Time to go global as Indian market accounts for just 3% of global market cap: Viraj Nanda of Globalise

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© Reuters Time to go global as Indian market accounts for just 3% of global market cap: Viraj Nanda of Globalise

In the aftermath of the global pandemic, with economic recovery and vaccination efforts in full swing, 2021 is shaping up to be a remarkable time for Indian investors.

With the economy set to register double-digit growth along the expected V-shaped recovery trajectory, individual investors themselves are likely to have more cash on hand, as businesses reopen and jobs return. Dealing with the COVID and lockdown situations resulted in a cash crunch for many professionals last year.

But, with restrictions imposed across the country, spending slowed, and Indians ended up saving an additional $200 billion during this period, according to a UBS report. This year, with recovery underway, Indian investors will be looking to generate returns on their savings and further grow their assets.

Looking at the big picture, what does this year look like, and what are the key trends Indian investors can capitalise on? Let’s take a look.

The key trends for 2021

At Globalise, we have identified four key international trends that Indian investors need to be aware of:

– The global move towards economic recovery and market-wide optimism has spiked inflation expectations and resulted in the edging up of Treasury yields in the US.

– Increased investor enthusiasm in next-generation paradigm-shifting solutions, like FinTech, meat substitutes, artificial intelligence, and clean energy.

– The rise of alternative investment instruments like NFTs (non-fungible tokens) and crypto-assets.

– Increased focus on guided investing and curated portfolios by experts

The worldwide recovery

In FY2021, the global economy is expected to grow by four percent, a complete reversal from the situation last year. Government policies like the US government’s $1.9 trillion stimulus plan and the EU’s COVID recovery fund are oriented towards getting businesses back on their feet and operational. Moreover, restrictive lockdowns are no longer in place across much of the world.

Overall, this creates an environment conducive to growth and it shows in market trajectories. Goldman Sachs predicts that the S&P 500 could be up by as much as 17 percent by end of the year. Wells Fargo estimates that US corporate earnings will be up 30 percent by end of the fiscal.

US is not the only bullish market. In 2020, China was the only major economy to register positive growth. With an early lockdown and several months’ lead in containing COVID, the country registered higher growth than before COVID, so much so that it’s now projected to become the world’s largest economy as early as 2025.

These numbers are significantly higher than the baseline across the board. They are indicative of investor optimism that businesses will get back on track sooner rather than later.

Indian investors have an opportunity here to diversify and grow their assets by tapping into the growth in these markets, alongside their domestic investments.

Rising interest in paradigm-shifting technologies

The worldwide economic recovery and revival in fortunes of the global stock markets have also coincided with an interest in various alternate investment themes. Crypto assets, with the spectacular performance of Bitcoin have captured the imagination of investors.

While there continues to be regulatory uncertainty surrounding investment in crypto assets, the high returns have contributed to investors searching for other alternate investment opportunities.

The evolution of SPACs in the US markets is another trend that is being keenly watched by Indian investors. With an increasing number of companies choosing the SPAC route to public markets given the various benefits for a corporate, investors are increasingly looking towards these vehicles as investment opportunities.

Investing in SPACs opens up another dimension altogether for investors in terms of portfolio dynamics, by providing exposure to companies that otherwise may have been difficult to get exposure to, especially at the early stages. We have seen a fair bit of interest in SPACs from investors on Globalise as well, with the most popular SPACs being

1. Switchback Energy Acquisition Corp: This SPAC has completed its merger with Chargepoint, an electric vehicle (“EV”) charging network.

2. Foley Trasimene Acquisition Corp II: On 7 December 2020, this SPAC announced its merger with Paysafe, a leading global payments provider focused on digital commerce and IGaming.

3. Churchill Capital Corp IV: This SPAC filed a report with the SEC on 22 February 2021, announcing a merger agreement with Lucid Motors, a manufacturer of luxury electric vehicles.

The trend has gained so much interest that even the domestic regulator (SEBI) is exploring the viability of allowing such structures to operate in the domestic market.

One of the most interesting indicators of overall global recovery is renewed interest in paradigm-shifting next-gen technologies like FinTech, meat substitutes, artificial intelligence and clean energy.

We notice that there is strong interest beyond the universally known FAANG-T type of names that have a strong recall value into more niche, newer and exciting companies that are innovating across a number of emerging themes.

Companies like Lemonade (FinTech focused on insurance) and Beyond Meat (plant-based meat producer) are among the most traded stocks on our platform. Further, investors are exploring thematic ideas beyond the broad largecap technology theme that has been of interest over the last year via the ETF route.

Renaissance IPO ETF (IPO), which invests in newly listed companies, ARK Innovation ETF(ARKK), which invests in companies focused on “disruptive innovation” and Global X Lithium & Battery Tech ETF (LIT) are three ETFs that are attracting the most interest on Globalise.

Increased focus on guided investing

What this shifting interest has further thrown up as a distinct trend is the need for guided investing. Exciting and futuristic as they may be, these are spaces of the market that investors may not have much familiarity with.

Guided investing service could manifest itself in various forms – from a simplistic version of providing data and information to help decision making to a more extended form in the shape of model portfolios.

Indian investors can take the benefit of curated baskets of stocks and ETFs that are built for specific goals and themes. This way, they can simplify their global investment decisions by selecting a readymade portfolio suited to their investment philosophy and risk profile.

Guided investing avenues like Globes are likely to become more popular in the coming year with investors choosing these options to build a diversified global portfolio.

What does this all mean for Indian investors?

The current trends in the global market have a tangible impact on the kind of decisions Indian investors should be taking.

For starters, the trends we’ve looked at underline the immense opportunities to be had when investing globally. With a number of emerging themes that the future will be built on available as investments, Indian investors have the opportunity to generate tangible returns through smart international investments in 2021.

But what exactly would an international investment portfolio look like? If Indian investors were to weigh their investments in terms of national shares of market cap, that would translate to focusing 60 percent of their portfolio in the US, alongside a greater emphasis on EU and Chinese stocks.

The Indian stock market accounts for just 3 percent of the global market cap, a strong indicator of why it makes sense to globalise one’s investments.

In practice, though, the most sustainable approach for Indian investors is to gradually increase their exposure to the international markets from around 10 percent to begin with to 25-40 percent in the medium term.

Investors with savings goals related, for example, to sending their child for education overseas could naturally be weighted to a higher overseas portfolio. Besides the benefit of diversification, this would also serve as an FX hedge.

Conclusion

The only real question, then, is how Indian investors can begin investing internationally. Setting up a US brokerage account and then working with an investment managed by professionals with extensive experience in international markets is the simple first step.

The LRS (Liberalised Remittance Scheme) enables each Indian resident to remit up to $250,000 a year makes for the purposes of investing overseas, setting out a straightforward path for Indian investors to invest in global markets.

2021 is shaping up to be a year of immense opportunity for Indian investors. Diversifying investments to take exposure to global companies and participating in the growth of emerging themes can play an important role in building a robust wealth portfolio for the future.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.