Lure of diversification, higher returns and global exposure driving Indian investors to US markets: Subho Moulik

What factors are driving the trend of Indian investors increasingly looking to invest overseas, particularly in markets like the US?
Subho Moulik: Let’s start with the fundamentals as to why the US is attractive and increasingly appealing to Indian investors. Diversification: The first is diversification. Investors are finally understanding that they should not put all their eggs in one basket. I do not think we would recommend putting all your savings into the US market, but allocating 20-30% is a good diversification measure, especially as the correlation between the US and India over time has reduced, and we expect further divergence to happen. So, it is a very prudent decision to set aside some money for diversification.

Outsized Returns: The second fundamental piece is that the multiple indices in the US have provided outsized returns. This is often compounded by the fact that there is USD appreciation versus INR, giving a good 4% to 5% kicker, which is nothing to sneeze at. So, there is a return element as well, in addition to diversification.

Global leaders listed in US market: The third fundamental reason is while I love Indian companies and we have some world-beaters in India and hopefully more to come, there are stellar marquee blue-chip companies in the US that one can invest in outside of the index play. People think that they can take a bet,” in the Magnificent Seven or upcoming players doing really well. A lot of global leaders are listed in the US market. The leaders in most sectors are listed there.These three fundamentals really drive this trend, especially when compared to some of the other traditional assets Indians invest in for diversification — Indian real estate with 4%-5% returns— which is not very exciting compared to over 20% return from the US index. Indian midcaps have underperformed the US composite index.

So, even when you look at asset class by asset class in terms of what a rational investor would do, there are reasons to start saying, “If I have Rs 10,000 to invest, should Rs 2,000 to Rs 3,000 not go into the US market?”

Watch: Why Indian investors flock to US markets?

What specific market opportunities do you see for Indian investors in the US? How do these compare to opportunities available in India?
Subho Moulik: There are a couple of very interesting things happening, and timing is everything. Let us start with the elephant in the room, which is Trump coming in. Whether you hate him or love him—and you can do both combined—there is no denying that he will basically push deregulation. He is all for reducing bureaucracy and regulation.

I see a number of sectors benefiting, and irrespective of what that may do to society at large—I am not here to make political statements—but from an investor’s perspective, the impact on financial services, traditional energy, and the ability of technology companies to do more will be significant. Deregulation is going to happen, and that will give an actual fillip overall.

Secondly, there is a lot of talk about whether things are overvalued, both in India and the US. However, the S&P traditionally runs in five-to-six-year bull run cycles. This can always break—there is no guarantee, as past performance is not an indicator of future returns—but this current bull run is not that old. It has got another three-to-four years to go if you go by previous historical cycles. There is more upside there, especially if earnings continue to impress and inflation is kept where it is now.

Also, there is a very vibrant entrepreneurship ecosystem. A vibrant set of global IPOs will start happening, primarily in the US market. More importantly, we see very large companies reinventing themselves. For instance, if you look at Nvidia five years ago and the whole AI boom, it is a second-degree consequence. Similarly, in biotech, most people do not understand the huge development in drugs like weight-reduction drugs (e.g., Wegovy) and their application to health. The introduction of CRISPR, a gene-editing tool, and its mainstream application in pharmaceuticals and medicine is another huge development.

So, pharmaceuticals and biotechnology will be very interesting over the next couple of years. Energy is another sector, as the US focuses on supplying Europe instead of Russia. The “drill baby drill” slogan is back, so energy will be very interesting. The play between renewable versus traditional energy will be something to watch.

Of course, there is the whole AI and quantum computing space. We do not talk about quantum computing as much, but if you look at Google’s recent announcement, quantum computing and the ability to pack more computing power into smaller devices will be as important as AI, though it is a few years out. But it is a great time to get in before that becomes obvious to everyone.

Additionally, infrastructure will see more spending. Data centers are now considered core infrastructure, not just highways and roads. Semiconductors will also see huge investments, with close to $40 billion allocated to onshoring semiconductors to mitigate risks like China invading Taiwan.

Plenty of other sectors will see investment. The deficit hawks in the US Congress will not be successful with Trump in ascendancy. We will see both government and private investment coming in. This creates lots of sectoral opportunities, not just restricted to the usual suspects.

How does investing in international markets, particularly the US, benefit Indian investors in terms of diversification and risk management?
Subho Moulik: Like I said, the correlation between these two markets, which used to be very high, has reduced over time. This is because divergent trends are impacting both markets. India is coming into its own as a major economy. It is no longer as dependent, and we are doing many things to become more self-reliant. This independence, which is a good thing, is also beneficial for investors.

Secondly, from a geopolitical risk perspective, it is good to ensure that you have geographically diverse investments. The US and India are geographically diverse, so that’s a good thing—although no one really thinks about it, it is very important.

The third point is that we are becoming increasingly internationally mobile. So, having funds available for when you send children abroad or focus on creating assets outside makes sense. From a diversification and risk perspective, there is geographical diversification, market correlation diversification, and currency appreciation, as we’ve talked about.

The reality is that the Indian rupee will continue to depreciate, especially against the dollar. If you look at the balance of payments, inflation, and our export-driven services economy, all of these factors will drive this. That’s not necessarily a bad thing, so why not protect yourself against it? An individual investor cannot really impact currency, but you can anticipate what will continue to happen and adjust accordingly. There are lots of risk benefits, but again, I would suggest diversification of 20% to 30% of your portfolio. The earlier you do this, the better, because returns compound.

What are the various routes through which Indians invest overseas, and how do they compare?
Subho Moulik: Today, you can either invest through a set of mutual funds that, in turn, invest in US markets. However, more and more investors are realizing that the US is a good option, and the government has imposed caps on how you can do this because this is viewed as a domestic investment into an Indian fund. The government has capped that at $7 billion, and mutual funds are hitting that cap, so that’s one avenue, and we’ll come back to that. The other avenue is to invest directly.

When I say directly, I don’t mean you always have to bet on individual stocks. If you are a more sophisticated investor with a higher risk appetite, sure, take bets on individual stocks, but you can also invest in the US market through an index or ETFs, which are nothing but passively managed exchange-traded mutual funds. An ETF is a good route, but there are several benefits.

There’s a primary piece: my route to access is not really there because we keep hitting the $7 billion cap. Most investors probably have moderate to low risk appetite, and so, let’s take a sectoral or broad-based index bet. There are several advantages to investing in ETFs over mutual funds in India.

Firstly, it is cheaper. Why? Because you are going directly to the source. Typically, expense ratios are not more than 20 bps, whereas here, it is well above that—could be 50 bps, 100 bps, or even more. Secondly, it’s a daily NAV here, whereas you get instant NAV in the US. There is fractionalization. So today, if you want to invest, there are platforms that enable this, and if you want to invest just one rupee, you can invest one rupee into an ETF. whereas here, there are minimum amounts and no fractionalization.

Also, exit loads before a lock-in period exist here, but under LRS, you can go in and out, and the LRS limit is $250,000. I think most people would invest far lower than that in a year. So, there are lots of advantages to investing in ETFs, which are – for shorthand – (though it’s not technically correct), similar to US mutual funds.

There are Indian mutual funds that invest in US mutual funds, and US mutual funds, of course, invest in Indian mutual funds. It’s your home market. But if you have to invest abroad, probably invest in a US mutual fund or an ETF directly. It’s easier, more effective, has tax benefits, withdrawal benefits, and is a more liquid asset.

How should Indian investors approach the decision between investing in US-focused mutual funds versus direct ETFs?
Subho Moulik: My last answer probably gave you a hint of what I am going to say. Five years ago, doing an LRS transaction was quite complicated. You had to go to a bank, fill out forms, and the bank would probably come back and tell you that the form wasn’t filled out properly. You’d go back and forth, and finally, the money would be there, but you still had to find a broker or platform to execute the trade.

Today, there are platforms where you can sign up, and you do a three-click transfer, a one-click buy, one-click sell, and one-click withdrawal. It’s super convenient. All the regulatory requirements are taken care of. In today’s day and age, given the advantages of US ETFs, such as easy withdrawals, lower costs, real-time pricing, fractional investing, and a wide range of choices, you’re not restricted by what an Indian mutual fund manager chooses. You can opt for sectoral ETFs.

If you look at S&P 500-based ETFs, except for utilities and consumer staples, which gave single-digit and low double-digit returns, sectors like energy, financial services, and technology services have given anywhere between 30% and 60% returns on a sectoral index basis. If you look at some of the calls Indian mutual fund managers have made, they’ve probably invested in a less diverse set of investment opportunities. So, why not take that into your own hands and make the right decision?

Recently, the rupee hit an all-time low vs the dollar. What impact does currency fluctuation (USD/INR) have on investment strategies for Indians investing in US markets?
Subho Moulik: I don’t think the long-term trend, where the rupee typically depreciates by about 4% to 5% per annum against the dollar, is going anywhere soon. You might see a year where the depreciation is a little lower or a little higher. This year, for instance, it might be a little higher. But the long-term trend is fairly consistent, and that is normal. We are a growing export service-based economy, and it is actually beneficial for us to be more competitive.

If you look at the macro picture, the differential interest rates and inflation explain why this is happening. The Indian government is unlikely to peg the rupee, as they will allow market forces to determine it. So, over a ten-year horizon, on a compounded basis, you’re looking at a 60% differential, which is significant. That said, does this mean you should suddenly take all your investments and put them into the US? No, because then I would argue for diversification and return benefits.

India is a pretty interesting market as well; we are growing from the fifth largest to the third largest, and soon to the second largest economy. The point is diversification and benefiting from macro trends like currency depreciation. So, you should keep that in mind. It’s a great juicer for returns. It enhances returns and is certainly a consideration.

Which emerging technologies or sectors do you believe present the most promising investment opportunities for Indian investors in the US?
Subho Moulik: Let’s talk about AI. It has three implications when you look at it from one degree of separation. You need a lot more cloud computing, so data centers and cloud computing companies are going to do very well. That’s one sector.

You also need chips, not just because of AI, but also because of the increasing adoption of PCs worldwide and the future of quantum computing, which will lead to more investment in chips. So, semiconducting chips, and perhaps new chip technologies, are going to be crucial, and this will largely be led by the major players.

Increasingly, you will see a new breed of companies focused not on the LLM or top-of-the-pipeline AI infrastructure, but on the application of AI in the real world. Until AI is applied in real-world scenarios and starts generating revenue streams, the upstream infrastructure companies cannot make money. So, we are going to start seeing real-world applications in service companies. These will emerge from ecosystems like Silicon Valley.

So, AI has three major implications, and it’s not just about OpenAI and Microsoft and the usual suspects. Another sector that is going to be important is biotech and pharmaceuticals. There’s a brand-new set of drugs focused on weight loss, but they will have massive effects on diabetes, cardiovascular health, and other related diseases. This is going to be a huge opportunity. Gene editing is also progressing rapidly, and its cost is dropping significantly. No one has really thought about this yet. Biotech and pharma will be extremely important, and the US will be a leading player in this sector, not just because of research, but also due to intellectual property protection.

Lastly, defence is another area to watch. We’ve heard that defence budgets are going to rise, and the US is going to become the most lethal armed force in the world. This will lead to increased defense spending, and other countries will likely follow suit.

Infrastructure is also going to see growth due to the real need for infrastructure. Energy is another area where we’ll see growth, not necessarily EVs, but traditional energy. Another interesting area could be the media and social media sectors, as AI will bring massive changes in how social media companies interact with users.

Why is the semiconductor sector looking attractive for investment now, especially for those looking at US markets?
Subho Moulik: The Biden administration has put in place the CHIPS Act, which is allocating about $40 billion in subsidies to onshore semiconductor operations. There is a lot of capacity coming online. India will also hopefully benefit, as companies are trying to move away from China and Taiwan to set up more geopolitically stable semiconductor sources. That’s one reason the sector is attractive.

Second, demand for semiconductors is growing for the reasons I’ve mentioned, including AI-based use cases, general computing penetration, and future technologies.

Third, the semiconductor industry has undergone supply chain rationalization and improved efficiency. Industry estimates suggest growth rates of 20% to 30%.

The computing power in your phone is roughly equivalent to a supercomputer from the 1970s. This trend of increasing computing power will continue, especially with new technologies on the horizon. The major players in semiconducting are best placed to drive investment into future manufacturing. When you invest in semiconductors today, especially with the right players, you’re not just betting on secular demand for existing technology, but also on upgrades and increased secular demand and penetration. It’s a long-term bet, and it’s an exciting one.

In what ways is AI transforming investment strategies? How can it benefit retail investors?
Subho Moulik: A couple of things used to separate institutional investors from retail investors, and the divide was very large. One was simple information. You had an information asymmetry, which, because of the internet, the ability of Twitter, Reddit, access to data, and the government saying, “Hey, data needs to be published,” has not disappeared, but has reduced significantly. As you think about AI, today, most of us are still going in and searching if they go to a website and read a document. What AI does, if we can fix hallucinations, is that I can literally ask it to me gGive me the summarized results comparison for X company and Y company over three years,” and it will give me a table. So, it is further reducing informational asymmetry.

Even for the lazy investor or the not-so-sophisticated investor, there’s now an RA (Research Analyst) on call. An institutional investor used to have a team of 50-60 RAs that were analyzing it. Now I have my own personal RA that is as good as that team. So, information asymmetry is going down.

Second, most human beings cannot handle more than ten variables in their head. When you are looking at stocks, the Indian market has 3,000-4,000 tickers. The US market has 7,000 tickers. Even if I were to try and look at the top hundred stocks and one indicator for each stock, as a human being, I would struggle. What you are seeing now with AI ML models is that I can look at 20 parameters across 10,000 listed securities, across as many time units as I can see, and I can give you readings based on minute-by-minute changes but all synthesized into what you should do.

I appreciate that we have invested in a data science team and we are really looking at using these tools for the retail investor, and the ability to have database recommendations. The final call is still taken by the retail investor. But that call can now be packaged based on a lot of verified data, a lot of modeling, and so instead of your uncle saying, “I have a hot tip, buy that stock,” you can have yes, saying, “Here are the top recommendations, now it is your choice what you need to do.”

So, it is going to fundamentally transform how people pick stocks. It is going to be more data-based. It is going to be much easier, and companies like Appreciate are going to drive that change for the benefit of the retail investor. As more retail investors start participating in markets, the market will be that much more efficient because the concentration of blockage, etc, goes down. It is going to be a paradigm shift over the next two-three years, not an incremental slow shift.

In fact, it has also started happening to a certain extent. A lot of Indian investors have started maintaining the core and the satellite portfolio approach wherein the satellite part of it is used to invest in stocks suggested by AI models, and a lot of brokerage firms have the AI model in place, especially in the apps and everything. So, yes, this is something that could become mainstream in the next few years.
Subho Moulik: We recently released something called Trading Signals, which is an AI ML model-based recommendation engine. That engine updates itself daily, but in the future, it will be every 15 minutes. It looks at parameterized indicators across about 50 indicators, and not just 50 indicators, but 10 different sources of insight. So, sentiment, news, technical indicators, fundamental indicators, momentum, etc. It then uses an agentic AI solution. It is basically a vertical AI investment agent.

To pull all the various insights and say where is their alignment because some models might say buy, and others say sell. So, one model collates all of this and then gives a high-confidence set of recommendations both for your core and your satellite, which you can then go forward with.

Typically, if you were to take the amount of work that the model does, it would be worth about 200 people doing that equivalent. And as we increase the universe, it is the equivalent of 5,000-6,000 people crunching numbers. And we are getting a higher-confidence outcome. As more people start using a solution like Trading Signals, the model is going to learn because we have recursive learning built into it. What analysts do not have is they do not have the feedback loop. So you are going to see a significant improvement in recommendations.

Ultimately, the investor has to take the call because this is an option for the investor to take the call, but the investor can understand that there is science and a method behind this. Will it always be right? No, because you can never be 100% right in markets. But if your probability distribution of right versus wrong calls is good, then it is a huge value add to the investor.

How does the ONDC enhance investment opportunities for Indian investors? What are its broader implications for mutual fund accessibility?
Subho Moulik: We are very excited about ONDC – the Open Network for Digital Commerce – which was set up to facilitate e-commerce between smaller sellers and customers. We are already seeing it happen. There is a ride-sharing service on ONDC that is giving rickshaw riders and cab drivers a better deal versus other platforms. We are increasingly seeing sellers in rural India who had no ability to connect now finding customers around themselves, but also across India.

Financial services is a big push, and we work closely with the ONDC team that is driving that. And the push is to enable smaller ticket sizes for first-time investors to come in. The push is to see if we can further rationalize costs for investing, and the push is to drive distribution so that more and more people can actually be part of the investment journey. The fundamental belief that we have, and ONDC has and the government has, is – it does not matter whether you are a billionaire, a millionaire, or someone with just a thousand rupees in your pocket. If you want to invest, you should be able to invest without high transaction costs. You should be able to invest in assets that give you the same returns.

So it is opening up the world of mutual funds, which is a good instrument for first-time investors, and making sure that it happens seamlessly is a fantastic effort. We are partnering, and we are a member of the ecosystem there that is hoping to drive this, and so we are very excited. This will be a game-changer and we are looking forward to taking that 4-5% of the investor base up to 20-25-30%. The world over, around 30% people invest on an average. In more developed markets, it is up to 60%. There is no reason why India, which is going to be the third-largest economy, should not have a third of its citizens investing in financially prudent investment products that give them adequate returns over time. That is the basic goal.

What should Indian investors know about the regulatory framework governing overseas investments under the Liberalized Remittance Scheme (LRS)?
Subho Moulik: The LRS scheme is set up to allow Indian investors to diversify. You have a combined limit under LRS because you can send money for various purposes. If you have family abroad, if you want to pay for medical expenses, or if you want to pay for someone’s education, there are various allowed purposes. Investments are a permitted purpose, and LRS is pretty clear that it needs to be in a permitted investment, which typically includes listed securities, unlisted securities, but excludes margin trading. You cannot engage in any activity where you are availing leverage. That is important to understand: there is a very large set of permissible investments, but there are also investments that are not permitted.

Other than that, it is very simple today: you decide you want to invest, find a platform that enables LRS to happen, and it’s typically a three-click process. Once you send the money, you have to invest it within 180 days. You cannot just keep the money there. That’s it. There is no requirement to repatriate once you invest. There are no restrictions on whether you can invest in direct stocks, mutual funds, or ETFs; you can do whatever you want. Many platforms, including ours, enable this process to be smooth, compliant, and hassle-free for the investor.

Looking ahead, what trends do you foresee shaping the future of overseas investments for Indian investors, particularly in relation to global market dynamics?
Subho Moulik: What is going to happen soon is that there will be more and more choices. It’s human nature: if you tell someone, “Hey, can you choose between two cars or fifteen cars and three price points or twenty price points?” people will always want more choices. You’re going to see people gravitating toward platforms that offer more choices.

Second, with AI-based investing, AI and ML models will start providing recommendations, and people will see how those recommendations perform across both domestic and overseas stocks. Typically, when someone starts investing, they know their first ten trades—buy Google, buy Nvidia, buy Hathaway if they can afford it, etc.

But after making ten investments, people often feel they don’t know as much about the US or overseas markets. What will happen is that they will start seeking services that provide eight to ten recommendations with a rationale behind them. This is the reduction of information asymmetry I was talking about. Once people are informed, they’ll start getting access to opportunities.

This is like the information asymmetry reduction that happens when a new car is introduced. They advertise it, highlighting the benefits and why it’s better, and that will start happening in investing too. Of course, investing is not like buying a car—investing is about your savings, and you’re not driving your investments around. But the parallels are there: information asymmetry is reducing. When you wanted to make an overseas investment, you had to wait for seven days and worry about high risk. All of that has gone away now.

Finally, you’re going to see people become more confident about their right to play on the world stage. As India’s economy grows and people feel more comfortable, investors will say, “Hey, I have the right to make my own mark,” and the Indian investor should be a driving force in the US market, the UK market, or anywhere else. You’re going to see that as a sign of confidence in ourselves—that we have the tools to invest abroad. So, we’ll see that, along with all the other factors we discussed: sectoral opportunities and macroeconomic drivers, which are long-term trends. But the psychological and informational developments will drive more diversification.