No case for panic

Indians who have invested in international funds are worried, and with good reason. Aside from those who do not pay any attention to diversifying their equity investments globally, when I say international funds, I mean funds from domestic Indian mutual funds that invest around the world. A surprising number of Indian savers don't know that this is an option for them.

Anyhow, coming back to the worry part. For a little over six months now, the Indian markets have diverged from the global ones. If we compare them specifically to the US ones - which is a fair comparison because our dominant international funds are the US focussed - then from April 1 to Oct 25, the Sensex is flat. In contrast, the S&P 500 is down 15.6 per cent, and the NASDAQ100 is down 25 per cent. This is a big difference. The Indian markets, at worst, can complain of stagnation. On a relative basis, they have done remarkably well. Of course, not all corners of the Indian equity markets have done well, but if you look at the performance summary of all Indian diversified equity funds on Value Research Online, you can see that out of the 400 odd funds, only 30 funds are negative over six months, and over 300 funds have returned over 4 per cent which, for a supposedly shaky/stagnant six months in which there were all kinds of global crisis, is quite good indeed.

International funds present a very different picture. While they are too few in number and too varied in nature to present a broad trend, almost all of them are strongly negative, and the US-focused ones have losses ranging from 7 per cent to 15 per cent over this period. Of course, it goes without saying that this is too short a period to bother with. However, the underlying trends are worrying to investors who have started investing in international funds. Is this a normal variation? Or are the doomsayers correct? In the western legacy media and on social media, plenty of people have cogent-sounding arguments that seek to show that these countries' stocks may be entering a long bear market, perhaps like Japan did for decades. How should the Indian investor react to this?

In my view, they should be sanguine about the prospects of investing abroad. When I look at the actual sums invested in the 75 or so international funds, they have total assets of Rs 36,000 crore, out of which roughly Rs 28,000 crore is invested in mainstream US companies. In terms of where these companies do business and earn revenue and profits, they are not 'US' companies in any sense but global companies. Moreover, most of them can be defined as global tech companies.

Of course, 'tech' is now a notoriously hard word to pin down. Everything is tech. However, I think we can all agree that companies like Google, Microsoft, Apple, Amazon, Salesforce, Cloudflare and a few others are 'tech' in a more fundamental way than others. Note that I have not included something like Twitter, Meta or Netflix here. The reason is that I would say that these companies are users of tech for themselves, whereas the first lot are creators of tech, which is serving as a bedrock of the infrastructure of the world. Note that in this context, I mostly mean AWS business when I say Amazon. Today, these tech companies may have had a bad few months and will no doubt have a few more.

Even as I write this page, news has come of the quarterly results of Google and Microsoft; both are down by 5-6 per cent in after-hours trading. Amazon is due in a couple of days, and the stock price has already started tanking.

It doesn't matter beyond a few weeks or months. Mind you - the actual names may change over the years to come. After all, this is a famously volatile sector.

However, as an Indian equity investor, diversifying a part of your equity exposure in this manner is a must. As far as a long-term investor is concerned, international investing is a channel to invest in global tech leaders, something you should not miss out on.

Suggested read: Things to know before investing directly in foreign stocks