Investing in US markets to diversify as a concept is spreading fast and experts feel that the trend is likely to grow stronger in the near future.
More than Rs 6,000 crore of investors’ money is riding in the US markets according to data collated by Morningstar India. The preferred choice of Indian investors are not the FAANG stocks but FAAMNG.
“FAANG” is an acronym that refers to the stocks of five prominent American technology companies: Facebook, Amazon, Apple, Netflix, and Alphabet (GOOG) (formerly known as Google). Investors have now started adding Microsoft, as well as Tesla and Zoom, to their portfolio.
Most prominent technology companies, especially in the US, have witnessed a tremendous recovery after the sharp crash in March. Valuations of companies such as Zoom have skyrocketed as remote working became the norm in the times of COVID-19. Microsoft's Microsoft Teams has witnessed a similar upsurge in usage as most schools and organisation have recently started using its services to organise meetings as well as impart knowledge.
“Over the last few years technology companies have been performing phenomenally well and there is very limited exposure available for that sector in India and if we all believe that technology is the future,” Viram Shah, CEO, and Co-Founder, Vested Finance told Moneycontrol.
“In terms of top stocks definitely FAANG has been dominating. There is another acronym called FAAMNG which includes Mircosoft as well so those are the most popular on our platform as well along with Tesla and Zoom,” he said.
There has been a sharp increase in the number of Indian investors investing in the US market. The main reasons for Indian approaching US markets include factors like - (1) Diversification (2) Access to fast-growing tech companies (3) Indians are now customers of global brands like FB, Starbucks etc. - now they want to invest in these companies.
“A lot more Indians are spending a lot more money in US (globally) for Travel, Education, etc. We see these Indians building portfolios towards achieving these goals. In the last 10 months over 10,000 customers have started investing on such platforms - with a cumulative investment amount of over US$30 million,” Ankit Agarwal, Managing Director at Alankit Ltd told Moneycontrol.
“FAANG has been the favourite. In addition, there is a lot of interest in (1) Stocks - Tesla, Microsoft (2) ETFs - Index ETFs like QQQ, SPY, and DIA (3) Gold & Oil ETFs,” he said.
In the last 10 years or so, the developed markets (especially the US) has outperformed emerging markets (including India) by a wide margin, and this could be one of the reasons why investors are flocking towards US markets.
A rally in the US market has been driven by a handful of leading tech stocks and consequently, it is not surprising that most asset managers have reasonably high exposure to them, suggest experts.
“FAANG stocks have led the recovery in the US market specifically. Our dependence on technology has gone up a lot during the COVID crisis. Apart from the FAANG stocks - a faster than expected recovery in the US market is currently being priced in the stock market,” Pratik Oswal, Head of Passive fund Business, Motilal Oswal Asset Management Company told Moneycontrol.
Which is a better medium of investing – MF or direct equity?
Investing in US markets is easy. Investors have two options to invest in US markets. One is the mutual fund route, which is more straightforward and is the same as buying any other mutual fund. The other way is by remitting money abroad via the LRS (Liberalised Remittance Scheme).
In terms of investing many options are available for investors. They could look at Mutual funds, or via direct equity, but the choice really depends on end investor`s goal, suggest experts.
“Mutual funds are simple, and index funds are even simpler. Lack of under-performance in index funds makes it easier for investors to hold on for long periods. The S&P500 index has lasted close to half a century and is now the most popular globally,” says Oswal of Motilal Oswal AMC.
According to Shah of Vested Finance, if somebody is looking to invest a smaller amount of money and just dip their toes into international investing then definitely a mutual fund or an ETF is a better option.
“However, the downside is that you don’t get the flexibility to buy some of the companies or brands that you might want to buy, for example, you want to invest more in Zoom or you want to invest in certain healthcare companies so then direct equity investment is a preferred option where it gives you the flexibility,” he said.
Agarwal of Alankit Ltd recommends direct equity and ETFs which carry the benefit of providing the customer with more choice, lower costs, and higher liquidity than MFs.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.