Diversification, a success strategy for investment

investment

When investing, each one of us looks at maximising returns at the minimum risk. This is exactly why everyone wishes to diversify their investment. Many do this by investing in multi-class assets. This reduces risk since your investments are diversified in different assets in your portfolio. This is why umpteen investors opt for doing this. Holding on to that thought, just think that if diversifying assets can generate safer returns for you, can’t
diversifying your investments across various geographies do the same for you?

Diversification in investment has come out as a very successful investment strategy presently. What it essentially means is that instead of only investing in the Indian market, you should also consider other markets & exchanges besides just NSE & BSE; investing across various securities within the same asset classes. Being the second most expensive emerging market after China, diversification can prove to be a boon for investors. The fact considered that even though the Indian stock market is among the best-performing ones around the globe, a little diversification is still a good strategy for safer investments and it will benefit you.

WHY INVEST OVERSEAS?

As we mentioned before, the Indian market has been performing well, but two major trends in Indian stock market make it necessary for investors to invest in foreign securities.

– INDEX CORRELATION

When it comes to the correlation of the Indian stock market with other global markets, they are not very correlated. This has caused a plethora of problems in the past. The major reason for this lack of correlation has been the market’s little sensitivity to the global cycle, increased flow from the local investors and also the domestic nature of the Indian Economy. To take an example, in November of the year 2018, the weighted average correlation of India’s currency had reached this decade’s lowest at 0.29 which had once been as high as 0.68 in the year 2010. After
November, the average correlation reached 0.32 by April of 2019, which cannot be considered as an impressive increase.

– PRESENT DAY SCENARIO

Taking into account the current scenario of the Indian stock market, investing overseas will be a better option. We say this because the Indian stock market is facing a bearish sentiment comparatively. So much so that India is so far the worst-performing market of 2019. Sensex has delivered a meagre return of only 3.5% so far this year, while Nifty delivered only 1.5%. Countries like China & Brazil have outperformed the Indian market. One major reason for this is that FPI or Foreign Portfolio Investors have been the Indian Equity Market’s net buyers, but their flow has declined in the last few years. To add to this situation, this year’s annual Budget has further worsened the situation by  implying a higher tax surcharge on FPIs. Considering the decelerating global growth & weakening domestic demand, one can’t see the situation getting any better.

– VOLATILITY OF INDIAN MARKET

The volatility of the Indian market is no secret. But according to a Morgan Stanley report, the ratio of stock market volatility to earnings volatility has reached 3.23 which is around 3 times for most of the emerging markets globally & around 5 times for developed markets. The estimated reason for this volatility is assumed to be the rising ratio of foreign equity inflow to domestic equity savings. This ratio has risen drastically over the last decade, where it was 0.5 times a decade back & has now reached as high as 20 times. The greatest structural problem has proven to be the
decline in domestic equity savings since 1990. An example of explaining the volatility of the market will be the recent Indian Market Crash wherein the falling of rupee & improving US economy triggered selling causing a negative sentiment in the market.

BENEFITS OF INVESTING IN FOREIGN SECURITIES

Below given are the few perquisites of investing in exchanges & companies outside your nation by complying to a diversification strategy.

PERFORMANCE OF FOREIGN SECURITIES

– When the Indian market is depressed, you can retain your financial balance by investing outside; since at times like these, the Indian market is often seen to fall farther than the US & Europe based equity indices. A good example would be the year 2013 when the BSE Sensex fell to 2% while the MSCI Europe and the S&P 500 were up nearly 25-30%.
– Another considerable factor will be that USD returns, when converted to INR, compared to INR returns, are much higher. As of today, the value of a single USD is 71.50 INR. Thus, the depreciating value for INR is a strong reason for you to be investing overseas.
– Some countries called tax havens like Andorra, the Bahamas, the British Virgin Islands, The Island of Jersey, Hong Kong, Mauritius, Monaco & Panama also provide certain tax benefits to foreign investors. This further adds up to your advantage.

GROWTH

– When investing internationally, especially in emerging markets, you get to take advantage of the potential for growth in these economies.
– Indian markets are more volatile than many foreign markets. Hence, investing overseas, you pave a way for a risk-free investment.

HOW TO INVEST OVERSEAS?

The easiest way possible for international investing is through Kristal.AI. Kristal.AI is an easy to use advisory platform which you can use to invest in overseas securities easily. It gives you access to more than 100 global exchanges easily, which increases your range for diversity widely. The Kristal.AI team refers to your portfolios as Kristals & these Kristals are selected, ranked and monitored by their Advanced Advisory AI-based Algorithm.

With features like Thematic Equity funds, Kristal.AI gives you the opportunity to invest in stocks & ETFs of various sectors. They have an advisory experience of more than 120 years, making them the most preferred choice when it comes to investing in foreign markets. Kristal.AI combines Artificial Intelligence & experience to bring you the best of both worlds and deduce the fittest strategies to help you meet your desired goals. Not just that, investing
with Kristal.AI is also easy on the pocket as they don’t deduct any brokerage fees for investment over 50,000 USD.

With an admirable track record, Kristal.AI not just makes investing convenient, but their 24*7 support ensures that you don’t encounter any trouble when it comes to investing. The team of market experts at Kristal.AI prepares income-generating bond portfolios for you to make the most from your investments. Using Kristal.AI you can invest in multiple financial assets across various exchanges across the globe.

CONCLUSION

Though the Indian stock market has been flourishing over the years, investing domestically only might stagnate your growth. Realizing the potential for growth & profit in the international markets and start investing overseas. It won’t just diversify your portfolio, but will also give you a chance to get entailed in more global markets. Kristal.AI provides you features to make investing globally easier, making it crystal clear for you, or shall we say Kristal.AI clear!

About Neel Achary 18883 Articles
Neel Achary is the editor of Business News This Week. He has been covering all the business stories, economy, and corporate stories.