Nvidia stocks continue to rock markets. Have Indian investors benefited?

Nvidia has been the preferred stock among international mutual funds

Nvidia, US-based chipmaker, continues its super run on the American stock markets. On May 28, its market capitalization reached $2.8 trillion. In February 2024, Nvidia became the first semiconductor firm to hit $2 trillion in market capitalisation. Its present market capitalisation now compares to Apple’s $2.9 trillion, which is Wall Street's second-most valuable company after Microsoft. Nvidia controls 95 percent of AI chipset market in US.

Nvidia’s strong quarterly earnings reports drove its stock price to the record level. The stock has almost tripled over the last one year, boosted the American stock exchanges.

The question is: Have Indian investors benefitted?

Yes, they have, if they had invested in the stock, either directly or through fund of funds. However, there have been missed opportunities due to the regulator’s restriction on the overseas exposure limit by the mutual funds. Indian mutual funds have had a collective investment of about Rs 1,951 crore in the stock as of April 2024, as per the report by Fisdom Research.

The biggest beneficiaries of AI boom

Nvidia has become a one-stop solution for companies looking to build artificial intelligence (AI) programs. According to fool.com, the tech giant offers customers the basic element, the chip, and software to power the most crucial of AI tasks.

The company has reported record earnings over the last few quarters. In its first-quarter fiscal 2025 results announced on May 23, Nvidia has reported a year-on-year growth of 262 percent and 628 percent in its revenue and net income, respectively. Nvidia has been one of the biggest beneficiaries of the AI boom reported a five-fold jump in revenue at its data center segment.

Domestic mutual funds having exposure to Nvidia benefited from the rally of Nvidia’s stock. As per a report by Fisdom Research, Indian mutual funds had invested Rs 1,951 crore in the company as of April 30, 2024. There are 15 fund houses have invested in the company either through their international schemes or domestic schemes. Motilal Oswal MF, Franklin Templeton MF and Mirae MF hold the largest exposure of Rs 463 crore, Rs 284 crore and Rs 217 crore respectively.

Within the domestic schemes that are having higher exposure to Nvidia, Mirae Asset NYSE FANG+ETF FoF, Motilal Oswal Nasdaq 100 FOF and Franklin India Feeder - Franklin U.S. Opportunities Fund have delivered a compounded annualised return of 69 percent, 35 percent and 35 percent respectively over the last one year.

International funds provide geographical diversification

The popularity of international mutual funds among Indian investors has increased significantly over the last few years. Superior returns from US indices, a weak rupee vis-à-vis the dollar and the newer investment opportunities in overseas markets made domestic investors choose international funds. The assets under management (AUM) of international funds had gone multi-fold in the period between 2019-2021, till the regulator imposed restriction on accepting the fresh inflows of the international funds on February 2022.

The restriction was to avoid a breach of industry-wide overseas limits imposed by the RBI ($7 billion for mutual funds to invest in overseas securities and funds and a separate limit of $1 billion for investing in overseas exchange-traded funds). It has been more than two years that the RBI hasn’t increased this limit.

Also read: Mutual funds call for easing RBI's limit on overseas investments amid growing opportunities

However, the fund houses were allowed to accept the fresh inflows into international funds intermittently when there was a headroom for the deployment of funds within the overall $7 billion limit. Currently, the total allocation to overseas equities by the domestic mutual funds was Rs 69,402 crore as of April 30, 2024.

Also see: Looking to invest in overseas MFs? Find out which funds are open, which are not

Meanwhile the MF industry awaits the Reserve Bank of India’s decision to enhance limits that’ll allow domestic funds to invest incremental money abroad. Many funds are keen to get a slice of new and emerging themes that are not available in India such as artificial intelligence, emerging technologies, semiconductors, electric vehicles, and so on. A prolonged restriction on accepting fresh lumpsum in these funds may end up Indian investors losing such opportunities.

See here: How restricting fresh lumpsums in international mutual funds impacts investors