Diversification is a key to spreading out risk in an investment portfolio. In this global economy, diversifying investments across countries is as important and essential as diversifying across asset classes. When India opened up its economy, Indians gained access not only to foreign goods and services but also to their investments. However, investing in the US Stock Market is not the same as investing in the Indian Stock Market. Investing in foreign currency can be intimidating but will help earn good returns. This article covers the differences between the Indian Stock Market and US Stock Market in detail.
Difference Between Indian Stock Market and US Stock Market
The US Stock Market not only lists companies in the US but also various companies across the globe. All the major US Stock Market indices have companies listed from various parts of the world. A countrywide emergency might drag the index down. However, the impact would be very little. On the other hand, in India, Indian companies dominate Indian indices. Even slight unrest in the country can lead to a steep fall in the indices. The US Stock Market is diverse and has the capacity to withstand adverse conditions. However, one cannot say the same in the case of India.
In India, all investments are done in INR. While in the US, the investments are done in USD. The US Dollar is the most popular currency and is de facto global currency, though it doesn’t have an official title. Investments made in the US Dollar will yield a higher return as the rupee has been depreciating against the Dollar for the long term. With appreciation in the Dollar, the investments grow even though the portfolio is unchanged. Hence, investing in terms of Dollar will yield a higher return than investing in Indian Rupee.
The market volatility of many global markets is comparatively lower as opposed to the Indian markets. In other words, in a long term scenario, the market volatility of the US stock market is lower than the Indian stock market. Indian markets have experienced bigger swings. Hence, a good diversification strategy is to invest across the globe. Also, investors who invest globally can expect their portfolio to move differently as opposed to the Indian markets.
The Indian market rules are comparatively more stringent than some global markets. In India, start-ups are thriving, while the US market continues to host most of the major corporations across sectors. As per Indian laws, a company has to earn profits for three consecutive years to go public. Most investors miss the opportunity to invest in these early-stage companies due to these reasons. On the other hand, the regulations and laws are slightly relaxed in the US. This implies that the investors can invest globally and participate in the journey of many innovative models. For example, Facebook, Amazon, Tesla, etc., are some businesses that have proven the strength of the US markets.
Investing in such stocks is a crucial decision for an investor as these may evolve into great opportunities. Hence, the US markets are more promising as it opens the global exposure and allows investors to invest in some of the best companies in the world.
While investing across different geographics requires the skill set to conduct research. The economies of each country differ, and also there are other global factors that influence the markets. Therefore, as an investor, it may be time-consuming and daunting to track different markets. Also, one must keep themselves up to date on various factors that may impact the stock market. When it comes to an understanding and effort, the Indian stock market has an advantage over the US stock market. Because of the extensive study required for the US markets, some investors may opt to forego the larger profit potential of investing in US equities from India.
Geographical diversification is one of the best ways to diversify one’s investment portfolio. And, investing in the US is the most popular option. The US indices have an even distribution across different sectors in comparison to the Indian stock market. Historically, the Dow index has beaten the Sensex over the five year and ten-year horizons. Furthermore, the Indian markets trade at higher multiples and offer low dividend yields in comparison to the US markets. However, both markets have given decent returns in the past and look lucrative for the future as well.
To sum up, both Indian Stock Market and US Stock Market have their own pros and cons. However, in the modern-day investing climate having access to international markets will help boost portfolio returns. The US Stock Market is more diversified and less volatile than the Indian Stock Market. Investors can not only invest in the top companies of the world but also be a part of the growth story of start-ups. While an Indian investor’s portfolio should still be dominated by Indian investments, diversifying a little and including US investments will benefit the investor.