While the US economy attracts many investors, international investments with limited understanding are risky. To begin your investing route in US stock markets, you must know the pros and cons. Many people find it challenging to invest in US markets from India. However, investing in the foreign stock market helps you broaden your portfolio. Expanding investments across global economies is as crucial as diversifying across asset classes.
You must think of ways to distribute risk across an investment portfolio. When India’s economy opened up, Indians got access to foreign goods/services and investments. However, investing in the US stock market is not the same as investing in the Indian stock market. It could be daunting at first, but you can expect high rewards once you get used to it.
Why should you compare Indian vs US stock markets before investing?
“Never invest in a company you don’t understand.” – Warren Buffet’s
The above advice has become every investor’s favorite quote. You can apply the same reasoning while investing in a new marketplace. Instead of sticking to local and limited investing options, an astute investor would comprehend the US market to begin their investing path. After all, investors are frequently told to diversify their investments geographically by investing in domestic and overseas markets.
Statements like, ‘The US indices have beaten Indian stock markets by 8-15% over the previous decade’ are frequently used to sell US investments. However, if investors take such remarks at face value and anticipate the same performance rate in the future, they will most certainly be disappointed. After all, past performance is no guarantee of future results. As a result, we’ve developed several criteria against which both the US and Indian markets may be analyzed. This will help you in arriving at the best selection.
What are the parameters for analyzing Indian and US Stock Markets?
For ordinary Indian investors, the US stock markets have long been a puzzle. There are some of the world’s largest corporations present in the US stock market. Given that there are several options to invest in the US stock markets, both directly and indirectly, here’s a case study of Indian vs US stock markets and how they have performed over the previous ten years. We utilized the Dow Jones Industrial Average Index (DJIA) to reference US markets and the BSE Sensex for Indian stock markets. Both the stock markets will be compared with the following parameters:
- Performance in terms of returns
- Correlation between the two markets
- Volatility
- Top-performing sectors
- Valuations
- Size
Indian Stock Market vs US Stock Market: What are the differences?
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Portfolio diversification
Not only corporations in the United States but companies from all over the world are represented in all of the major US stock market indices. Barring a national emergency, not many disturbances can influence the US stock market.
On the other side, only Indian enterprises dominate the Indian Indices. Even minor turmoil in the country might cause a dramatic drop in the indexes. The US stock market is varied and resilient in the face of adversity. However, in the case of Indian stocks, the same cannot be said.
What’s intriguing about US equities is that you gain exposure to the US and the rest of the globe since many firms have worldwide operations yet are listed in the US stock exchange.
Because of the coronavirus pandemic, worldwide stocks have witnessed a recurring drop, with declines ranging from 20% to 30%. Investing in diversification will be helpful at this time. By the 8th of June 2020, the US Stock Exchange had regained all of its coronavirus-induced losses. However, at around the same time, the Sensex was down 17%.
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Dollar as a Currency
We earn in INR and pay in USD in India. Because the rupee’s value is falling, it encourages investment in dollars. As the value of the rupee falls, the value of the Indian stock market portfolio falls as well because all investments are made in INR. As a result, if you invest in the dollar, the value of your investment rises. Even if the portfolio remains static, the investments expand when the US dollar rises. As a result, investing in US dollars yields a better return than investing in Indian rupees.
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Global Factors
The US market offers the facility to invest in large worldwide corporations such as Flipkart, Amazon, Instagram, etc. If your portfolio is made up of such multinational corporations, it will evolve according to competitive trends. You will be able to expand your corpus more efficiently if you work with these worldwide organizations.
Investing in the Indian stock market, on the other hand, includes surprisingly many small-cap to midcap firms. In India, a firm can go public after three years of profitability. Due to this, investors in India cannot participate in domestic success stories.
However, in the United States, you can invest in giant corporations that have started new services. It allows investors to invest in a variety of creative concepts.
While the Indian startup environment has been booming, the US markets continue to house all big firms at the forefront of their respective industries with new offers.
Many startups face postponed gains and growth in market share, thereby shutting out most Indian investors from the opportunity to demonstrate their faith in innovative business ideas. However, because of the comparatively flexible rules in the United States, investors from all over the world may invest in new models – and we’ve seen how this frequently plays out. Uber, Amazon, Tesla, and Facebook are all products of the US marketplace and its paradigm. Many investors might be critical of their investment strategy, but they know there are possibilities to capitalize on new ideas.
As a result, the US market is a more attractive proposition since it provides worldwide exposure and allows investors to expand with the world’s largest corporations, such as Google, Amazon, and Facebook.
The laws of the Indian market are more strict than those of other worldwide marketplaces. Startups are booming in India, but most investors are not ready to invest in early-stage startups due to these taxation regulations.
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Research & Efforts
Investments in the Indian stock market and the US stock market are accompanied by economic analysis. The Indian stock market has a slight advantage over US markets in terms of research and effort. The research required for the US stock market is extensive, and some may choose to sacrifice the prospect of higher returns for hassle-free stock options in the Indian market.
Investing across many geographies demands proper research. Each country’s economy differs, and other worldwide variables impact the markets. As a result, as an investor, keeping track of several markets may be time-consuming and intimidating. In addition, one must stay updated on numerous aspects that may influence the stock market. It is where the Indian stock market wins hands down against the US stock markets.
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Market Volatility
Volatility is defined as the standard deviation of returns around the mean. It is a decent measure of how much the market rises and falls throughout the specified period (preferably short-term).
Many long-term investors are unconcerned by volatility, but it is crucial if you’re in a very volatile market. A market downturn may drive you to sell early.
Compared to the Indian stock market, long-term investments in US markets have lower volatility. It is why investors are urged to distribute their money among various assets, as diversification reduces risk. So, when an investor has a diverse portfolio and invests in the overseas stock market, their portfolios change direction over Indian indices.
As a result, volatility can be used as a risk indicator. While calculating volatility, we looked at the past ten years’ results. In the previous ten years, the Dow Jones Index had a volatility of 3.92%, while the BSE Sensex had a volatility of 5.06%.
Investing globally thus becomes a solid diversification strategy. Furthermore, investors that invest abroad might anticipate their portfolio to react differently than in Indian markets.
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Sensex vs. Dow Jones
It is often recommended to advance geographically by engaging in US markets. As opposed to the Indian stock market, the foreign share market has a more equitable distribution of industries. Over the last five to ten years, Dow Jones has outperformed Sensex. Compared to the US market, the Indian stock market trades at greater multiples and delivers lower dividend rates. However, both the markets provide fair returns to their investors because of the small number of stocks that provide the majority of the profits.
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Valuations
In terms of valuation, the Dow Jones Industrial Average (DJIA) has a PE Ratio of 19, whereas the Sensex has a PE Ratio of 25.28. It is not to say that the Indian market is overpriced and that you should only invest in the US markets. It simply suggests that the market expects the earnings of Indian firms to expand faster than US companies.
It may not be an unrealistic forecast, given that India’s GDP has recently increased at a higher rate than the US GDP. The index’s profit after tax of Indian firms climbed 12.6% when compounded annually over the previous ten years. At the same time, the US stock market has performed at 115% multiplied annual growth.
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Size
There is no resemblance in terms of size between the two. While the US stock market contributes to 43.2% of the world’s market capitalisation, the Indian stock market contributes to 2.97% of the world market cap. Given the two countries’ respective sizes, this should be no surprise.
How to Invest in the US Stocks Market from India?
You can get started by investing via Kuvera to manage your international portfolio.
Step 1: Open Kuvera app or website
On Kuvera, go to Invest and then select US Stocks.
Step 2: Select ‘Start Investing’ Option
You will be directed to two options. You can either create a new portfolio with a new Vested US investing account or link an existing account.
Step 3: Complete all the KYC documentation
Before you open an account, it’s mandatory to complete your verification process by filling the KYC form. Upload your PAN card for address proof and pay the account opening fee. Once done, you will be able to track the account opening statement from the portfolio section.
Reasons To Invest In the Indian Stock Market
Many investors in India are unsure how to invest in US stocks. On the other hand, others wonder if it’s wiser to invest in India than in the United States. While some of us may benefit from investing in US equities and funds, others may be better off investing solely in India.
There are a few factors to keep in mind when investing in Indian markets or international equities and funds. The decision to invest in one or both depends on a variety of criteria, including the amount of money you have for investment, the time horizon you’re looking at, and the risk you’re willing to face.
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Bank Interest Rates
Bank interest rates in India can reach as high as 7%, depending on a number of factors. Interest rates in the United States, on the other hand, are substantially lower. In India, the account from which you invest money will receive a higher rate of interest.
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Regulatory Policies
The market in the United States is highly regulated, which benefits US citizens more than foreign investors. You’ll be more aware of regulatory changes in India and less likely to miss any important financial news.
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Conversion Loss
There are underlying costs like conversion fees and taxes when currencies get converted back and forth from INR to USD. So, even if you earn in dollars, you can never be sure whatever you calculate as your returns is what you would get.
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Scope For Growth
As a growing market, India has a higher room for expansion than more developed markets. It might also be a lucrative factor for investors with funds in other countries.
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Easy Liquidity
If you invest in the Indian stock market, it is safer to liquidate your investment anytime you need cash. Of course, this is dependent on the type of investment you’ve made.
Conclusion
When considering Indian stocks vs US stocks, you must not forget that both of them have their own advantages and disadvantages. On the other hand, access to international markets will get portfolio returns in today’s investing climate. The stock market in the United States is more diverse and less volatile than the stock market in India. Investors can participate in the growth of startups and invest in the world’s best firms. While an Indian investor’s portfolio should still be dominated by Indian investments, diversifying a little and including US stocks in your kitty is beneficial.
FAQs
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Is it possible to invest in US stocks as an Indian?
Investors in India will be able to trade certain US stocks via the NSE International Exchange (NSE IFSC), a totally owned subsidiary of the National Stock Exchange, starting from March 3, 2022. Investors can purchase NSE IFSC receipts on US stocks under unsponsored depositary receipts (DRs).
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Who should not invest in stocks?
If you lack patience or don’t believe in the mechanism behind stock markets, it’s better not to invest them. Never buy or sell stocks on an impulse, as incorrect entry and exit points can cost you heavily.
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What is US Stock market timings?
The US stock markets timings will be from 9:30 AM to 4PM EST, which is 7 PM to 1:30 PM in IST.
Interested in how we think about the markets?
Read more: Zen And The Art Of Investing
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