As an Indian investor, the Indian and US stock markets are probably the two key markets you’re looking at. Both have their pros and cons. So, if you plan to invest in any of these markets, take a minute to read this comparative analysis.
Introduction to Indian and US stock markets
The Indian stock market consists of two primary stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Most leading Indian companies are listed on both exchanges. Nifty and Sensex are the two types of market indexes that operate here.
The US stock market is a more globally recognized stock market. That means many more investors across the globe opt to invest in it. It includes various indexes like the S&P 500, Dow Jones, and Nasdaq. In the US market, most stocks are identified as segments or capitals.
Indian and US stock markets: A comparison
The Indian and US stock markets differ in more than one respect. So, if you want to know which is better for you, you must compare them well. Here we list a few key factors that define the Indian stock market vs. the US stock market.
The trading currency is the first and most obvious point of difference between these stock markets. In the US, all trading (means buying and selling) is done with the US Dollar (USD). But in the Indian stock market, the Indian National Rupee (INR) is the default currency.
However, the USD is more robust than INR in terms of currency value and global acceptance. As a result, the US stock market enjoys greater popularity.
The Indian and US stock markets are significantly different in terms of market volatility, too. Generally, the US market is less volatile, so there are fewer risks involved.
Research is also a crucial aspect in relation to which these two stock markets differ. The US stock trading market offers a vast scope and many tools for research. For instance, studying the Nasdaq index vs. Dow Jones can help you learn a lot. On the other hand, Indian stock market research only offers regional data. Besides, the number of research studies conducted on this market is limited.
When comparing the Indian and US stock markets, global factors play a vital role. The US market, being a global stock market, comes with more flexible investments and trading regulations. Meanwhile, in the Indian stock market, rules are stricter. Companies also cannot participate in the stock market unless they have been in the market for three years.
If we consider investment portfolio diversification, the US market seems to have a brighter future. Whether you compare Dow Jones vs. Nifty or the Sensex vs. Dow Jones charts, you will find that the US market has a wider range. That’s partially due to the companies listed, which are largely global.
As exciting as US stock market investments sound, at present, they come with one huge drawback: taxation. This year’s Union Budget introduces a tax rate of 25% on returns from foreign investments. This bid to increase investments in India is going to eat into any profits from US stocks.
Where to invest in India
When it comes to investments, you can have various options in India. To name a few:
- National Savings Certificate (NSC)
- Public Provident Fund (PPF)
- Post Office Monthly Income Scheme (POMIS)
- National Pension Scheme (NPS)
- Sovereign gold bonds
- Government bonds
- Mutual funds and equity funds—in Indian and US stocks
Where to invest in the US
The US, too, has various investment options. Here are some of its best offerings:
- High-yield savings accounts
- Money markets
- Mutual funds
- Government bonds
- Corporate bonds
- Index funds
- Exchange-Traded Funds (ETFs)
Advantages and disadvantages of the Indian stock market
Before we draw our conclusions, we should take a minute to take stock of the advantages and disadvantages. The pros and cons of Indian stock markets are as follows.
Some of the key advantages of Indian stock market investments are:
1. Increased short-term profit potential
When compared to certain safer options like PPF or fixed deposits, the Indian stock market does yield much higher returns. The low returns sometimes can help keep up with inflation in the short term. And if you stick to the fundamentals of stock market investing, you should be able to achieve superior returns.
2. Controlling interest in a publicly traded company
When you invest in a publicly traded company in India, you get a stake in the business. This stake gives you a voice in shaping its direction through annual meetings and other formal channels. It is easier to reap the benefits of this advantage in India.
3. Lower tax rate
The tax rate, at present, is significantly lower for investing in Indian stocks. Low enough to deter investors from looking at US stocks—no matter how attractive they are in other respects.
1. Greater fluctuation
Investment in Indian stocks comes with its own set of risks. The foremost among them is the inherent uncertainty and constant volatility. There are frequent daily ups and downs in share prices. And most of the time, these shifts can’t be predicted. Even though the likelihood of a catastrophic failure is low, when it does happen, the market may take several years afterward to recover.
2. Potential losses due to brokerage fees
When stocks are bought or sold, brokers receive a percentage of the transaction price. This can affect your take-home profit.
Things to know before investing in US stocks
There are a few things that you must know if you are an Indian looking to invest in the US stock market. This is where you’ll find all of them
1. Impact of foreign currency exchange
You need to have access to enough of the US dollar to invest in US stocks. That means you will need to convert INR into USD. While doing this, keep the fluctuating USD–INR foreign exchange rates in mind. Before investing, also be aware of the foreign currency markups charged by different banks.
2. Fractional ownership of shares
The share prices of large companies in the US market are higher than those in India. The high price makes it impossible for retail investors to invest in these shares. This is where the concept of fractional ownership of shares comes in.
Retail investors buying fractional shares essentially get to invest in a fraction of a share. You can learn more about it here.
3. Tax implications
Before, as an Indian resident, when you made any gains from the US stock market, you were taxed by both countries. But thanks to the Double Tax Avoidance Agreement (DTAA), you can now only pay taxes in India. These taxes primarily depend on capital gains and dividends.
4. Maximum investment amount in a year
As per RBI’s Liberal Remittance Scheme, an Indian citizen can invest or transfer up to $250,000 outside India annually. This limit applies to US stock investments.
5. US stock broking account and its charges
To invest in the US stock market, an Indian account will not do. You will need an account with a US broker or an Indian one with a tie-up with a broker in the US. There will be some charges that come with a US broking account. This includes brokerage charges, bank charges, annual maintenance charges, and more.
How to invest in the US stock market from India
There are several ways you can invest in US stocks from India.
- Banks: Many banks have tie-ups with US stock brokers. If you find such a bank, you can invest in US stocks by opening an account with them.
- Broker: Another popular way to invest in US stocks from India is by contacting stock brokers. As mentioned earlier, this could be a US broker or an Indian one with a link with a US brokerage firm.
- App: You can also invest in US stocks through mobile applications. All you will need to do is install the app and register to start investing.
Stock market investments are subject to financial risks and losses. Therefore, whether you invest in the Indian stock market or the US stock market, make sure you do your research. And to get you started, there are many more articles like this one on our blog.
Is it possible to invest in US stocks as an Indian?
Yes, US stock market companies, like Amazon and Facebook, are spread across the globe. So you can surely invest in them from India too.
Does the US stock market affect the Indian stock market?
The Indian and US stock markets are directly correlated. Besides, as a global stock market, the US market has a particularly strong influence on the Indian stock market.
What is the difference between the Indian and US stock markets?
There is more than one difference between the Indian and US stock markets. They vary in terms of the currencies they use, volatility, and diversification. Read the article above for more details.
Are US stocks taxable in India?
Yes, it is. In India, the tax rate for US stock investments primarily depends on profits.
What is relation between US market and India?
The relationship between the US stock market and India is influenced by sentiment and global dynamics. While there is some correlation, it’s primarily driven by market sentiment and not a direct link.
Which is better US market or Indian market?
The preference between the US and Indian markets depends on individual goals and risk tolerance. The US market is often seen as less volatile, while the Indian market can offer higher returns with more volatility.
How does Indian market react to US market?
The Indian stock market often reacts to short-term movements in the US stock market. While it may follow US trends temporarily, the long-term performance of the Indian market depends on domestic factors.
Is it good to invest in US market from India?
Investing in the US market from India can offer diversification and growth opportunities, but it carries currency and market risk. It’s advisable for long-term investors with a well-rounded portfolio.