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3 Easy Ways to Invest in Foreign Stocks From India

Apple, Google, Facebook, Amazon, Microsoft, Samsung, Twitter… foreign These are some well-known companies in the world. We all have grown up using the products/services offered by these companies. But along with using their products, can we also own a part of these companies?

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Wait, these are not Indian companies, right? Therefore, they won’t be listed on the Indian stock exchanges. These companies will be listed in their respective country’s stock exchanges. So, how to buy shares of a company that are registered in the foreign stock exchanges?

Don’t worry, if you really want to buy these stocks- you’ll get it. Always remember the famous movie dialogue by King Khan- “Kehte hain agar kisi cheez ko dil se chaho … to poori kainath use tumse milane ki koshish mein lag jaati hai

Why should you invest in foreign stocks?

Before we start this post, let us first discuss why should you invest in foreign stocks? Are they better than Indian companies? Here, you need to make up your mind why you want to invest in foreign companies. There are over 5,500 listed companies in the Indian stock market. Aren’t they enough? Why do you need to invest alternative stocks?

Well, I’m really not in a position to answer the second question. These are giant multi-billionaire companies that we are talking about here. Google, Apple, Facebook, Amazon, Samsung, Cisco, Tesla, etc are too big companies to comment upon. These companies have lots of highly qualified professionals, employees in their management team. It won’t do justice if a boy in his 20s sitting on the comfort of his couch judges these companies. Nevertheless, I can share a few of my personal opinions regarding why to invest in foreign stocks.

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Top reasons why many Indian invests in the US

Here are my top reasons why many Indian invests in the US or other foreign stock exchanges:

1. People want to invest in their favorite companies

Apple, Google, Twitter, Facebook, Amazon, etc. are the darlings of this generation. And of course, many people want to invest in these companies

2. Diversification with Global Investments

Investing in foreign stocks helps in 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.

3. To seize bigger opportunities

Once you start to invest in foreign 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 these foreign companies, compared to Indian companies.

Cons of Investing in Foreign Stocks

There are two sides to every coin. Here are a few critical points to know before you invest in foreign stocks:

1. Be ready for the high charges

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 the 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.

2. Profits are subjected to the currency exchange rate

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 the change in exchange rate. That’s why when you invest in foreign stocks, profits are always subjected to the currency exchange rate.

3. Up to $250,000 can be invested overseas by the Indian residents

As per the RBI notification in the Liberalised Remittance Scheme (LRS), 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?

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How to invest in foreign stocks?

Now that you have learned the basic concept of investing in the international stock exchanges, here are three simple ways to invest in foreign stocks—

1. An account with Indian Brokers having a tie-up with a foreign broker

Many full-service Indian brokers like ICICI Direct, HDFC Securities, Kotak Sec, Axis Securities, 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. You can invest in foreign stocks using these full-service brokers. 

2. Open an account with the foreign brokers

A few international brokerage firms like Interactive BrokersTD AmeritradeCharles Schwab International Account etc permits Indian citizens to set up an account and trade in US stocks, mutual funds, etc. In fact, US-based brokerage like ‘Interactive brokers’ also has an office in India where you can visit, get your queries answered, and open your overseas trading account.

3. Investing in Foreign stocks through new startups Apps

In the past few years, many new starts have been launched in India and abroad than helps Indians to invest in foreign stocks. For example, recently launched startup Vested Finance, helps Indians to invest in US stocks. They are a US Securities and Exchange Commission (SEC) registered investment advisor. Similarly, you can also invest in foreign stocks using the Webull app, another popular startup company that is also committed to building the best investing and trading experience for India and Global stock markets.

Extra: Buying Indian MF/ETFs with global equities

There are a number of mutual funds/ETFs who invest 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. Compared to direct investing in foreign stocks (where you might be asked to maintain a minimum of $10,000 deposit), investing in mutual funds/ETFs are cheap.

Closing Thoughts

Investing in the foreign market will help you widen your investment horizon. Here, you can invest without boundaries in your favorite companies. Moreover, in the era of the internet- it’s not much difficult to invest in the international market.

Nevertheless, investing in the international stock market has both advantages and disadvantages. The most significant advantage is that it helps in diversifying your portfolio. However, the obstacles are higher expense charges and currency exchange rates.

A complete guide on Value investing in India

There are many successful strategies in the stock market. However, three of the most popular investing strategies are- Value investing, growth investing in india and dividend investing. It’s really difficult to say which one is better as it totally depends on the investor’s knowledge, style, and preference.

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Nevertheless, value investing is one such proven strategy that has created huge wealth for many investors who have followed this strategy with discipline. In fact, one of the biggest followers of value investing is the legendary investor, Warren Buffett.

What is value investing?

The basic strategy of value investing in very simple. You find an amazing company, calculate its true (intrinsic value) and pay a lot less to purchase the stock (when it is on sale in the market). As you have bought the stock at a discount, you can make a profit by selling the stock when the price reaches its true value.

Few common tools that value investors use in order to find undervalued stocks are- lower than average price to book value, a low PE ratio or higher dividend yields.

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Three Fundamental philosophies of Value investing

Value investors believe that the market overreacts to good and bad news and hence they do not correspond with the company’s long-term fundamentals. Therefore, at a specific time in the market, stocks can be overvalued, undervalued or decently valued.

The strategy of value investing is to find the undervalued stocks -which are trading at a discount because of short-term reasons or market not yet realizing their true potential. Here are the three fundamental philosophies of value investing:

1. Look for the true/intrinsic value

What distingue value investing from other popular strategies is that value investors believe that stocks have an intrinsic or true value. They find this concrete number using different valuation methods like discounted cash flow analysis. When the market value of that stock is below the calculated value, the value investors purchase that stock. Further, as these investors have bought the stock at a discount, they sit back and relax until the stock reaches its true value.

2. Avoid following the herd

Interestingly, you can find a large population of investing community following herd mentality psychology in making various financial decisions like buying a new property or investing in the stock market. Seeing others getting profited with investment, our brain tells us to go for it without a second thought.

However, the value investors avoid herd mentality. They do not believe in group thinking or buying a stock just because everyone else is buying. That’s why, many a time- the value investing strategies looks similar to the contrarian investing

3. Always have a Margin of Safety

The margin of safety is the guiding philosophy of value investing to reduce risk and avoid loss. Here, the value investor gives a benefit of doubt to themselves by purchasing a stock with a margin of safety.

For example, let’s assume that an investor calculated the true value of a company to be Rs 100. Here, buying the stock at any price below Rs 100 can be considered as an undervalued price. However, if the investor wants a margin of safety of 20%, then he/she will buy that stock at Rs 80 or less. Here, the value investor is safeguarding his investment by adding a significant margin of safety in his/her purchase price.

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Does value investing in India works?

Yes, Definitely!! Tell me one thing- If I offer you to purchase a brand new iPhone X at a discount of 50%- Isn’t this deal profitable to you? Even if you don’t plan to keep the iPhone, still you can sell it for a price way higher than your original purchase price. There are a number of online websites like Olx or Quickr where you can easily find a buyer for this phone.

Value investing works on the same concept. Here, you buy terrific stocks at a price below their intrinsic value (i.e. discount price) and hold it till they reach their true value.

So, does value investing in India works? Absolutely!! Value investing is a time-tested strategyFrom Benjamin Graham to Warren Buffett to Joel Greenblatt to Raamdeo Agrawal -all have made a massive fortune by following the strategies of value investing.

Best books to learn value investing in India

Although, I tried to cover most of the critical points related to value investing in India in this post. However, there are still many concepts yet to learn for beginners. Here are the best books to learn value investing in India.

Closing Thoughts

Value investing is a proven strategy to build wealth. And value investing in India definitely works for those who apply this strategy with discipline.

However, value investing is subjective and depends on the investor’s style of investing. While many value investors only look for undervalued stocks, few also consider the future earnings expectations and cash flows to determine the future value. For example, the star fund manager Peter Lynch (Author of One up on wall street) was more interested in undervalued stocks with good growth prospects.