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Global equity markets are at an intriguing juncture. Wall Street hovers near record highs, even as persistent geopolitical concerns loom. In parallel, China is implementing another round of stimulus aimed at boosting consumption and easing stress in its property market.
Amid these developments, there is growing interest among Indian investors in exploring global markets. The discussion goes beyond merely timing the markets—it delves into a fundamental question:
Should Indian investors consider diversifying beyond domestic stocks? Why is global exposure important? What factors should be evaluated, and which pitfalls must be avoided?
To explore these questions, CNBC-TV18 engaged with Dinesh Balachandran, Head of Equity at SBI Mutual Fund, and Nasser Salim, Managing Partner at Flexi Capital.
Below are excerpts of the discussion.
Q: So it's an interesting subject at hand because what happens is information can be very empowering. So now most of us retail investors are very well aware of why NVIDIA is, you know, rising or which is the latest chip that Google is trying to invent or what's happening in China for that matter. But the question is that, at a deeper level, should we be looking at equity investment beyond India? Your first thoughts?
Balachandran: In my opinion, when I think about the advantages and disadvantages of investing in global markets, a couple of factors immediately come to my mind. One, when I think about the Indian market, it is well diversified. You have good companies across sectors. From that perspective, we are actually in a lucky spot.
But when I think about one area that is potentially missing in India, it is essentially good technology product companies. We have very few of them, definitely not in scale. And so that is one area where if I'm thinking about the future, technology is an integral component of it. And when I think about the good technology product companies, they are all based out of India and so right there, there is a reason to sort of think about investing outside India as opposed to just thinking about Indian companies.
The second aspect is when you think about valuations, there is definitely a big valuation differential between Indian companies and most of the global companies out there. In fact, there are many cases where you have the MNC parent of an Indian company that is effectively trading at close to free valuation or very throwaway valuation that essentially tells you something about the valuation differential in India versus outside India. So that also makes a case for at least investing part of your money outside India.
Q: There's information and there's noise. And there's plenty of both in the market today thanks to the availability of digital inputs. So what do you say when investors come and tell you that, I want to own Apple and I bought NVIDIA at a certain price and now I've made like 100% return this year? How do you navigate this question of buying global stocks?
Salim: I think we need to kind of understand what the main reason is for investing in terms of other currencies and more importantly, in other markets. I think the main point is diversification in this case. When you look at international assets, we need to look at something called the hedge against the rupee depreciation, which is available for a lot of Indian investors and for several reasons. Historically, for example,the Indian rupee has depreciated against in specific example, the US dollar due to inflation differentials, trade deficits and global economic factors. So when we are looking at portfolios, we need to see how do you kind of ensure that you have a hedge against your original currency.
Second is diversification in terms of better price-to-earnings bands and multiples that you do get with certain innovative markets and companies. So it does reduce dependency on Indian markets and mitigates country-specific risks.
The other thing, of course, is what different ideas you can capture as far as market opportunities are concerned because it's access to global growth. So can you participate in something that in other economies relates to technology and financial advancements, which offer better growth opportunities unavailable in the Indian market context and sectors such as, for example, technology, biotechnology and clean energy are some of the other companies that have dominated beyond the FANG list of companies.
And my last very important point is portfolio stability. There are many currency denominated assets which can stabilise portfolio during periods of high volatility in the current Indian markets for example or because of geopolitical uncertainty. So I think some of these are important factors that you need to considered when you're looking at the international opportunity.
Watch the video for more
