COURTESY : Economic Times.
The phenomenal success of the iPhone and iPad has surprised even Apple Inc. The company sold over 20 million iPhones and more than 9 million iPads in the previous quarter. When Apple declared its quarterly results in July, its shares had jumped to a 52-week high of $400.
Profit booking and the exit of CEO Steve Jobs have pulled down the stock by about 8% to $370. However, analysts are bullish about the company's prospects. The consensus 12-month target is $500. Some even believe that Apple shares could rise by 65% to $607. Wouldn't you want to invest in this success story?
The good news is that you can. Just as you can buy shares of Indian companies with the click of a mouse, you can pick up foreign stocks while sitting in India. We are talking about becoming shareholders of some of the biggest and most profitable corporate giants around the world.
Before we come to the nitty-gritty of how to go about it, let's discuss why an investor should consider putting his money in overseas markets.
Profit booking and the exit of CEO Steve Jobs have pulled down the stock by about 8% to $370. However, analysts are bullish about the company's prospects. The consensus 12-month target is $500. Some even believe that Apple shares could rise by 65% to $607. Wouldn't you want to invest in this success story?
The good news is that you can. Just as you can buy shares of Indian companies with the click of a mouse, you can pick up foreign stocks while sitting in India. We are talking about becoming shareholders of some of the biggest and most profitable corporate giants around the world.
Before we come to the nitty-gritty of how to go about it, let's discuss why an investor should consider putting his money in overseas markets.
WHY INVEST ABROAD
It's often argued that the domestic markets have so much to offer that investors should not look beyond India's boundaries. True, India is still among the fastest growing economies of the world and presents plenty of investing opportunities.
But even the most die-hard proponents of emerging markets will tell you that the party won't last forever. Hansi Mehrotra, India business head, Mercer, believes that other emerging markets can also deliver equally good returns. "The Indian market is quite volatile. By investing overseas, Indian investors can have a smoother ride," she says.
Past returns show that no single market can remain among the top wealth creators for more than a couple of years at a stretch. The crown for the best performing market changes heads every year or .
So, if the Indian economy sputters and dips, the investors who have some exposure to other markets would be cushioned against the downfall. Even during boom times, there might be some economies growing at a much faster clip than ours. Says Arvind Bansal, vice-president & head, multi-manager investments, ING Investment Management India: "Global investing helps in diversification, which lowers the risk and, in some cases, may even enhance the returns."
The diversification is multipronged because you are investing in a different country and with a different currency. "Diversifying across currencies and asset classes is important for all investors, especially given the wide range of investment opportunities available overseas," says Jaya Prakash K, head of products, Franklin Templeton Investments.
Each country or region enjoys a distinct advantage in terms of resources or abilities that give it an edge over others. The Indian economy, even though abundant in natural resources, does not offer many of these opportunities.
For instance, it has limited scope for oil exploration or even gold mining. However, by investing in different overseas markets, an Indian investor can gain exposure to a variety of such themes-technological innovations in the US, bountiful commodity reserves in Brazil or the rich mining fields in Australia.
You can take part in the growth of some of the booming economies and also benefit from the more stable developed economies.
B Gopkumar, head, broking, Kotak Securities, says, "The interest among Indian investors for foreign equities is slowly picking up because they see it as a way to diversify across various geographies." If you have surplus money, here's how you can get a slice of the global pie.
It's often argued that the domestic markets have so much to offer that investors should not look beyond India's boundaries. True, India is still among the fastest growing economies of the world and presents plenty of investing opportunities.
But even the most die-hard proponents of emerging markets will tell you that the party won't last forever. Hansi Mehrotra, India business head, Mercer, believes that other emerging markets can also deliver equally good returns. "The Indian market is quite volatile. By investing overseas, Indian investors can have a smoother ride," she says.
Past returns show that no single market can remain among the top wealth creators for more than a couple of years at a stretch. The crown for the best performing market changes heads every year or .
So, if the Indian economy sputters and dips, the investors who have some exposure to other markets would be cushioned against the downfall. Even during boom times, there might be some economies growing at a much faster clip than ours. Says Arvind Bansal, vice-president & head, multi-manager investments, ING Investment Management India: "Global investing helps in diversification, which lowers the risk and, in some cases, may even enhance the returns."
The diversification is multipronged because you are investing in a different country and with a different currency. "Diversifying across currencies and asset classes is important for all investors, especially given the wide range of investment opportunities available overseas," says Jaya Prakash K, head of products, Franklin Templeton Investments.
Each country or region enjoys a distinct advantage in terms of resources or abilities that give it an edge over others. The Indian economy, even though abundant in natural resources, does not offer many of these opportunities.
For instance, it has limited scope for oil exploration or even gold mining. However, by investing in different overseas markets, an Indian investor can gain exposure to a variety of such themes-technological innovations in the US, bountiful commodity reserves in Brazil or the rich mining fields in Australia.
You can take part in the growth of some of the booming economies and also benefit from the more stable developed economies.
B Gopkumar, head, broking, Kotak Securities, says, "The interest among Indian investors for foreign equities is slowly picking up because they see it as a way to diversify across various geographies." If you have surplus money, here's how you can get a slice of the global pie.
BUYING STOCKS DIRECTLY
If you are a seasoned investor with a high risk appetite, you can invest in foreign stocks directly. For this, you need to open a trading account with a local broker who offers this facility. Many Indian brokerages have provided this window for domestic investors through tie-ups with foreign trading partners. The Indian broker only acts as the intermediary in this process; the actual buying and selling is done by the foreign broker licensed to trade in that market. Currently, this service is offered by brokerages such as ICICIDirect, Kotak Securities and India Infoline.
Register with any of these brokerages for availing of this facility. You will need to fill out an application form and fulfil the Know Your Customer (KYC) formalities. There is a nominal fee for this access to the global markets. At the time of filling the application, you have to choose the currency in which you want to settle your transactions. When you trade, the broker converts this currency into the relevant one.
Your application will be forwarded to the foreign partner of the brokerage house. Once your details are registered, you will be provided with a client identity and bank account details (to which funds are to be remitted). Next, fill out the A2 form (available at your bank branch), which allows you to remit funds to the concerned bank account. Once the foreign broker receives the funds, your trading platform will be activated, after which you can start trading.
If you are a seasoned investor with a high risk appetite, you can invest in foreign stocks directly. For this, you need to open a trading account with a local broker who offers this facility. Many Indian brokerages have provided this window for domestic investors through tie-ups with foreign trading partners. The Indian broker only acts as the intermediary in this process; the actual buying and selling is done by the foreign broker licensed to trade in that market. Currently, this service is offered by brokerages such as ICICIDirect, Kotak Securities and India Infoline.
Register with any of these brokerages for availing of this facility. You will need to fill out an application form and fulfil the Know Your Customer (KYC) formalities. There is a nominal fee for this access to the global markets. At the time of filling the application, you have to choose the currency in which you want to settle your transactions. When you trade, the broker converts this currency into the relevant one.
Your application will be forwarded to the foreign partner of the brokerage house. Once your details are registered, you will be provided with a client identity and bank account details (to which funds are to be remitted). Next, fill out the A2 form (available at your bank branch), which allows you to remit funds to the concerned bank account. Once the foreign broker receives the funds, your trading platform will be activated, after which you can start trading.
HOW TO TRADE
When you are registered, trading in shares is only slightly more complicated than investing through domestic stock exchanges. Before placing your order with the broker, you need to ensure that you have sufficient funds in your overseas account. You can send money via wire transfer, which usually takes 2-3 days.
Once you have remitted the funds, you can log in to your broker's trading portal and place the buy order for the scrip. Keep in mind that you have to choose the stock as well as the exchange where it is listed. Unlike in domestic equity trading, the shares are not credited to your demat account but held in a pool account with a custodian. When selling the shares, you have to follow the same procedure. The funds will be remitted to your bank account within 48 hours after completing a bank transfer request.
Through this route, you can easily create your own portfolio of foreign stocks by choosing among the prominent blue chips or any promising upstarts.
When you are registered, trading in shares is only slightly more complicated than investing through domestic stock exchanges. Before placing your order with the broker, you need to ensure that you have sufficient funds in your overseas account. You can send money via wire transfer, which usually takes 2-3 days.
Once you have remitted the funds, you can log in to your broker's trading portal and place the buy order for the scrip. Keep in mind that you have to choose the stock as well as the exchange where it is listed. Unlike in domestic equity trading, the shares are not credited to your demat account but held in a pool account with a custodian. When selling the shares, you have to follow the same procedure. The funds will be remitted to your bank account within 48 hours after completing a bank transfer request.
Through this route, you can easily create your own portfolio of foreign stocks by choosing among the prominent blue chips or any promising upstarts.
WHERE TO INVEST
Now that you know how to invest abroad, find out which are the most lucrative destinations. While it is easy to grasp the benefits of diversifying abroad, finding the right opportunities is a tough task. You have to do a lot more homework than if you were investing in Indian equities. You need to understand the country's socio-economic set-up, the regulatory environment and the political factors at work, besides the macro-economic situation. Only then will you be able to make an informed choice. Says Huzaifa Husain, head of equities, AIG Investments: "Different regions offer different sets of challenges. One would need to keep in mind that each economy is unique in its own way and may, therefore, behave differently in various market conditions."
If you are investing directly in foreign stocks, you need to have a deep understanding of the market situation abroad as well as the business dynamics of the company you are investing in. Ideally, spread your risk by investing across geographies and themes. Mehrotra feels that investors should look at their portfolios from a long-term (more than 10 years) perspective and consider a strategic asset allocation that includes a meaningful (20-30%) allocation to overseas assets, such as developed market equities, emerging market equities, global REITs, and global infrastructure.
Now that you know how to invest abroad, find out which are the most lucrative destinations. While it is easy to grasp the benefits of diversifying abroad, finding the right opportunities is a tough task. You have to do a lot more homework than if you were investing in Indian equities. You need to understand the country's socio-economic set-up, the regulatory environment and the political factors at work, besides the macro-economic situation. Only then will you be able to make an informed choice. Says Huzaifa Husain, head of equities, AIG Investments: "Different regions offer different sets of challenges. One would need to keep in mind that each economy is unique in its own way and may, therefore, behave differently in various market conditions."
If you are investing directly in foreign stocks, you need to have a deep understanding of the market situation abroad as well as the business dynamics of the company you are investing in. Ideally, spread your risk by investing across geographies and themes. Mehrotra feels that investors should look at their portfolios from a long-term (more than 10 years) perspective and consider a strategic asset allocation that includes a meaningful (20-30%) allocation to overseas assets, such as developed market equities, emerging market equities, global REITs, and global infrastructure.
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Says Amit Shah, executive director, IIFL Private Wealth Management: "As India is perceived to be an anti-commodity market, regions such as Brazil, Russia and Australia, which are rich in agricultural commodities and mineral resources, can be attractive investment opportunities for Indian investors." In order to capture the potential of some of these markets, investors can put some money in funds focused on individual economies or particular regions such as Latin America or Asia. ING Latin America Equity Fund, HSBC Brazil Fund, Mirae Asset China Advantage Fund, etc, belong to this category.
Jaya Prakash K feels emerging markets are still attractive destinations, despite the turbulence in global markets. "In the recent turmoil, emerging markets, especially those in Asia, have displayed resilience and posted stronger gains. These economies are likely to retain the positive growth momentum in the years to come," he says. On the other hand, you could also consider investing in commodity or sector-related global funds, which would give exposure to specific themes across geographies. DSP BlackRock World Energy Fund, ING Global Real Estate Fund and DWS Global Agribusiness Offshore Fund belong to this category.
However, given the instability in the global markets, some experts feel that it would be prudent for Indian investors to abstain from rushing in to invest abroad. Says Shah: "For now, it may be a wise decision to wait and observe the movement of various indices, rather than time the market and allow it to stabilise before making any investment in foreign equities."
Investing abroad comes with its own set of risks and challenges. The biggest is the exchange rate risk. Since you transact in a foreign currency, you are exposed to fluctuations in the exchange rate. If the currency of the country in which you invest depreciates, your returns will be eroded. This is because you would get a lesser amount (in rupee terms) in your hand once the foreign currency is converted back to rupee. To negate this eroding impact, you need to make sure that your investment earns a higher return.
Monitoring the investments is another tough task. Given the difference in time zones, it is not easy for an investor to move in and out of their positions quickly. One needs to monitor and track one's holdings more carefully while investing abroad. This means staying up to date with the happenings in the global marketplace and gauging its impact on your investments. This is a must if you are investing in stocks on your own, not through mutual funds.
Another important thing to keep in mind is the tax treatment while investing overseas. Your gains are not taxed at the same rate as the profits from domestic equities. The same is true if you are investing in global funds. Equity funds which invest more than 35% of their corpus in foreign equities are not eligible for exemption from long-term capital gains or the lower tax on short-term gains.
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