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NASDAQ Index Rally: Why are Indian Investors Rushing to Invest in US Stock Market?

Jul 23, 2020 9:00 AM 4 min read
Editorial

The global economy might be witnessing one of the worst slowdowns till date, owing to the coronavirus pandemic, but US technology stocks have a different tale to tell. 

A rally in tech shares powered Nasdaq Composite to a record closing high on Monday, with the index jumping 2.5% in its biggest daily rise since April.

Fun Fact: NASDAQ is a gauge weighted by market value of the more than 2,700 stocks listed on the Nasdaq Stock Market. However, five tech stocks - Microsoft, Apple, Amazon, Alphabet and Facebook - are disproportionately large, accounting for 39% of the index’s total heft.

The recent gains have drawn more and more investors into the rally and this could potentially give rise to more milestones in the days to come, as per analysts.

 

A Split Stance

Is a new bubble inflating? Some market professionals remain concerned that certain tech stocks are overvalued and their shares will suffer if the economic fallout from the pandemic spreads in unexpected directions. 

“But how do we know when irrational exuberance has unduly escalated asset values…,” asked Former Federal Reserve chairman Alan Greenspan in a speech nearly a quarter-century ago to describe the 1996 boom in the stock market - particularly the rise of big tech stocks and the wave of unprofitable internet IPOs.

And this year's tech rally is eerily reminiscent of late 1990s and early 2000s, when the NASDAQ surged past the 3,000, 4,000 and 5,000 levels in a matter of months before finally peaking - and then crashing in April of 2000. 

Here to stay: A majority, on the other hand, remain resolute that these tech companies will continue growing.

Why so? The ongoing pandemic and the work from home culture has increased the reliance on and use of technology, and subsequently given birth to many new trends ranging from cloud computing to digital payments. And these are expected to persist beyond the pandemic.

Moreover, with the advent of 5G technology, and rise of artificial intelligence and big-data analysis, these tech stocks have multiple levers to grow and flourish, they say.

 

Investing in US stock market

 

 

Jumping on the Bandwagon

As the so-called “Robinhood investors” in the US ride on the rally, their retail counterparts in India are now piling in too.  

US Securities and Exchange Commission (SEC) registered investment advisor Vested Finance received $5m in investor deposits in the June quarter, up 50% from the previous three-month period.

Considering US tech stocks’ recent rally and higher resilience versus domestic companies, the latter being relatively more exposed to the vagaries of virus-induced turmoil, perhaps it shouldn’t be that unexpected.

While S&P BSE Sensex has rebounded more than 40% from its March low, the index remains in the red for the year. Nasdaq-100, on the other hand, has rallied over 20% in 2020 and touched a record high recently. 

Moreover, the presence of trading apps such as Charles Schwab, Interactive Brokers, TD Ameritrade and Vested Finance has made the process of investing in US stocks all the more simpler and quicker.

Domestic brokerages such as ICICI Direct , Axis Securities, HDFC Securities etc. Have also tied-up with US brokers to facilitate the entire process. For instance, HDFC Securities last year announced a tie-up with Stockal, a New-York headquartered global investment platform whereas ICICI Securities and Axis Securities have a tie-up with Saxobank, the Danish investment bank governed by EU regulations.

Furthermore, as per market grapevine, discount brokers such as Zerodha also appear to be flirting with the idea.

Here’s a useful piece that looks at how Indians can invest in the US stock market and what one needs to be mindful of when doing so. 

And in case you need more motivation, we give you four reasons why you must consider investing in the US stock market right away: 

  1. The US stock market has consistently outperformed the Indian stock market over the last 10 years in dollar terms
  2. Indices are in general less volatile
  3. Many US stocks are truly global corporations, thereby giving you a more diversified and risk adjusted exposure
  4. And lastly who doesn’t want to bet on innovative tech companies which seem to surround us, be it an Amazon, an Apple, or Netflix

With that behind us, we are now hopefully ready to test international waters in search of some gains during these tumultuous times.

FIN.

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