Want to invest in US stocks? Caution warranted!

The year 2020 has been an exciting one for stock market investment. Not only a flurry of first-time investors entered the Indian stock market, they also nibbled into international equities, especially US stocks. The early starters are sitting on huge profits. Their word-of-mouth and much publicity by broking firms are attracting fresh investors, so much so that most recent IPOs listed in the US market have seen huge demand coming in from Indian retail investors.

Stocks like Nio, Tesla , Peloton Interactive and Etsy have gained 1, 900 per cent, 645 per cent, 515 per cent and 485 per cent, respectively in last nine months. Among IPOs, Palantir Technologies, Unity Software and Lemonade have rallied 187 per cent, 122 per cent and 116 per cent, respectively.  

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"The US market is giving an opportunity to play the themes that we don't have in India. Why Tesla has become popular is because we don't have a listed EV player in India. Similarly, people are buying Qualcomm shares because it has a monopoly in the phone processor segment and you don't have such companies in India," says Ghanisht Nagpal, convener, Delhi Investors Association.

Sharing an interesting insight, Nagpal says a lot of Indian retail money is going into MicroStrategy Incorporated, a company that is investing its surplus cash in bitcoins. "People are buying bitcoin-linked stocks as a proxy for bitcoin investment as you cannot directly buy bitcoins in India," he adds. MicroStrategy Incorporated is up over 200 per cent in last nine months.  

Also read: Crypto fund inflows top $5 billion this year, up more than 600%

Paypal has been among the top ten most traded stocks on brokerage firm Stockal's platform - that allows Indian investors to invest in the US stocks -- in the last nine months. The online payment platform now allows buying bitcoins for as low as $1. The stock has rallied 169 per cent since March 20, 2020.  

"During the first week of December, the top 5 most traded stocks on our platform were Tesla, travel major Trivago, Chinese electric car maker Nio, Amazon and big data company Palantir," says Vinay Bharathwaj, Co-founder and Co-CEO, Stockal Inc.

Another brokerage firm Vested Finance says Tesla, Apple, Amazon, Microsoft and Shopify have been the most popular stocks on its platform in 2020.

Among IPOs this year, Snowflake, Airbnb, Unity Software, Lemonade and Palantir attracted huge interest from Indian investors. Note that Indian investors cannot directly invest in IPOs. They bought these shares after the stocks got listed.

Also read: Global stocks: Investors look for vaccine-led recovery, US stimulus

An increased interest was seen in vaccine producing companies - Pfizer and Moderna too. "Both of these companies formed 15 per cent of the trades in December as vaccine developments accelerated," says Viram Shah, Co-Founder and CEO, Vested Finance.

What about now?

Factoring in steep valuation in the global market, a greater exposure to the US stocks may not be a prudent step at the moment unless you are in it for the long haul. On Monday this week, global markets including US, Europe and India saw a bloodbath. The markets may have recovered, but any adverse news around a new variant of COVID-19 or vaccine development, there could be a significant market crash. Brace up for volatility.  

Also, just because everyone is investing in certain stocks doesn't mean you should also jump into it. The same seems to be happening in Tesla. "The fundamentals often belie belief. The twelve-month trailing PE for Tesla is over 1,250. However, with it making its way into the S&P500, one can continue expecting buying activity as the tracker funds purchase Tesla. However, the Street analyst ratings keep Tesla 'cautious'. Only about a third of the analysts state that it is a buy," says Swastik Nigam, Founder and CEO, Winvesta. Similarly, FAANG (Facebook, Apple , Amazon, Netflix and Google's parent firm Alphabet) stocks, popular among Indian investors, are also highly valued.

So, if you lack the expertise to track the US markets on your own, consider taking the advisory route. Platforms like Stockal, and Vested Finance have readymade portfolios such as Findea TwinMomentum Factor Strategy, The Obvious Portfolio, All Weather and Digital Cash portfolios etc. Similarly, you may also take the passive approach to the US stock investment by investing in S&P 500 or Nasdaq-linked ETFs.

Also read: Bitcoin surges to all-time high at $19,864.15 as 2020 rally powers on