Mastercard, the global payments giant, recently announced its quarterly results. The revenue for the year went up by 23% with a 31% increase in full-year earnings per share (EPS) amid expectations of a better 2022. Many global companies listed in the US are going through such a phase of dominance.
A lot has been written about why international investing is relevant to every savvy and affluent investor’s portfolio. Four key reasons are dollar expenses, rupee depreciation, access to niche businesses, and diversification.
Many companies listed in the US are truly global and a significant part of their revenue is earned from non-US markets. They deliver exceptional financial performances, often reflected in fresh cash flows and profitability growth of over 20%. Investing in US markets makes these type of companies a part of your portfolio. Here is how to invest in such companies.
Fund route: Many Indian mutual fund schemes invest in internationally listed companies. Some of them are feeder funds. They collect funds from Indian investors and simply buy units of an actively managed fund domiciled outside India. Currently, this option isn’t available as the Indian mutual fund industry has reached the Sebi prescribed limit of $7 billion. Another category of mutual funds, which invests in ETFs listed globally have a Sebi (market regulator Securities and Exchange Board of India) capped limit of $1 billion which is also likely to be reached in due course, and hence it may also not turn out to be a viable option. Also, as this investment mode is still a rupee-denominated one, while it does serve the diversification benefit, it does not offer access to dollar currency.
Liberalized Remittance Scheme (LRS): The Reserve Bank of India allows remitting up to $250,000 per person in a financial year. This remittance is towards all your foreign currency expenses, including Investments outside India. These investments can be made in ETFs, stocks, and actively managed funds. Money can also be deployed through some boutique investment managers who run niche concentrated strategies focusing on growth companies with high ROEs and free cash flows.
The advantage of the LRS route is that the accumulated investments can be sold or redeemed at any point in time to generate a large dollar balance which can be used for any expenses/investments without any limits. We have seen that HNIs are increasingly utilizing these limits to remit monies outside India and gradually building a corpus of offshore assets.
With Sebi limits on Indian funds investing internationally, HNIs are resorting to increased LRS where the limit is not on the fund but rather on each individual.
Due to ongoing geopolitical conflict, equities have seen some drawdown. For example, Nasdaq is down by 10% in 2022 so far. So, one can take benefit of this volatility to start building or increasing international exposure in a staggered manner.
The Indian financial year is just about to end. One can look at unutilized LRS limits and remit the requisite balance amount before31 March. Also, if need be, some more money can be remitted in April or May from next financial year’s limits to take benefit of lower markets.
Arihant Bardia is founder and chief investment officer at Valtrust Capital.
