Why an increasing number of Indian investors are turning to foreign markets

Synopsis

Indian investors are increasingly looking beyond domestic markets for diversification and better returns. Seeking exposure to global innovation and facing weaker local market performance, a growing number are investing overseas. Easier access through new platforms and a weaker rupee are making foreign assets more attractive, with significant growth seen in global feeder funds and overseas equity investments.

Investors in India, long focused almost entirely on domestic markets, are increasingly starting to look outward. A growing number are moving money abroad, seeking diversification after a stretch of weaker relative returns and sustained foreign outflows from local equities that have driven the rupee to record lows.

Indians invested more than $2.2 billion in overseas equities and debt in the 11 months through February, a 60% jump from the year-ago period, according to Reserve Bank of India data. Meanwhile, assets in global feeder funds run by local money managers hit a record $4 billion in March, data from the Association of Mutual Funds in India show.

What’s changing is how local investors are thinking about their portfolios. India is only about 3% of the global equity market, and its stocks don’t always move in line with the rest of the world, making overseas investing a simple way to spread risk. A weaker rupee is making foreign assets attractive, as overseas returns get a currency boost, while easier access is attracting more people.

The shift is also being driven by the performance of local shares. The MSCI India Index has trailed its emerging markets counterpart by about nearly 50% over the past year, even after recovering from its March lows. This is mainly due to slower earnings growth and limited exposure to themes like semiconductors. Meanwhile, markets such as Taiwan and South Korea have reached new highs.

“I wanted to be where the real innovation is happening,” said Abhishek Dadhich, a 38-year-old tech employee in Pune, who has been investing in US stocks since 2023. Dadhich said his grasp of technology helped him more than triple his investments to over $300,000, exceeding his expectations.

Investors like him are driving growth in platforms that let Indians trade foreign stocks. Assets with Vested Finance Inc. topped $1 billion in April, about doubling from a year ago, founder Viram Shah said in an interview. The firm aims to reach $5 billion over the next three years, he said.

India allows individuals to remit up to $250,000 abroad, but the policy has been underutilised for investment purposes mainly due to the lack of convenient platforms for transactions.

That’s changing. Clearer rules for global products from GIFT City — India’s low-tax hub — and mobile apps that allow direct overseas investing are lowering barriers for retail investors.

Local asset managers are responding to this demand. Firms like DSP Asset Managers and PPFAS Asset Management have launched outbound funds from GIFT City for retail investors. The first was DSP’s Global Equity Fund in June, which invests mainly in the US but also picks stocks from Taiwan, China, and Europe.

The attraction is about what’s in short supply at home. Exposure to themes such as artificial intelligence, memory chips and data-centre infrastructure — a major driver of gains in markets like Korea and Taiwan — is still limited in India’s $5 trillion equity market.

“Diversification benefits are real as they give investors an exposure to a broad swath of tech stocks,” said Sandipan Roy, chief investment officer at Motilal Oswal Private Wealth, which manages $21 billion. “Investors have grown wary of the continuing headwinds that have hit Indian markets.”

To be sure, global investing still makes up a small share of overall flows, with most money staying in local stocks and bonds. Recurring investment plans by mutual funds alone have brought in about $3 billion every month recently, helping offset record foreign outflows from Indian equities. Even so, overseas-focused funds from India have delivered strong returns. The HSBC Brazil Fund, run by the bank’s local fund management arm, has gained nearly 70% in the past year, and the Axis Greater China Fund is up 65%. While platforms like Interactive Brokers and Vested are popular, other players are starting to step in. Zerodha Broking, which pioneered zero-brokerage stock trading in India, aims to roll out access to global stocks, CEO Nithin Kamath said.