Considering the current market, Ashutosh Bishnoi, MD & CEO, Mahindra Manulife MF believes “You will have to deal with rich valuations for a long time to come.” Emphasising the need for risk diversification in such a scenario, Ashutosh spoke about investing outside India at Cafemutual Confluence Investment Marathon 2021 (CCIM 21), which he considers as an idea whose time has come.
India is one of the smaller markets in the global context and the largest and most efficient securities markets of the world are elsewhere. Over 50% of the world’s market weight is in the US, followed by Europe and Japan. S&P 500 the US broad market index has given about 60% absolute returns in the last 3 years and individual asset managers have given up to 30-35% CAGR as on August 2021. Similarly, UK FTSE has given a return of over 45% over the last 2 years and Nikkei 225 of Japan has given 80%+ absolute return over the last 4-5 years as on August 2021, which is similar to that of Nifty.
Further, looking into the 5-year and 10-year rolling returns reveals the opposing movements of S&P 500 TRI and Sensex TRI. From a cyclical and counter-cyclical point of view, Ashutosh thus recommends long term investors to have some exposure in the global markets.
From a portfolio perspective, investors dependent on exports and foreign revenues can invest a part of their earnings overseas to hedge against currency risk. Going by the trend of the last 50 years, the Indian rupee depreciates 4-5% annually against US dollars. International investing also makes sense for investors planning to send their children to foreign universities.
Additionally, as gold and US dollars exhibit contrasting trends, investing outside India can provide a hedge in a gold-heavy portfolio.
Talking about the regulatory aspects, Ashutosh shared that under LRS (Liberalized Remittance Scheme), every Indian can annually send US2.50 lakh dollar abroad for investments and other listed reasons. However, this is subject to FEMA related paperwork and requires strong research for making investment decisions. Such complexities can be simplified through the FoFs (Fund of Funds) route. Currently, investors can choose from 37 schemes that invest internationally.
It is also noteworthy to mention real estate as another mode of exploring markets through REITs (Real Estate Investment Trust). While REITs are comparatively new in India, they have delivered a good investor experience and have generated healthy return globally.
To sum up, international investing allows participating in investment returns of the best and largest markets of the world. Countercyclical diversification, asset allocation, hedging currency risk and better investing experience are key benefits of investing outside India. Watch this video to understand each of these in detail.
