What’s your excuse for not investing in global equity markets?
Most of us tweet, google and whatsapp everyday.
When brands become verbs they don’t need any adjectives to describe their success.
But do we ever think of investing in such success stories?
You see, nowadays we use lots of products and services offered by companies listed outside India. They touch our lives everyday. Being the second most populous country of the world, India is always an important market for global companies. But the moot question is, how many Indian investors benefit from their growth?
And it’s not just about US-based high-tech companies doing business in India. Don’t you think it would be a sound strategy to invest in rapidly growing companies, irrespective of their nationalities? Companies which are neither listed in India nor doing business in India can also offer good investment opportunities.
Did you know about Mercado Libre—an Argentinean e-commerce company?
It is listed in the US and had a market cap of USD 70 billion as on June 16, 2021. Mercado Libre is the largest Latin American e-commerce player and operates in 18 countries of the region with a total addressable market of 605 million (60.5 crore) people. Its employee count is over 11,000.
You should invest in offshore equity markets provided:
- You have a time horizon of over 3 years
- You have a high risk appetite
- And you already hold a well-rounded portfolio of domestic stocks and mutual funds
Investing in overseas equities helps you diversify
India represents just about 3% of global equity market capitalization. Investing in markets that have a low correlation with Indian equities allows you to diversify optimally.
Investing in overseas markets helps you hold assets denominated in foreign currencies which, in a way, offers you a hedge against the potential weakness in the Rupee. As you may be aware, the US Dollar has appreciated 8 times over the last 40 years against Rupee.
Depreciation of domestic currency makes offshore investing more relevant. In the recent 10-12 years, the Indian Rupee has depreciated 3%-4% every year, on an average.
Offshore funds come in different forms, which include
- Equity oriented schemes investing upto 35% of their assets in overseas markets (for instance Parag Parikh Flexi Cap Fund)
- Offshore funds investing majority of their assets in global equities (Say, Aditya Birla Sun Life International Equity Fund)
- Fund of Funds (FoF) schemes investing in master schemes (For instance PGIM India Global Equity Opportunities Fund investing in PGIM Jennison Global Equity Opportunities Fund)
- Or an index fund investing in a specified global equity index (take an example of Mirae Asset NYSE FANG+ ETF Fund of Fund
How should you select an international fund?
You may select an offshore fund depending on its suitability in your portfolio. Suppose, you want to capture global growth opportunities in a specific sector or a theme—technology for instance—you might choose a fund accordingly.
Conversely, if you are looking to capitalize on growth opportunities across sectors and continents, your choice will differ. In such cases you may either select an offshore fund investing in a diversified portfolio of global equities, or pick a fund of funds scheme ploughing in the specified master offshore scheme.
What do industry experts say about global investing?
We recently touched base with Alok Agarwal, Director and Senior Fund Manager-Equity at PGIM India Mutual Fund and Siddharth Srivastava, Head ETF Products, Mirae Asset Global Investments, to understand their perspectives on global opportunities that Indian investors can take advantage of.
According to Alok, only about 20% of companies listed globally clock more than 15% revenue growth on an average over a block of 5 years. As a result, high growth companies have been enjoying the limelight.
Alok believed growth companies in select themes, such as on-demand consumption, enterprise technologies, digital payments, health-tech and therapies amongst others offer exciting growth opportunities.
Siddharth, on the other hand, brought our attention to a focused theme—technology and innovation. According to Siddharth, global growth trends in technology and innovation are structural in nature and would have a much bigger impact on the global economy, businesses and societies in the years to come.
Since investing in international funds involves currency risk, we asked Alok and Siddharth how they expect the Indian Rupee to perform. They expect the dollar dominance in the global economy to continue even in future. Moreover, Alok and Siddharth opined that the inflationary pressure witnessed in the US and in other major economies appears more transient in nature.
It’s noteworthy that offshore funds, unless they are investing 65% of their assets in Indian markets, are treated at par with debt funds and thus enjoy the indexation benefit.
How much should you invest in offshore funds?
It depends on your personal preferences and financial circumstances. However, as a rule of thumb you may invest 5%-10% of your equity portfolio in offshore funds.
In a nutshell
Diversification doesn’t just mean investing across asset classes but also across geographies and fund management styles. Given that the world isn’t going to be the same on the other side of the pandemic, your portfolio too should be finetuned to reflect the potential changes.
Note: If you have any query pertaining to international funds please write to us firstname.lastname@example.org. Our representatives will contact you.
You may also like to read: What’s in store for biscuit manufacturers post pandemic?
None of the mutual fund schemes, if any, discussed in this note are recommendations to buy, hold or redeem. So is the case with sectors that might have been referred to. Views expressed herein overtly or even otherwise are solely those of the guest and under no circumstances should be construed as those of Ventura Securities. The only purpose of this coverage is to create awareness amongst investors. Moreover, assumptions made by the guest are incidental to offering view and are entirely his. Ventura Securities has no view on any of the potential conclusions that could be drawn therefrom. That said, the note isn’t verbatim.
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We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.