International investments have always been intriguing and exciting to Indian traders who were only exposed to Indian stock market nuances. This was until a few years back though. With diminishing geographical barriers, thanks to technology, awareness about global businesses, economies and politics have increased drastically. If you are looking to add international stocks to your portfolio, here are some basics you need to know.
Why Should Indian Investors Add International Stocks to their Portfolios?
1. INR returns over the last 10 years
When we look at the INR returns of various geographies over the last 10 years, there have been several geographies outperforming the Indian equity market returns while some of the best returns have been from investing in the U.S. markets. 2021 YTD returns on the S&P 500 index has been over 26% which is also higher than the BSE Sensex returns of 21% YTD 2021. So, global exposure helps Indian investors to maximize their portfolio returns with a diverse mix of geographies. A look at the image below will throw light on the INR returns over the last 10 years.
Additionally, Indian equity markets have lower correlation with other equity markets which is likely to lead to diversification and eliminating country risks.
Correlation of Indian Equities vs. other economies
2. Currency appreciation and returns
INR has depreciated against the USD over the last few years and when the Rupee depreciates the value of the foreign assets increases. This is also a reason why adding international stocks to the portfolios have largely benefitted Indian investors. The chart below shows the value of 100 which has changed over the last 10 years due to the depreciating rupee.
3. Adding international stocks gives exposure to trending themes globally
Some of the disruptive themes for 2022 include AI, Cloud, E-commerce & digital life Metaverse etc which will come to the advantage of investors that expose themselves to global stocks. The digital economy landscape illustrated below gives you an idea of the several disruptive themes in the digital space for example.
Ways To Build a Global Portfolio
Increased exposure to global brands has led to an interest in investing in brands that are used every day- Amazon, Facebook, Google and the likes. This trend has influenced even the passive investors to create a portfolio that could give them
- Wider Asset options
- Portfolio Stability
- Geographical diversification and
- exposure to trending themes globally
However, markets like the U.S. can seem relatively precarious and risky to new investors who have not forayed into global markets, nor have the necessary guidance to successfully derive the benefits of a geographically diversified portfolio. Here are some ways in which you can …….