Pep up your portfolio with global stocks

Rajalakshmi Sivam | Updated on March 05, 2011

Mr. M. Damodaran, Chief Representative and Advisor for ING in India and former Chairman of SEBI, Ms. Rashmi Hansi Mehrotra, Prinicipal Business Leader for Investment Consulting, Mercer at a "ING Global Investment Marathon" held in Mumbai. (file photo)


Do you want to add some of Warren Buffett's favourite stocks to your portfolio? It may be a smart thing to do. In the last five months when the Sensex has dropped 9 per cent, the Dow Jones Industrial Average has gained 12 per cent and European stock indices such as the Euro Stoxx 50 and CAC 40 (of France) have also given a solid 8-10 per cent return. Thanks to signs of A global recovery, developed markets are doing better now.

So, what are the options available to take advantage of this global opportunity? For savvy investors who are not keen on the mutual fund route to global investing, broking houses are providing an online platform. India Infoline, Kotak Securities and ICICI Securities are the ones offering this service currently. Read on to know how to get started.

What does regulation say?

The Reserve Bank of India permits Indian citizens to remit a sum equivalent to $ 2,00,000 (at current forex rate this comes to approximately Rs 90 lakh) overseas in a financial year (April- March). This $ 2,00,000 is inclusive of the amount allowed to be remitted as gifts and donation and is in addition to the amount permitted to be taken on business or private travel, studies and medical treatment.

Trading in foreign exchange in the overseas market and purchasing of FCCBs issued by Indian companies in a foreign market is not allowed. Remittances to Bhutan, Nepal, Mauritius and Pakistan are prohibited.

RBI permits investments in stocks, bonds, options and Exchange Traded Funds (ETFs) in overseas stock markets.

To start with if stocks leave you bemused, you can actually consider some of those index ETFs in NYSE- ishares NYSE Composite Index fund or ishares S&P 500, etc.

The brokers who currently offer a platform for overseas investing act only as intermediaries; they redirect clients to a foreign broker who has the license to provide a trading platform for global stocks. Kotak Securities has tied-up with SAXO Capital Markets, an arm of the Denmark based SAXO Bank.India Infoline has joined hands with Interactive Brokers LLC, a securities firm that has trading businesses across 90 destinations worldwide.

What is the process?

The process starts with the KYC formalities and filling up an account opening form. A copy of your PAN card and a proof of address will be required. Post completion of documentation, the broker sends your information to his foreign broker partner.

For example, if the broker is Kotak Securities, it will send your details to SAXO and SAXO will get back with details of the bank account to which you need to remit money in order to open an account.

Money transfers usually happen through SWIFT, also called wire transfer.

This requires you to make a remittance request to your banker by providing details of the beneficiary banker and filling the A2 form.

And yes, before you go to the banker for transferring funds, you need to decide on the base currency of your account, the currency in which your account will be denominated.

For investment in securities that are listed in a country whose currency is different, the foreign broker will himself convert the funds in your account.

If you have a USD account and you want to buy a stock that is listed in FTSE, the broker will convert USD to British Pound at the then prevailing exchange rates (of course, for an extra charge).

As you move your funds to the designated account, the foreign broker will send details of the ‘Login id' and password for your account.

Most brokers provide both a browser-based application and a downloadable software for the online platform. And, as you log in to this platform, your account gets activated.

It will be very similar to the online trade screen you are accustomed to, with options to view trade history and open positions - all in one place.

For successful trades, contract notes are sent via e-mail the same day.

However, you need to know a few things here. To start with, margin trades are not allowed - buy orders will be executed only when there is sufficient cash in the account (remember that SWIFT transfers will take 3-4 days).

Shorting is also not allowed - you can't sell a stock without holding it.

Also, with this option, you don't take a demat account in your name.

The shares are actually held in the name of the broker (the concept of ‘Street holding' where shares are in the broker's custody; segregated though on names of beneficiaries).

What are the risks?

Risks in overseas investments arise mainly from currency rate fluctuations. While rupee's appreciation will trim your returns, its value depreciation can actually enhance it. Take this example:

The stock price of Google Inc. has gone up from US $ 555.7 in November last year to US $ 600.8 now- an eight per cent appreciation.

During the same period, rupee too has gone up from 45.89 to 44.96 against the US dollar - a two per cent increase. For someone in India who has invested in Google stocks in November, the return at current price is 6 per cent. Conversely, if rupee had depreciated in this period, he would have gained!

Savvy investors who buy stocks overseas, however, take appropriate cover through positions in the currency futures market, says Mr Vishal Gulechha, Head - Equity Product Group, ICICI Securities. Leaving currency issues aside, another risk here would be the lack of proper information assimilation. Though key market events are captured by news wires, there is a chance that investors may miss out on company specific developments and news.

On being asked what investors can do about this, Mr B. Gopkumar, Head-Broking, Kotak Securities says that they offer regular e-mail updates to clients on the markets and also special recommendations from SAXO.

Their online platform also offers a two-way dealer chat where one can request for information on a specific stock to SAXO.

At India Infoline too, customers are given some regular stock updates. This service however comes as a value-add at some broking houses and is priced separately.

Published on March 05, 2011

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