Should Indians Invest in US?

The rescent AI boom has brought US main stream, with many wondering whether investing in the US is better than investing in India.

And for a a very long I used to believe India was the place to invest. 

My initial thesis was that India is a developing country, growing at an average of 12% annualized return, while America being a developed country, only grew at an average of 8%.

The initial analysis was too shallow of course and didnt account for the rupee depreciation.

If we plugin an average rupee depreciation of 3%, the US assetss would come closer to 11%.

These are of course, just thumb rules to do an easy math, A 1% difference is ofcourse a rounding error, and so should be the same - but is it accurate?

I wanted to see the data myself, was my assumption correct?

Afterall, Warren Buffet would disagree with such a thesis.

“Despite some severe interruptions, our country’s economic progress has been breathtaking. Our unwavering conclusion: Never bet against America,” _Warren Buffett

And so, I ran a simulation -   Nifty500 vs S&P500 in INR terms.




There you have it, undisputable proof that that India overperforms S&P 500

Even with the rescent rescent AI runup, India is up on top.

But is this simply a base year effect?

And So I moved by base year  to see how well the Nifty 500 fairs agains the S&P500.

But I didnt want to include the rescent  AI run up in it, since it doesnt require a simulation to know that the US would beat it.

But here is the result : 



As we can see from the animation, Once we change the base year, depending on when you started investing, you may or may not beat the S&P 500, but in the 23 year timeframe, S&P500 was able to beat the Nifty 500 in the vast majority of the times.

But that was not really quantifiable.

Looking at the 1 year rolling return for the full period, we can see that that the Nifty 500 beats S&P 500 50.7% of the time.



However, looking at the 3 year rolling return, things start to change -  S&P 500 has the better win ratio - where the S&P 500 beat the Nifty 500 56.4% of the time.

This is because while India had more returns, it also had deeper corrections.


And at a 5 year rolling return, We can see that,  S&P 500 has the clear advantage at 69.4% of the time.



Therefore, the data is clear, From 2003 to 2005 -  India was the clear winner.

Between 2005 to 2007 -  both was going head to head.

And since the 2008 crash, S&P 500 has been the undisputed winner.

But does that mean we should be moving 100% equity to uS?

While the data suggets that we should, we shouldnt forget the first analysis we did where the Indian Market beat the US Market.

If you had invested in the begining of the simulation 2005 uptill the 2007, India had so much growth that the S&P 500 took two decades to catch up.

Another reason to invest in India is to hedge against domestic inflation.

Stock markets soar during high inflation. The costs bore by the companies are passed on  to the end customer -  And so, High inflationary environments are good for business - which causes stock markets to surge.

With a 100% S&P 500 fund, The risk is that your expenses shoot up, but your uncorrelated investments dont grow propotionally to keep up with the expenses.

And so, I agree with the general rule of thumb shared by the experts to only keep 20% to 30% in the foreign markets.

Not to mention, the macro economic factors are shifting -  The US dollar being the global hedgemony is being challenged.

India is vamping up it's exports and aggressively doing Research & Development.

And so, it's completely impossible to predict the future! We dont know which country will win the next two decades.

And if my words don't convince you, here is a video from a research analyst from Canada "Ben Felix" talking about international investing and recommending not to invest purely in America based on past returns. 



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