"With people returning to work, the time they spent online has plateaued and tech companies benefiting from that are unlikely to see the significant growth that they witnessed during the pandemic," said Viram Shah, Co-founder & CEO, Vested Finance in an interview with MintGenie.
What is your outlook for the US market for this year given the fact that rate hikes will be more aggressive and the global growth outlook is not upbeat?
Two things will continue to impact the market going forward. One is how aggressive we may expect the Fed to be when it comes to hiking rates in the future and whether the rate hike will achieve the given purpose of taming inflation in a timely manner.
Second, because of the war, and global supply chain disruption, inflation is likely to stay elevated in the short term. This further increases overall uncertainty and affects the demand, which in turn affects inflation. However, one should understand that a period of high inflation is cyclical.
As long as your portfolio is not concentrated in a few high-risk stocks, it may continue to grow, though the growth may not be as high as it was in the past. Investors must brace themselves for a period of high volatility and it may be in the best of their interests to invest with a long-term horizon.
Tech stocks have been witnessing significant drubbing? What's wrong with tech stocks? Why has the post-pandemic optimism for the sector fizzled out so quickly?
Despite the overall macro uncertainties in the past 12 months, tech companies have been growing rapidly. The median revenue growth rate for the last twelve months of Nasdaq companies is 22.3 percent CAGR, driven by tech companies. Despite their historical revenue growth, these stocks are seeing price corrections as their estimated future growth is being reset by investors.
One of the reasons could be that the effects of the pandemic are wearing down. As we are returning to normalcy, we are realizing that early assumptions of continuous skyrocketing growth were incorrect.
With people returning to work, the time they spent online has plateaued and tech companies benefiting from that are unlikely to see the significant growth that they witnessed during the pandemic.
The other reason is that the Fed is now proactively looking to control inflation by hiking interest rates and there are indications of further rate hikes in the future. In addition, the Fed indicated that it will reduce its balance sheet which currently stands at $9 trillion. As a result, the markets will see reduced liquidity and that can affect the overall demand.
Further, as interest rates increase, investment funds tend to pull out of high-risk options. Because of the above reasons, it may not be possible for tech companies to grow at a pace they have been growing recently.
For many new investors, investing in the US market appears to be complex. What is your view on it? Who are the ideal candidates for investing in the US market?
A few years ago, investing in the US was a complex affair. It took 3-5 days to open an account and then another few days to convert INR to USD and the currency conversion rates were very high.
At present, technology has made it possible to invest in the US in a convenient and easy manner. With Vested you can open your account in 5 minutes and with Vested Direct, funds are loaded into your Vested brokerage account within 24 hours.
Another technological advancement is fractional investing. With fractional investing, new investors have the option to invest in a fraction of a share for as little as $1. In addition to that, the investment in the US market through Vested doesn’t attract any brokerage which means finally the end-to-end cost of investing internationally is sustainable for retail investors.
New investors, who do not have the expertise to identify individual stocks can invest through a wide range of ETFs available on the Vested platform. ETFs are a collection of many stocks/bonds which are traded under one fund, very similar to a mutual fund.
However, ETFs are traded on the US stock exchanges with real-time pricing, just like a stock. It is thus a cheap and easy way to get exposure to a sector or a theme that would otherwise be difficult to invest in. Investors may also choose index ETFs to get exposure to indices like Nasdaq-100 or S&P 500.
At Vested, we also provide Vests or curated portfolios that consist of stocks and ETFs. Vests are constructed with different goals or themes in mind, enabling investors to focus their investments on specific industries and core themes.
Investors who are already investing in the Indian markets can look to diversify their portfolios geographically by investing in the US markets. Geographical diversification helps investors move away from a single country or currency risk. Also, investing in the US markets gives investors the option to invest in some of the largest companies and most innovative companies in the world.
What are the key points one should keep in mind before they decide to invest in the US equities?
When investing in US equities, investors should follow the same basic principles of investing they follow while investing in the Indian equity market - think long-term and avoid trying to time the markets. One interesting option for Indian investors is that they can now get crypto exposure via Grayscale Securities available on the Vested platform. The advantage of this option is that it gives investors the opportunity to invest in Bitcoin, Ethereum, and other cryptocurrencies in a tax-efficient manner.
Other key points to keep in mind are:
1. You can invest (or remit) a maximum of $250,000 a financial year under the Liberalized Remittance Scheme (LRS).
2. Invest according to your risk appetite, only after doing proper due diligence. Do not invest in a stock just because it is trending or in the news. If you are a new investor, you may choose to invest in US equities through ETFs.
3. Be aware of exchange rates, as they will affect your effective returns. When the rupee depreciates against the dollar, your effective returns go up as your investments are in USD.
4. Be aware of currency conversion rates. At Vested, we offer a currency conversion rate of 1.2 percent, which is one of the lowest in the industry.
5. Investing in US equities is taxed under capital gains. Short-term capital gains (for investments held for less than 24 months in case of equities and 36 months in case of ETFs) are charged according to your income tax slab. Long-term capital gains (for investments held for more than 24 months for stocks and 36 months for ETFs) are taxed at 20 percent with indexation benefits. Dividends are charged at a flat rate of 25 percent in the US, but you can claim a tax credit in India for the same.
Disclaimer: The views and recommendations made above are those of Vested Finance and not of MintGenie.