This means that you should be aware of burgeoning global opportunities and seek to position your portfolio in such a way that you can both de-risk your portfolio from domestic shocks as well as harness the value of global investment opportunities
Over the last three decades, India has leapfrogged the average growth curve and cemented its position as an economic powerhouse.
Inevitably, this growth has engendered myriad opportunities for both Indian entrepreneurs and investors to invest and flourish.
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However, investing cannot be done with blinkers on. This means that you should be aware of burgeoning global opportunities and seek to position your portfolio in such a way that you can both de-risk your portfolio from domestic shocks as well as harness the value of global investment opportunities.
We spoke to Yogesh Kalwani – Head of Investment and Family Office, InCred Wealth global investment opportunities to retail investors:
1) A compelling argument:
When it comes to making optimal decisions for your investment portfolio, it is imperative that you assess all opportunities through an impartial lens.
Inarguably, global investments can give your investment portfolio an edge and here are the top reasons for the same.
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2) Opportunities to generate alpha:
Only 3 Indian companies make it to the list of the top 500 global companies by market capitalisation with a similar representation in the MSCI World Index.
In terms of nominal GDP, India’s share of global GDP is only 3%. This means that 97% of global opportunities are left untapped by Indian investors.
As a matter of fact, the world’s leading and most profitable companies have a profit pool which is 8x-10x that of Indian majors.
Further, there are several innovative plays of the future, especially in the field of technology and science, that are currently not available in India. The pool of opportunity is evident and there for the taking.
3) Amplify the benefits of diversification:
Every economy is influenced by a host of domestic as well as global factors. The domestic factors are often unique to the economy and thus, create a situation where the growth and development in the economy is uncorrelated to that of other economies.
This low correlation ensures that as long as you are diversified across multiple economies and markets, sharp negative movements in any one market will not have a disproportionately large impact on your investment portfolio.
4) Hedge against rupee depreciation:
Historically, the currencies of emerging economies like India have been weaker compared to those of developed markets like the US and UK. For example, in CY2000 USD 1 million was equivalent to INR 4.36 crore.
Today, USD 1 million is equivalent to INR 7.5 crore. In the coming years, the INR is likely to continue depreciating against major world currencies primarily due to the inflation differential.
The average inflation differential has been 4% since 2012, and even though this has narrowed in recent times due to surplus liquidity in the US, it is likely to revert to mean in the coming years.
Holding dollar-denominated financial assets can help you hedge both your investment portfolio as well as foreign currency liabilities.
Avenues for Offhsore Investing
Since the time the Liberalised Remittance Scheme (LRS) was introduced in 2004, the annual remittances under the scheme have gone up from $72mio to $19bn in FY 20.
However, Indians utilizing LRS for offshore investments (financial or real assets) is low at 4.2% compared to their other spending as a part of total outward remittances under LRS.
For sophisticated high net worth investors, the global investment canvas is huge compared to India. The availability of diverse, leading, and emerging businesses in the listed markets make the proposition of offshore investing very attractive.
From thematic plays in robotics, AI, or clean energy to global high yield bonds and global alternates, the investment opportunities are myriad. It is time that investors spread their wings and explore adding a foreign flavour to their investment portfolios.
