Indian immigrants living in the US have some additional benefits when it comes to investing in the US stock market. Non-resident Indians generally invest in Indian markets while also taking advantage of the financial opportunities available in America.
For an Indians investing abroad, the RBI’s LRS limits apply. However, LRS limits do not apply for funds added from outside India or NRO or FCNR accounts within India, allowing up to USD 10,000 transfers. The laws of the nation in which you are a tax resident will govern how you are taxed. For instance, you will pay taxes by US tax legislation if you are a tax resident of the USA.
Dr Vikas Gupta, CEO and Chief Investment Strategist, OmniScience Capital says that NRIs should consider a dual approach to their investments by diversifying into both US and global stocks.
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Compelling reasons for NRIs, especially those in the US, to consider investing in US stocks and other global stocks, according to Dr Vikas Gupta.
Currency Matching
Many NRIs have liabilities in USD or other foreign currencies, and holding assets in the same currencies can mitigate currency risk.
Valuation of US Stocks
Contrary to popular opinion, US stocks are not necessarily overvalued. For example, the US midcap index (S&P 400) is currently trading at a price-to-earnings (P/E) ratio of 18, while the small-cap index (S&P 600) is at a P/E of 14. These valuations suggest that there are still attractive opportunities in the US market.
Global Opportunities
There are numerous undervalued stocks worldwide. Savvy investors can find significant opportunities by looking beyond their home country.
Compelling reasons for NRIs, especially those in the US, to consider investing in investing in Indian stocks, according to Dr Vikas Gupta.
Direct Investment Advantage
NRIs, particularly those in the US, might benefit more from investing directly in Indian stocks rather than mutual funds. Mutual fund investments can be subject to PFIC (Passive Foreign Investment Company) taxation, which can be quite burdensome.
Growth Potential
Indian stocks offer some of the most attractive growth opportunities globally. By investing directly, NRIs can tap into these opportunities without the additional tax complications of mutual funds.
Diversified Portfolio Creation
With careful selection, investors can create a diversified portfolio of Indian companies with strong balance sheets, sustainable competitive advantages, and substantial growth potential. Many of these companies are available at significant discounts to their intrinsic values, providing an excellent entry point for long-term investors.
Therefore, NRIs should consider a dual approach to their investments. By diversifying into both US/global stocks and directly investing in Indian stocks, they can align their asset base with their liabilities while taking advantage of the growth potential and attractive valuations in these markets.
