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Updated on: Friday, December 24, 2021, 04:06 PM IST

Year-ender 2021: US markets lure Indian investors; 2022 likely to be a year of cautious optimism

 Indian investors have increasingly looked to invest in the US markets for multiple reasons | Photo Credit: AFP

Indian investors have increasingly looked to invest in the US markets for multiple reasons | Photo Credit: AFP

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Year 2021 has been an interesting year for the US stock markets and Indian investors have joined the party. Indian investors have increasingly looked to invest in the US markets for multiple reasons which include looking to diversify geographically, saving up for future events and interests like travel and children’s education and finally the opportunity to invest in US-listed companies such as Apple, Amazon, Tesla, Meta, and Google. While the pandemic loomed large over the world in 2021, let us look back at the US markets in 2021 and how Indians participated in them.

The rise and fall of ‘meme’ stocks

Year 2021 started off strongly, with trading volumes touching new highs. A spurt of zero brokerage apps and social investing platforms like Reddit meant that retail investors flocked to ‘meme’ companies like GameStop (GME) and AMC. This pushed the prices to unimaginable highs. For example, on January 27 the YTD returns for GME stood at 1914.55 percent and the stock had hit a high of $483 during the day.

The trading volumes were so high that it led to the choking of the US brokerage infrastructure, so much so that many brokers limited trading in both of these stocks as the regulators required them to deposit funds overnight. Indian retail investors joined the bandwagon too and participated in the wave. AMC and GME were the top stocks on the Vested platform for almost a month in terms of trades. However, as the year progressed, investors’ interest in these stocks diminished and investors sold their stock. Both GME and AMC are among the top ten stocks investors sold on the Vested platform in 2021. As of December 23, 2022, the YTD returns for GME was 781.97 percent and that for AMC stood at 1318.19 percent.

The year of IPOs

The year was also the busiest for US IPOs in 20 years. Over the year, 399 IPOs raised $142.5 billion. The deal count was busiest ever since 2000 and 2021 was also the biggest year ever for IPO proceeds. Special purpose acquisition company (SPAC) activity was also very high with 610 deals happening in the year. Some of the top IPOs that were popular with Indian investors were Coinbase, Freshworks, Robinhood, and Didi. As of date, Coinbase is held by 1.3 percent Vested customers. This makes it one of the top holdings of Vested customers. Freshworks and Robinhood, on the other hand, are held by 0.7 and 0.3 percent of users respectively. Didi, China’s Uber had a strong debut in the US markets and also caught the attention of Indian investors, but ran into issues as a result of regulatory concerns and is now being delisted from the US exchanges.

The craze for Tesla

While you cannot still own a Tesla in India, Indian investors love to own a piece of the company. For the second year running, Tesla remains the favourite company of Indian investors. Not surprisingly, it was the most bought and sold stock on the Vested platform in 2021. As of date, 6.9 percent investors on the Vested platform, hold the Tesla stock.

Strong returns

More and more Indian investors are realizing that investing in US stocks not only lets them diversify their portfolio globally but also gives them an opportunity to earn solid returns. Overall returns of the S&P 500 YTD (as on December 23, 2021) stood at 25 percent, while the corresponding returns from NIFTY were 21 percent. As we can see, the US markets outperformed the Indian markets in 2021 and it is likely that Indian investors investing in the US markets through our platform have benefited from that. We have seen overall investments via the Vested platform up 24 percent since we started. Also, one needs to keep in mind that the rupee depreciated by 3 percent this year, which adds to the INR returns made for investments in USD by Indians this year.

2022: Looking ahead

It looks like 2022 is going to be a tricky year for investors. We need to keep in mind that factors like supply-chain disruptions that have led to a rise in consumer prices are still a matter of concern. Also, US Fed's projected interest rate hikes in 2022 are likely to influence how the markets behave as it may drive up bond yields and provide competition to riskier assets like stocks. One also has to mind that the current valuations may be on the higher side and provide little margin for risks.

The S&P is trading at about a 30 percent higher PE ratio than its 10-year historical average. However, for long-term retail investors, domestic and international equity will continue to be a crucial part of their asset allocation. One also needs to remember that pockets of opportunity will continue to appear all year long and investors can capitalize on that. Our message to investors is to do their due diligence and invest according to their risk profile with a long-term horizon in mind.

(Viram Shah is Co-Founder and CEO, Vested Finance)

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Published on: Friday, December 24, 2021, 04:06 PM IST
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