Balancing Local and Global: How Diverse Should Your Profile Be?
At the end of May this year, India’s market capitalisation stood at $3.3 trillion (₹272 trillion. This has led to a reclamation of India's status as the world’s fifth largest stock market after having lost this spot to France in January.
It’s not surprising that foreign investors have since added $5.7 billion (₹469 billion) worth of Indian stocks after the country showed one of the highest GDP growth rates among the world’s largest economies.
With a stable earnings outlook from the local market, Indian stock market investors must carefully consider where to invest. That’s because the Indian stock market offers significant opportunities, but diversifying into foreign markets can nonetheless provide added advantages.
This article aims to help Indian investors understand the benefits of both local and global investing and how to strike the right balance.
Advantages of investing in local Indian stocks
Investing in local Indian stocks allows investors to leverage their familiarity with the domestic market, economic conditions, and regulatory framework. The Indian economy is among the top-performing economies of the world with a wide range of raw materials and a growing labour force. Investors who believe in the long-term growth prospects of India can benefit from the stability and growth potential of local stocks.
Furthermore, the Indian stock market encompasses a wide range of sectors, from information technology and pharmaceuticals to banking and energy. In the first week of June, all 13 major sectoral indexes of Indian stocks logged gains wherein high-weightage financials and information technology rose 0.30% and 0.78%, respectively. Investors can capitalise on these booming sectors by targeting specific indexes such as the Nifty 50 or sectoral indices like the Nifty IT Index or Nifty Pharma Index.
For instance, companies like Infosys and Sun Pharmaceutical Industries have a strong presence in their respective sectors, making them attractive investments.
Advantages of investing in global stocks
Meanwhile, investing in foreign stocks allows Indian investors to diversify their portfolios geographically. Global markets provide access to companies from various sectors and regions, enabling investors to benefit from different economic cycles and growth opportunities — thereby lowering risk.
At the same time, investing in global stocks allows investors to tap into the growth potential of emerging markets. Countries such as China, Brazil, and South Korea have experienced rapid economic growth in recent decades, and their stock markets have delivered attractive returns.
These changes can be tracked daily on stocks trading charts that show the performances of multinational companies, such as Google, Amazon, Tesla, Alibaba and Intel.
These companies are compared by their average spread to help you place informed pending orders, and investors can explore the S&P 500 or the MSCI World Index to gain exposure to these markets.
Striking the right balance
To strike the right balance, investors can consider a diversified asset allocation strategy. This involves allocating a portion of their portfolio to both local and global stocks based on their risk tolerance, investment goals, and market conditions.
Research from the Economic Times suggests that a 10 to 20-year portfolio that’s composed of 80% Indian equity and 20% developed-market equity can provide returns ranging from 94% to 108%. Meanwhile, the volatility can range from 88% to 89% of Indian markets.
Otherwise, consider Exchange-Traded Funds (ETFs) that provide diversified exposure to different countries or regions. For instance, you can invest in the Nifty 50 ETF in India for exposure to the top 50 companies in the country while also allocating funds to international ETFs like the Vanguard Total Stock Market ETF or the iShares MSCI World ETF for global diversification.
Important Tags:
growth prospects of india, globle investing, indian stock market, exchange traded funds, indias market capitalisation
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