Wednesday, June 14, 2023

You can now invest in foreign stocks and reap the benefits. But stay informed about the risks too

Suparna Pathak: Namoshkar. Welcome to Mon Money produced by Content Crakners. I am Suparna Pathak, and with me is Saibal Biswas, an Investment Consultant. In this episode, we will be discussing savings and investments. Before that, a quick look at our starting screen.

Saibal, Ramprasad babu from Medinipur has sent us a question. I am not disclosing his actual name as he has some reservations about it. He wants to know how he can invest overseas.

Saibal Biswas: There are two ways of investing abroad. One, you can buy shares overseas directly upto a certain limit as set by the government. This is called the LSR Route, which is $ 250,000, a substantial amount. There are many international funds as well, funds that invest in stocks overseas. One can invest in these as well through Mutual Funds. Ramprasad babu can either invest directly, or take the Mutual Fund route and invest through them in the stocks they choose.


Suparna Pathak: But why will he do this? What is his benefit? What kind of risk or benefit can he expect?

Saibal Biswas: Well, when we are investing in India, we are investing in only one particular economy, depending upon one particular geography. If anything untoward were to happen to our economy, my market may fall. In such a scenario if I invest abroad, in a different economy, it may so happen that their market may not fall … this is a diversification process. The second point is that of currencies. Say for example the US Dollar is now quoting at Rs 80 which may go up to Rs 85 tomorrow: in such a case not only will I get the benefit accruing to my investment, but will also get the benefit of currency appreciation. This is an extension of the dictum of spreading your investments – previously we used to advise people to spread their savings across debt, equity etc, today we are saying do that, but also spread it to different geographies, over different currencies. Invest in such types of stocks that are not available here.   

Suparna Pathak: All this while we had restricted our discussion to the Indian economy. Now what you are saying is that it is possible to spread our risks further by investing abroad. Perhaps, if our market falls and theirs does not, then the investment would be safeguarded. The second thing that you are saying, and let me understand this, is that if I invest in a hundred dollars at Rs 80 a dollar my investment will be Rs 8000. Then, suppose, even if other things remain the same and the Dollar rate goes up to Rs 83, I will still gain by Rs 300. So, I am getting two advantages, one of investing in overseas markets to take advantage of their dynamism, and two, the advantage of currency exchange differentials.

In this context, what do you mean by terms like averaging?  

Saibal Biswas: Averaging means, suppose I buy something at a certain price and the price falls. Then if I buy more of it at a lower price, then the cost of my entire holding will go down. To cite an example, if I buy some stocks at Rs 80 and the price goes down to 60 and I buy more, then my cost of holding will come down to under Rs 80. 

Suparna Pathak: Perhaps if I then sell at Rs 75, I may even make a profit.

Saibal Biswas: exactly.

Suparna Pathak: This means if I were to sell at Rs 60 I would have lost, but since I bought more, and my average cost is reduced, I am still able to turn a profit.

Saibal Biswas: Let me go back to investing overseas and point out that there is a flip side to it too that everybody should be aware of. It is also possible that we invest in a geography that goes under … we must understand this risk. Or suppose we invest in a currency that starts to depreciate, for whatever reasons, this means that we have to do enough research to invest overseas. That is, it is not that anyone can go to any country and invest, I feel one needs someone, an advisor, who can act as a guide. So, investing overseas is not unidimensional, it has both sides of the coin…

Suparna Pathak: Ramprasad babu, are you hearing us? There are many hassles as well. It is not that by investing overseas one can access endless gains. The more you spread your risks, including in overseas markets, the character of your risk will also change. When you are investing abroad you will have to contend not only with the risk of your currency but also with geo-political risks, how different factors will affect its economic prospects will also have to be considered.  

What Saibal is saying is do invest. But take the advice of someone who knows before investing overseas. 

Today we have discussed about investing overseas and have seen that there are two advantages – one of gaining from the price fluctuations in their share market and two of gaining from currency exchange differentials. That is to say, even if their market remains constant and the value of Rupee depreciates, you will still be the gainer. On the flip side, the socio-economic-political status of the country you are investing in will have to be considered to assess your risk, which is why, you must seek advice.

Let us stop here today. Please like, share, and if you want to refer to this again, go to the description box where all the details are provided. Nomoshkar.

Saibal Biswas: Please share and like Ramprasad babu if you want to send us your questions feel free to send them to us.

Thank You.



Investing abroad offers multiple benefits, but beware, the risks are many too.

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