Investors are looking for international investment opportunities as Indian equity markets struggle with high valuations. This is especially true of the United States.
The recent performance of Wall Street, especially in technology, makes US equity mutual fund a good diversification option.
Financial planners, according to The Economic Times report, recommend that investors allocate between 5-10% their portfolios of equity to US markets. They also suggest spreading out investments over the coming year in order to reduce the risk from the steep rise in valuations.
Indian and US equity: A valuation comparison
The S&P 500 currently trades with a PE ratio of 25,41. This is slightly less than the Nifty 500, which has a ratio of 26.5.
Vishal Dhawan of Plan Ahead Wealth Advisors notes the following in his report.
The valuations for Indian and US stocks are comparable at the index level. Many US companies will likely show strong growth.
Dhawan recommends systematic investment plans in Franklin US Opportunities Fund, for people with higher tolerances to risk.
Some equity mutual funds, both diversified and sectorsal, allow up to 35 percent of their assets to be allocated to foreign stocks.
PPFAS Flexicap Fund, for example, has a mandate that requires it to invest in international companies.
The combined Indian and US market exposes investors to 30 percent of the global GDP
Indian investors find the US attractive because it accounts for about 25% of global GDP and has unique companies in emerging industries.
Motilal Oswal Mutual Fund notes that investing in both the US and Indian market provides access to 30 percent of global GDP.
The low correlation of US markets with Indian ones helps to reduce volatility in portfolios, increasing risk-adjusted return.
The S&P 500 has risen 37% in the last year, surpassing the Nifty 500, which grew by 25.29%.
Vineet Nada, the founder of SIFT Capital, said that the US market has been booming, with technology stocks leading the way. However, the future isn’t going to be dominated by one side.
Nanda thinks investors can stagger their investments, and buy when the market dips.
Wealth managers warn against excessive allocation to the US.
Feroze Azez, vice CEO of Anand Rathi Wealth warns: “The US Market faces geopolitical risk, inflation pressures and Federal Reserve Policy Uncertainties.”
Investors are advised to maintain a solid domestic equity portfolio while considering small allocations in US stocks.
US Equity Investments are limited by Regulation
Distributors say that despite the attractiveness of US equity investment, Indian investors have limited choices.
The Reserve Bank of India has a limit of $7 billion on mutual funds, and another $1 billion in exchange traded funds (ETFs).
The funds that are available to invest in mid- and smaller-cap US companies or other sectors than technology will be restricted.
Due to these limitations, many fund houses stopped making new investments.
If you want to invest in the US, there are several options. These include ETFs that focus on large companies or Nasdaq100, which is heavily weighted toward technology.
International funds also enjoy favorable tax treatment. A long-term capital gain tax of 12,5% is applied after two years.
You may be an Indian looking to participate in the Wall Street rally. This post may change as the updates are made.
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