Markets are dynamic. Yet the principles of investing wisely have remained unchanged from time immemorial. It takes discipline, a long-term outlook, and a good trading strategy to profit from the equity markets, with the least possible amount of risk.
Now that regulations permit resident Indians to invest abroad, a great new avenue has opened up for the wise investor. He can sample high-growth sectors, anywhere in the world.
Investors have to understand that by venturing into foreign stock markets, they are not adding to their risk. In fact, they are only reducing their exposure to a single market. Diversification leads to lower risk.
There are other reasons as well. Using a passive investment strategy to invest in a basket of stocks that replicates the local country index is not the best of ideas. That is because indices around the world have one thing in common: They never display sustainable growth over a period of five-seven years or even a decade.
The market fatigue factor makes sustaining growth difficult. The bottom-line: markets may provide high double-digit returns over two or even three years but then tend to fizzle out. Hence an astute investor needs to look at the performance of stocks and not indices.
One viable idea could be to invest in stocks that are high performers in terms of earnings growth and earnings quality in their local markets.
These stocks display a robust top-line growth and have a sizeable market share in the product markets due to best-in-class products and services. They make good profits and have top flight managements.
But identifying individual stocks in all markets is virtually impossible for a retail investor. Help is at hand in the form of mutual funds with dedicated fund managers and sophisticated research.
The information at their command enables them to search for the right scrip and make the right choice. Through the mutual fund route, investors can optimise their returns while sparing themselves the ordeal of tracking each market and scrip carefully on a daily basis.(The author is Vice-President, Marketing and Strategy, Birla Sun Life AMC.)