Investing in a single market in a single country can bring on the risk of your portfolio being exposed to economic slowdowns, inflation, interest rate movements, currency movements. Even if you are investing in several industries, there is a risk of exposure to the same economic conditions. Diversifying globally through global diversification helps mitigate the risk of concentration of investments to several countries, markets and currencies.
For Indian investors, it can offer them the opportunity to invest in global businesses and offer alternate ways of growth. Knowing the benefits can help the investors make decisions, assess stock recommendations and create a portfolio that fits the goals of the investor.
What Is Global Diversification?
Diversification means to invest in other countries or global markets and not rely only on one country. This includes having exposure to international stocks, ETFs (exchange traded funds) or other eligible investment products. Each country goes through different economic cycles, interest rates and business patterns, hence the stock market in each country will not always move the same way.
As an Indian investor, if you are only invested in Indian stock of tech and banking companies, you are only exposed to the economy of India. By including good international investments, you could be exposed to companies with different business models and drivers of growth.
When you are looking for the best stock market app in India, you should look for tools that help you understand your exposure, market trends and risks in investments. You can also look at research platforms like Jarvis Invest India to look for insights and better-informed investments.
Why Is Depending on One Economy Risky?
There are many industries that can be impacted at one time by economic factors. Just having multiple stocks might not be a good strategy if all the companies face the same risk. Some factors to be aware of are:
- Economic slowdown which can cause reduction in spending and thus revenues/profits of the companies.
- Any change in interest rates can impact businesses and consumers and stock valuations.
- Inflation can impact the cost of production and thus reduce the profit margin of the companies.
- Changes in policies and/or trade restrictions can impact certain industries.
- Change in currency can impact the cost of imports, investments abroad, buying power across the world etc.
Having a diversified set of industries can help in reducing the concentration risk to some extent. Going global could be another level of diversification. However, the global markets can also fall together during any financial stress.
A SEBI registered investment advisor, such as Jarvis Invest India can help with management of risk in the portfolio and help in aligning your investments decisions with your financial objectives. Also, you should assess whether the stock market advisory service offers transparent research with the risks associated with their insights.
How Global Diversification Helps Manage Currency Exposure?
When investors change their international investments into their local currency, the changes in the currency exchange rates will impact the value of the investment. For example, if Indian investors invest in US stocks, the value of the investment will depend on the performance of the stock in US$ and the exchange rate (dollar/rupee). Consider the following (simple) case:
| Particulars | Illustrative value |
| Initial investment | ₹1,00,000 |
| Return on US investment | 10% |
| Rupee depreciation against the dollar | 5% |
| Approximate final value | ₹1,15,500 |
Let’s say the investment grew by 10% (dollar value), dollar appreciated 5% (vs. rupee), ignoring taxes, transaction costs and other charges. But there is another way to lose money. Let’s say the dollar rises in value vs. rupee. If your investment is in some foreign country, the dollar value of your investment may go down in rupee terms.
So, there is currency risk in international investment and no guarantee of a dollar hedge. When you look at stock recommendations, you should look at exchange rates as well as market performances.
Which Global Markets Can Indian Investors Explore?
International markets can be used as a source of other businesses and industries to add to your portfolio.
| Market | Potential areas of exposure | Key risks |
| United States | Technology, healthcare, financial services | Valuations, interest rates, dollar movements |
| Japan | Manufacturing, automation, industrials | Yen movements, economic growth |
| United Kingdom | Financial services, energy, consumer businesses | Currency fluctuations, economic conditions |
| Emerging markets | Infrastructure, consumer businesses, developing industries | Political uncertainty, market volatility |
Each of these markets are examples, not recommendations. Investors should consider their current holdings, investment goals, cost, tax considerations and regulations before making any international investments. A good stock market advisory service will look at whether your international investment really adds diversification, or just duplicates the investment you already have.
How to Build a Globally Diversified Portfolio
You don’t have to abandon Indian markets to look at global investments. The goal is to have a balance of your domestic investments with some good global exposure.
1. Audit your current investments
Understand how much you are exposed to the Indian equities, the industry specific and rupee. Are you invested in multiple stocks that depend on the same/similar economic factors?
2. Look for investments abroad
You can find ways to get access to multiple companies/markets through international ETFs or other eligible investment products. Study their investments, fees and investment goals. Before making an investment.
3. Get the right allocation
The international exposure you want should match with your financial goals, your investment time frame, risk appetite, liquidity needs. There isn’t just one way to get the right allocation for all.
4. Understand market and currency risk
Monitor your company performance, valuations, interest rates and currency movements. Don’t make the mistake of expecting international investment to always beat the domestic markets.
5. Periodic Review & Rebalance
The market behaviour may change your portfolio allocation from time to time. So, ensure to take a periodic review to achieve the right balance or avoid high concentration of portfolios.
Use the best stock market app in India to make your study and monitoring of your investments easier. You can use AI driven research solutions from Jarvis Invest India to aid in your market intelligence study, they can help you consider your own personal financial goals, portfolio exposure and risk appetite for all your investment decisions.
Conclusion
Global diversification can be a great way to spread your investment away from a single economy, tap into global growth and reduce the risks associated with heavy concentration in a single currency. However, it doesn’t mean that you can avoid market risk or have superior returns. You have to do your research well, get your asset allocation right and monitor your portfolio.
If you are interested in making your investment research stronger, Jarvis Invest provides AI powered investment intelligence that can help you get more structured with your market research. Regardless of whether you use a stock market advisory service or do stock recommendation on your own, you have to stress on transparency in research, risk awareness and long-term financial goals.
To explore research across international markets, you can explore Jarvis Atlas and review the available plans to see which coverage fits your investment approach.