More than 7,000 companies are listed across numerous stock exchanges (List) in India and most of them have been delivering enormous returns to the investors. The best part is, some of the stocks are still undervalued and didn’t participate in the bull run and they are likely to deliver better returns by beating our expectations. Bombay Stock Exchange which was established in 1875, is Asia’s first & now the world’s fastest Stock Exchange with a speed of 6 microseconds. Some of the Indian brokers like Upstox are even offering 0 brokerage charges so that retail investors can also trade the stocks with better margins. Few of the stocks even delivered almost 100% returns in FY18.
But, some of the Indian investors are always curious to invest in their favorite companies (irrespective of whether the company is Indian or not or listed in Indian stock exchange or not) because they have been using its products or services and they like it a lot like Apple, Google, Amazon, Microsoft etc.
One of my US base clients asked to me check whether NVIDIA CORP (NASDAQ:NVDA) is bullish on charts or not as he was interested to buy it. Without going deep into analysis I checked the same found this chart with the help of MA and MACD.
It is bullish on charts and on a micro, single-stock level, you should be very encouraged by the prospects for higher returns next year. That’s when I realized that after recent declines of 15% in the Dow Jones and 19% in the Nasdaq from their respective peaks present a great opportunity for investors to accumulate US stocks. There are many so many stocks that have become very attractively valued by the current selloff.
So the question is ‘Why to invest in US stocks and how can it can be done?’
Let’s go step by step:
Why to invest in US stocks?
- Opportunity to invest in a broader market: An investment in US stocks helps you geographically diversify your portfolio and participate in a market that is 40% of the world market capitalization. Once you start to invest in US stocks, there are no boundaries anymore. You can hunt for better (profitable) opportunities in the international markets. Besides the above-mentioned points, few investors believe that foreign companies have better resources, facilities, government cooperation, and standards. That’s why they invest in foreign companies.
- Stability and Diversification: Let’s assume that the Indian equity market starts falling due to some local region. However, investing in foreign stocks can mitigate the risk in your portfolio as the local reason may not have a significant effect on the international markets.
Note: As per the RBI notification in Liberalised Remittance Scheme (LRS)
(See the circular here), an Indian resident individual can only invest up to $250,000 overseas per year. With the current exchange rate of ($1= Rs 68), this amount turns out to be over 1.7 Crores. Anyways, if you have a family of four, you can invest 4 x $250,000 = $ 1 Million. That’s enough money to invest, right? :)
How to invest in US stocks?
There are three ways to invest in US stocks:
- Open an account with Indian Brokers with a tie-up with a foreign broker-
Many full-service Indian brokers (like ICICI direct, HDFC Sec, Kotak Sec, Reliance money etc) has a tie-up with the foreign brokers. They have made it very simple to open your overseas trading account with their partner (foreign) brokers. For example, ICICI Securities and Saxo Bank announce a new partnership on 7 Feb 2017 (see full details here).
2. Open an account with the foreign brokers-
Few international brokerage firms like
- Interactive Brokers,
- TD Ameritrade,
- Charles Schwab International Account
- Tastyworks ( For option traders)
- Thinkorswim (One of my clients has used it for paper trading)
They permit Indian citizens to set up an account and trade in US stocks, mutual funds etc. In fact, brokers like ‘Interactive brokers’ also has an office in India where you can visit, get your queries answered and open your overseas trading account.
3. Buying Indian MF/ETFs with global equities-
There are a number of mutual funds/ETFs who invests in international markets (global market, emerging market etc). You can invest in those mutual funds/ETFs to indirectly invest in foreign equities.
This is the easiest approach to invest in foreign stocks. An advantage of investing through mutual funds is that you won’t need to open any overseas trading account. Further, you won’t also require to invest a hefty amount as investing in mutual funds/ETFs are cheap.
Caution: While investing in international stocks, you’ll be transacting in foreign currencies. For example, if you are trading in the US stock market, you have to pay the brokerages in US dollar. And hence, the stock brokerages may be a little higher compared to the charges in the Indian stock market. Similarly, the annual/monthly maintenance charges may also be higher compared to domestic accounts. Your Profits are subjected to currency exchange rates. Let’s assume that you are investing in the US stock market. When you bought the US stock, the currency exchange rate was $1= Rs 68. However, next year- when you sold the US stock, let say the Indian currency got stronger, and the currency exchange rate becomes $1 = Rs 62. In such a case, you have already lost 8.8% due to change in exchange rate. That’s why when you invest in foreign stocks, profits are always subjected to the currency exchange rate.
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