose products and services you utilize daily? Of India’s 1.36 billion people, only about 3.7 percent invest in equities, whereas in the USA, around 55% of the people maintain portfolios by either investing in equities or mutual funds!!
Our nationalist sentiment should provoke us to invest in the growth of our Indian companies since investors tend to be more aware of the current happenings of the domestic country, but allocating up to 10-15% of your portfolio amount outside India can be an intelligent hedging strategy.
The US Stock Market Complexities #Decoded
So, budding investors, before taking on your first step towards holding your favorite stocks in your portfolio, it is of due importance to gauge the basic know-how of the US stock exchanges and their indices, which run on entirely different grounds when compared to India.
Commencing with the major stock exchanges; in India, they are the National stock exchange(NSE) and the Bombay stock exchange BSE) while in the USA, they are:
NYSE:
World’s oldest stock exchange
With over 2800 listed companies
Category- Bluechip and Industrial companies(Berkshire Hathaway, P&G, JP Morgan chase & co., Jonson & Johnson, Alibaba Group Holding, etc.)
NASDAQ Exchange:
World’s first and the largest electronically traded stock exchange)
With over 3300 listed companies
Category- Technology companies(Apple, Microsoft, Amazon, Alphabet, Tesla, Facebook, Netflix, Paypal, etc.)
Fun Facts- Remember the Scam 1992? EVEN TODAY, the NYSE stock exchange has a trading floor, maybe just as a part of their tradition, and no such significant volume of trading takes place there.
The Indian stock exchanges have a combined market capitalization of $5trillion, while these two US exchanges account for over $45 trillion market capitalization combined!
Do hold on; the things are going to turn a bit trickier soon!
So, now the major indices in India are:
Sensex(BSE’s Index):
Tracks top 30 companies by their market capitalization listed on the respective exchange.
Nifty(NSE’s Index):
Tracks top 50 companies by their market capitalization listed on the respective exchange.
While in the USA, the major indices are:-
DJIA (Dow Jones Industrial Average):
The Dow Jones, Dow 30, The Dow. tracks 30 large bluechip companies listed on NYSE and NASDAQ, unlike India, where each index has its separate exchange.
Price-weighted index, that is, stocks with higher prices are given more weightage and vice versa.
NASDAQ:
Covers 2500+ listed companies on NASDAQ!!!!! (NASDAQ is the name of the index as well as the stock exchange; getting trickier right:))
Covers even those companies which are headquartered outside the USA, unlike done in India.
Market capitalization-weighted index i.e., it assigns more weight to the market capitalization of the company.
S&P 500(Standard and Poor’s 500):
Tracks largest 500 US publicly traded companies -covers only those companies which are headquartered in the USA
Again, the market capitalization-weighted index i.e. it assigns more weight to the company’s market capitalization.
Why US stocks should be a part of your bucket?
1) Diversification
Making a rich portfolio of high-quality stocks will not only add a geographical touch to your portfolio but also hedge your profits against the country-specific risk (sudden market crash owing to wars, natural disasters, scandals, etc.)which may impact your returns severely.
2) Outperformance by US Stock Markets
Over the last ten years, the Dow Jones has generated a compounded annual return of 9.75% with volatility/risk of 3.92%, whereas the Sensex has generated a return of 9.70% with a considerably higher volatility rate of 5.06%
3) Exposure to High Tech Companies
We are missing on many growth stories happening abroad, which we can be a part of even sitting in India and allocate our small amounts to sound and fundamental companies that have an unbeatable record of providing staggering returns.
4) Advantage of Depreciating Indian Rupee
Way back in 1947, 1 US Dollar was equal to 1 INR, while today, the same dollar amounts to 73 INR(approx.). Say hypothetically, even if a company’s price has stagnated since 1947( which is practically impossible), an Indian investor would have still earned 73 times the amount invested way back then!
5) Fractional Investment
The most attention-seeking factor about US stock markets is one’s flexibility to buy fractional shares. For e.g.: if MRF Tyres (1 share trading over INR80,000) was a US stock exchange-listed company, tight-pocketed investors could have invested in the share and probably owned 1/100th or 1/1000th part of a share!
The Mega Dollar question: What Should Be Your Investment Strategy?
Don’t worry; we have all your questions covered! There are two separate ways of investing in the US stock market from India:
1) Direct Investment In Stocks
You can use platforms like IND money, where your DEMAT account opening takes even less than 2 minutes! (Even your Maggi may remain half-cooked by the time you’re done) and you can securely start your investment once you complete your KYC with a minimum amount of as low as Rs.100!
2) Indirect Investment In Stocks via Mutual Funds or ETFs
Now for this type of investment, you can continue using your existing Demat account or if a new player in the arena, platforms like Groww, Zerodha, Upstox are everyone’s favorite.
So now, listing the best class variety of options you can choose from to begin your investment abroad, the funds below are mentioned with their 1-year returns.
a) Fund of funds:-
- Franklin India feeder(Direct plan growth): 54.44%
- PGIM India Global Equity opportunities fund(Direct plan growth): 62.80%
b) Active International Funds:-
- Nippon India US equity opportunities fund: 51.71%
- ICICI prudential US Bluechip equity: 41.16%
c) Passive International Funds:-
- Motilal Oswal NASDAQ 100 ETF: 60.64%
- Motilal Oswal S&P 500 Index Fund Growth: 41.21% (Started on 28 April,2020)
Warning- Do not invest in stocks or funds by just taking the tragic 1-year return figures into account, do your research well. And yes, you are finally all set to go.
With information accessibility at our fingertips, researching and analyzing stocks is more straightforward than before; and the current investing atmosphere in India is becoming more and more conducive for aggressive and conservative investors with a wide variety of asset classes to choose from.
As of January 2021, India’s total Demat accounts stood at 51.5 million, compared to 40.8 million at the end of FY20 and 35.9 million in FY19, and Mutual funds add more than 81 lakh investor accounts in 2020- 21.
So, I hope you open one before the final season of Money Heist comes out and watch the episodes being a petty owner and investor of Netflix and not just a random viewer!
Editors - Sarthak Gupta, Shashank Gupta
Comments