Trading in US Stocks From India
Even with global sales exposure, a strong home bias may prevent investors from diversifying across sectors, jeopardising financial goals when new economic cycles alter long-term trends. Moreover, most investors are probably less diverse than they believe. For one reason, investing in firms with foreign sales exposure is not the same as investing in overseas stocks.
Furthermore, many big nations (such as the United States) behave like a single sector of the stock market, leaving investors with a strong home bias and perhaps a lack of diversification. Finally, the commencement of a new economic cycle with growing inflation expectations may herald a shift toward overseas stock market outperformance in the coming years.
Why the US?
No other financial market is as enormous, accessible, transparent, and liquid as the United States. This market provides overseas investors with a one-of-a-kind investment opportunity because of its transaction volume, market size and several listed corporations.
- Volatility: In the long term, trading in US stocks from India is seen as more stable than investing in Indian stock markets. It also helps to reduce the risk of turbulent markets since the risk is dispersed over a broader range of sectors and depends on numerous countries’ economic fundamentals. In addition, the US dollar is one of the world’s most robust and stable currencies, with slight fluctuation in value, as shown by its ability to withstand a large Coronavirus outbreak. Over the last several decades, the Indian rupee has only deteriorated versus the US dollar.
- Taxation: Indians who participate in the US stock market are often concerned about the tax restrictions that apply to them. If an Indian citizen holds equities in the US stock markets, they are subject to just a 25% tax under US law, which is less than many other foreign investors must pay. This is owing to an agreement between India and the United States of America on taxation.
- S&P 500 Index: The S&P 500 index is based on the market capitalisation of these NASDAQ and NYSE-listed firms. The top ten firms on this list, which include Amazon, Tesla, Meta (Facebook), Alphabet (Google), Apple, Hathway, JP Morgan Chase, and others, have consistently outperformed their peers and account for 27.5% of the total market value.
- Global Impact: Companies from around the globe are listed on the NASDAQ and NYSE, making the US stock markets genuinely global. As a result, you may also invest in firms from China, Japan, Germany, and other countries. The US stock market provides unique access to the international market, and its global reach is unrivalled. As a result, since your portfolio is dispersed throughout a vast number of firms, it aids in maintaining a broad portfolio and decreasing risk.
- Diversification: Investing and trading in US stocks from India also helps you diversify your portfolio across industries since the market provides several routes for investing in top industries such as technology, finance, automobiles, and gold. Investing a portion of your assets in such markets allows you to be independent of the Indian stock markets and economy.
What is the US Stock Market?
Understanding the US stock market is the first step in learning how to trade in the US market from India. A stock exchange controls and manages the stock market. Two of the world’s major stock exchanges, the New York Stock Exchange and the NASDAQ Stock Exchange, govern the US stock market. They assist in the purchasing and selling of shares of publicly traded firms such as McDonald’s, Amazon, Wal-Mart, Nike and others.
The entire value of the US stock market swings daily based on how much buying and selling occurs. According to Intercontinental Exchange, which purchased the New York Stock Exchange in 2013, the entire value of the US stock market on the New York Stock Exchange on September 30, 2022, was more than $46 trillion. This was determined by analysing data from the US stock exchange’s hundreds of listed firms.
What is the US Stock Market Index?
Another critical concept to know if you want to understand how to trade on the US stock market is the ‘index.’ Because the US stock market has a diverse range of firms from various industries, the exchanges developed a number of US stock market indexes to assist fund managers, economists, traders, journalists and investors in measuring a stock market segment. For example, the three most significant and most-recognized US stock market indexes in the US stock market are as follows, and each has a distinct speciality.
- The NASDAQ 100 Stock Market Index gauges the value of the top 101 publicly traded businesses on the NASDAQ Stock Exchange. While this index covers corporations from various sectors, it does not include financial industry companies such as commercial or investment banks. The index is often regarded as the most accurate measure of the US technology industry.
- The S&P 500 Stock Market Index gauges the value of the biggest 500 businesses listed on the New York Stock Exchange and is regarded as the ideal representation of the total US stock market.
- The Dow Jones 30 Stock Market Index: It was created in 1896 to measure the performance of the US stock market when individual company information was restricted. The index’s 30 equities are intended to represent the leading industries that benefit the American economy.
Can Indians Trade In The US Market?
Yes, Indian investors can invest in the US stock market. If they want to diversify outside Indian equities and financial instruments beyond the Nifty or Sensex, they may invest in the Dow Jones, S&P 500 or NASDAQ index. Indian investors may invest in ETFs or US equities via the RBI’s Liberalised Remittance Scheme (LRS).
What are the Timings?
If you wish to invest in the US stock market from India (GMT +5:30), the US stock market will be open from 7:00 p.m. until 1.30 am.
What Affects US Stock Market Prices?
Several variables influence the values of US equities on US stock exchanges, including:
- The Economy: Stock markets in the United States typically rise during economic expansion since this environment usually equals more employment, consumer spending, and business profitability. When firms start to produce greater profits, investors prefer to buy more of their stock, which helps to drive up the whole stock market. For example, less spending may affect firm profitability if unemployment grows and retail sales decline. This may drive some investors to abandon certain assets and reallocate their capital elsewhere, influencing the general direction of the stock market.
- Politics: A critical consideration for newcomers studying the US stock market is the influence of politics on markets. Some traders refer to market-moving news as US stock market news. Politics may significantly influence trading on the US stock market and how you could invest in the US stock market since the US government sets tax laws and controls general expenditure and immigration. In addition, politics impact the stock market in the United States during election season, when presidential candidates sell their plans to large corporations and consumers.
During these times, major stock market news is made public, impacting how individuals trade on the US stock exchange. Politics also influence government policies and central bank choices on interest rate policy, which may significantly affect business firms. This is because they are connected to borrowing costs, which may influence business profit margins.
How Has The US Market Performed Over The Last 25 Years?
How To Trade in the US Market From India?
You may start with various approaches if you’re wondering how to begin trading in US stocks from India. You may pick one of them directly or combine many of them. When concluding, keep geography in mind.
- Direct Investment: Direct investments in US stock markets are possible via digital platforms such as Stockal, one of the best apps for the US stock market. Most Indian brokerages now provide access to the major international markets so that you might also test them. You may also create an account with an international broker who assists Indian traders.
- Participate In index funds Or ETFs: One indirect way to invest in the US stock market is via exchange-traded funds, or ETFs, which invest in foreign funds. An index fund is a kind of ETF that has a portfolio designed to imitate or follow the components of a financial market index, such as the S&P 500. These funds continue to invest in their benchmark index regardless of market circumstances.
Invest in Foreign Securities: “International funds” are equity funds owned and managed by foreign specialists to invest in assets in their home nations. Although certain restrictions are imposed by the RBI, this may be an extra opportunity to access global markets while receiving expert support.