how to invest in foreign stocks from india
September 16 2022 - Team Stockal
An Overview – How To Invest In Foreign Stocks from India?
Global indices such as the NASDAQ Composite and NASDAQ 100 have outperformed the NIFTY by a large margin over the previous five years, with the NIFTY providing 79-80% returns while the NASDAQ Composite and NASDAQ 100 have generated 110% and 134% returns, respectively (Data as of 15th August, 2022).
Another case in point is Australia, which had the highest performing stock market in the world from 1900 to 2009. Australia has had the biggest after-inflation returns per year of any of the world’s 19 main markets during the last century, at 7.5% per year.
With the emergence of numerous applications, including Stockal, that offer to ease formerly onerous procedures of overseas investing, this has enticed many Indian investors to diversify their investment portfolios towards foreign markets.
Though the excitement is understandable, it is vital to consider the advantages and disadvantages of investing in foreign stocks.
Pros of Investing in Foreign Stocks from India
- Thematic Investing: While the Indian startup environment has thrived, the US markets continue to house all big firms that are at the forefront of their industries with innovative offerings. Because Indian rules need three years of continuous profitability before a firm can go public, Indian investors cannot participate in success stories at home.
The tale of many startups is one of postponed profits for market share and growth, thereby shutting out most Indian investors from the chance to demonstrate their faith in innovative business ideas.
However, because of the comparatively startup-friendly rules in the United States, investors from all over the world may join in the travels of many new models – and we’ve seen how this often plays out. Amazon, Uber, Tesla, and Facebook are all products of the US market and its paradigm. Many investors may find it critical for their investment portfolio to change in order to capitalise on these possibilities.
As a result, the US market is a more attractive proposition since it provides for worldwide exposure and allows investors to expand with the world’s largest corporations, such as Amazon, Google and Facebook.
- Better Exposure: Another benefit of investing in foreign stocks is the increased exposure an investor will obtain in terms of accessible securities. Let us go back to the early 2000s to see what possibilities were available to Indian investors in terms of technology-driven securities. Infosys, TCS and Wipro were the only ones.
On the other hand, foreign markets brought the likes of Microsoft, Apple and Google. Certain corporations are sometimes barred from operating in a nation by legal authorities. Investors, on the other hand, have the option of just investing in other nations.
- Currency Benefits: The currency you trade and invest in may have a big impact on your portfolio, both positively and negatively. They are crucial when it comes to investing in foreign stocks.Consider the Indian Rupee, which has consistently lost value versus the US dollar. This is a huge disadvantage since all investments in Indian markets are done in INR, which means they lose value over time.
The dollar has gained 6% versus the rupee so far this year. The American Dollar is one of the most significant benefits of investing in US markets. Even if your portfolio remains static, your assets will rise in value.
- Diversification: When we speak about diversity, we usually mean investing across many sectors and market capitalizations. However, by investing in foreign stocks, we may reap the same advantages of diversity even if the firms in our portfolio are in the same sector or have the same market value.Diversification’s primary goal is to preserve the portfolio. Investing overseas protects the portfolio against domestic risks that might damage the home markets as a whole.
Cons of Investing in Foreign Stocks from India
- Country-Related Risks: When making an investment in a foreign nation, the investor should be mindful of the possible political risk. This necessitates that investors monitor key political events like trade treaties, elections, tax changes, and civil instability. Even if the firm does well, investing in a nation with adverse circumstances is not beneficial.
- Higher Volatility: One of the primary issues investors encounter is the fluctuation of currency rates. International equities are valued in the currency of the country in which they are traded. This creates a concern for an Indian investor since he is now exposed to not just the stock’s unpredictability but also the currency’s uncertainty.
- Higher Compliance And Transaction Costs: An individual’s earnings from international assets may be taxed twice. When the shares are first sold in a foreign nation. And then there’s India. However, this depends on whether the person is a resident or has another status.
The appropriate rates will be determined by whether the profits are deemed long-term capital gains or short-term capital gains based on the length of time the asset was kept. This is referred to as double taxation.
This may be avoided if the other nation and India have a tax agreement. The Double Tax Avoidance Agreement is the name given to this tax agreement. India now has DTAA agreements with over 80 countries, including the United Kingdom, the United States, Greece, France, Canada, Brazil, Israel, Germany, Mauritius, Italy, Spain, Thailand, Russia, Malaysia, Bangladesh, China and Australia.
- Research And Efforts: It is true that being involved in two markets requires attention and study for two economies and several other global issues that impact both markets. This might be a time-consuming and challenging undertaking for the typical investor.
Some may perceive decreasing returns in this exercise and be prepared to forsake the possibility of larger revenues in exchange for less work.
This fear may be alleviated by investing in foreign stocks using ETFs, which reduce risk through diversification. However, for the typical investor, Indian markets maintain a little advantage in this regard.
Cost-Benefit Analysis For Investment In Foreign Stocks
While performing a cost-benefit analysis, an investor must determine his risk tolerance and diversification requirements. Younger investors may try to invest more in growth equities in US markets, while investors with a limited appetite may go to ETFs. If you are ready to go on the road of overseas investment, here is how to get started.
How To Invest In Foreign Stocks From India
New-age apps have significantly simplified investing in foreign stocks from India. The expensive wire transfer, which incurred costs such as transfer charges and forex, has been supplanted by much cheaper “direct transfers.”.
Aside from that, some brokers are experimenting with zero commission and unlimited investing. Platforms like Stockal are attempting to reduce costs, including withdrawal fees, to reduce the total cost of investing in foreign stocks for Indian investors.
If you are ready to take the first step, establish an account with Stockal, which provides a SIMPLE, SMART and SECURE investing and trading platform. Stockal is one of the best apps to invest in foreign stocks from India and provides SIPC protection of up to $5,000,000.
Choose an intelligent friend to accompany you on your quest to invest in foreign stocks from India. Visit Stockal for further information on investing in India’s foreign stocks. Trying to invest in foreign markets can sometimes appear very complicated.
However, with the assistance and practice of a reputable platform such as Stockal, you can easily master your foreign investing skills from anywhere in India. You can also keep up with global investing by listening to analyst discussions, articles, and case studies.
Wrapping Up: How to invest in foreign stocks from India?
True, both the Indian and foreign stocks have benefits. However, in a contemporary investment environment with access to the global market, it’s clear to understand how foreign markets offer greater potential. This is owing in part to their worldwide affinity and character, as well as the fact that they house some of the world’s most promising enterprises.
While the Indian market should undoubtedly remain a big component of an investor’s portfolio, there is no doubt that the foreign market offers a compelling argument for a presence in the portfolio of a domestic investor.