There are a number of American investors who wish to diversify their investment portfolio internationally. This can be done by purchasing shares of ADR which is American Depository Receipts. ADRs are shares which are traded on US Stock Exchange representing the stocks of a foreign company and are priced in Dollars. ADRs work on alignment with their parent country.
Investing in foreign stocks can add diversification and return benefits of equities which have great potential of growth but side-by-side carries a set of risks associated with the parent country. These risks may be geographical as well as market-associated and should be dealt with carefully.
Indian American Depository Receipts (IADR)
India is the biggest democracy in the world and has outdone its own performance in the last 20-25 years. Investors across the globe rarely miss a chance to invest in Indian companies which have been on an upscale in the past few years. Also, India has emerged as one of the fastest growing economies and a great market for investors. But all these major factors have failed to bring forward a positive effect on the Indian stocks globally. Only a few of them are listed on foreign exchanges especially the US.
The asset allocation is appropriate and the correlation factor between the two markets is less than 1, then foreign stocks can prove to be a unicorn in driving the return percentage upwards. It has been a proven fact that correct asset allocation and diversification improves the returns. The correlations between markets can be anywhere between 0 to 1. For those which are close to 0, it indicates that there is no representable relationship between the asset price movements while those nearing 1.0 indicate that the prices of sticks in both the countries move relatively i.e. same direction, same time and same magnitude. The lesser is the movement, the greater is the benefit.
The correlation factor between Indian and US stocks has been a consistent +0.29 which shows great growth potential in the given diversification.
Following is a list of Indian companies which are topmost as per market capitalization for US traders who wish to invest; (Source BNY Mellon)
|COMPANY||TICKER||INDUSTRY||MARKET CAPITALIZATION (USD BILLIONS)|
|HDFC BANK||HDB||FINANCIAL, BANKS||36.87|
|ICICI BANK||IBN||FINANCIAL, BANKS||33.72|
|TATA MOTORS||TTM||AUTOMOTIVE, INDUSTRIAL||25.98|
|SESA STERLITE||SSLT||METALS & MINING||11.58|
|Dr. REDDY’s LABS||RDY||PHARMACEUTICALS||9.36|
|WNS HOLDINGS||WNS||BUSINESS SERVICES||1.11|
Another investment instrument which is tradeable on the US Stock Exchange is the ETFs or Exchange Traded Funds. ETFs pursue the Indian Currency (Rupees) or the Indian stock market. Here is a list of few ETFs that can be traded in the US:
|Wisdom Tree India ETF||EPI|
|PowerShares India ETF||PIN|
|Direxion India Bull 2x ETF||INDL|
|Wisdom Tree Indian Rupee ETF||ICN|
|Market Vectors Indian Rupee/USD ETN||INR|
Indian being one of the fastest and largest emerging economies is an excellent platform with outstanding growth potential. After China and Hong Kong, India is the third largest equity market in the Asian boundaries covering around $1500 billion US dollars as per ADB’s (Asian Development Bank) report. Addition of ADRs to one’s portfolio can lead to better-allocated assets and diversification yielding high returns.