Mint Money Compass: AI boom and currency woes call for smarter diversification

US technology stocks have risen sharply over the past few years, driven largely by excitement around artificial intelligence (AI). A handful of Big Tech companies are leading these gains, leaving investors worried about whether an AI bubble may be forming.

For Indian investors, this concentration is even more concerning because most international exposure from India is heavily tilted towards US equities, especially Nasdaq-focused funds. And nearly 54% of the Nasdaq is made up of just five companies: Nvidia Corp., Apple Inc., Microsoft Corp., Amazon, and Alphabet Inc.

It’s clear that the US market rally is powered by a small group of AI-linked mega-caps, and this may explain why some global fund managers are beginning to look beyond the US and towards markets like India as concerns around valuations grow.

Here is the trivia about Mega-caps. Mega-caps are defined as the companies with over $200 billion market capitalization and guess what? Ten US stocks currently hold a market cap of over $1 trillion each. These include Nvidia Corp., Apple Inc., Alphabet Inc., Microsoft Corp., Meta Platforms Inc., etc.

In this environment, global investing is no longer just about owning US stocks. Investors need to think more broadly about diversification—across regions, sectors, and themes—rather than anchoring portfolios to a single market. For you, this means preferring broad-based international funds and adopting a staggered and passive approach.

Experts suggest diversification across developed markets such as Europe and Japan, and also taking limited exposure to select emerging markets like Brazil.

Avneet Kaur explains why this may not be the time to be overexposed to US equities. It may also be an opportunity to revisit domestic investments, especially as domestic domiciled ETFs are trading at a premium due to the Securities and Exchange Board of India's (Sebi) restrictions on overseas mutual fund inflows.

And if you are looking for global diversification, make sure you do it in accordance with your asset allocation. Most experts recommend keeping global exposure between 10% and 30% of the portfolio.

And while a depreciating rupee against the dollar brings international exposure in the spotlight, international travel too merits attention, especially if you are making plans for an international holiday. The rupee’s slide past ₹90 against the US dollar is raising costs for Indian travellers to destinations that are USD-dominated, such as Europe, the Maldives, Mauritius, and Canada. Which is why now may be the time to look at destinations like Vietnam, Indonesia, Sri Lanka and Malaysia to insulate your travel from the impact of currency depreciation.

In fact, this may also be the time to explore packaged deals via tour operators who buy holiday packages much in advance, so the currency impact can be minimized. Shipra Singh brings you a playbook for international travel.

Staying with news events of the month, last week, we looked at how the 25-basis-point repo rate cut announced by the Reserve Bank of India on 5 December could impact home loan borrowers. This week, we turn to the impact of rate cuts on debt products such as fixed deposits. Repo rate is the rate at which the RBI lends money to banks.

Since January, the repo rate has been cut by a cumulative 125 basis points—from 6.50% to 5.25%. In response, banks have reduced deposit rates across several tenures, with cuts ranging from 15 to 125 basis points on 1- to 3 -year fixed deposits.

Interest rates on small savings schemes—think Public Provident Fund, Senior Citizens Savings Scheme, etc.—however, remained unchanged since January 2024.

Maulik M revisits the universe of debt products through the lens of falling interest rates and tax efficiency, and outlines strategies for both short-term and long-term investment needs.

Here is another interesting story by Shefali Anand on the recent Avadhut Sathe case. Sathe, who runs Avadhut Sathe Trading Academy, came under the market regulator's scanner recently. Sebi, in an interim order, barred Avadhut Sathe and his trading academy from dealing in securities, and directed the impounding of ₹546.16 crore in alleged illegal gains. Sebi said these gains were earned, prima facie, by providing unregistered investment advisory services. Sathe has denied the allegations. Subsequently, on 19 December, the Securities and Appellate Tribunal (SAT) granted ad-interim relief to Sathe and his academy, allowing them to resume operations.

The Sebi order is revealing. The regulator noted that the academy and Sathe circulated videos that falsely claimed course participants had made extraordinary profits. In one instance, promotional material suggested that an investor had made ₹1 crore trading Nifty Bank options, but Sebi later found the actual profit to be just ₹4.17 lakh. In another case, a participant was shown turning ₹1.8 lakh into ₹45 lakh using strategies taught by the academy; Sebi found that the investor had, in fact, suffered a loss of nearly ₹6 lakh during the same period.

Notably, the academy had over 300,000 participants who collectively paid around ₹600 crore to learn the “secret sauce” of getting rich quickly through trading. This is not the first such episode. The story delves into the behavioural biases and psychological traps that push investors to chase unrealistic returns and often lose money in the process.

Finally, this week also featured a story on how financial planning is evolving for couples who choose not to have children. This is an important shift, particularly in urban households, where more couples are opting for lifestyle freedom and experiences over parenthood. This choice, however, also means rethinking finances with a focus on long-term self-reliance. Anagh Pal writes how such couples can plan their money around this decision, while building adequate buffers for healthcare, household support, and nursing care expenses that may arise later in retirement.

This week’s video is an interview with Dhiredra Kumar, founder and CEO of Value Research, where he explains why IPO investing is not for retail investors. Information asymmetry in an initial public offering (IPO) is often stacked against the retail investors who are lining up for IPOs, even at very high valuations. For Kumar, retail investors should take comfort from the secondary market for better price discovery, and we would go a step further, take exposure to stocks via mutual funds.

And with this, we come to a wrap. Until next time.

Deepti Bhaskaran is editor, Mint Money, with close to two decades of experience as a personal finance journalist. Her work reflects a strong focus on financial literacy, consumer protection and practical money management.