“Investors should look at the US market for portfolio diversification. An ideal balanced or moderate investor should look at a portfolio allocation of 50:50 equity and debt and within the equity allocation have 30% equity in US stocks (15% overall),” said Ashish Ranawade, head of products at Emkay Wealth Management.
He said US equities provide a good amount of diversification in a situation where the Indian market is looking expensive.
India’s market capitalisation to gross domestic product (GDP) – a valuation measure also known as the Buffett Indicator named after Warren Buffett – hit 140%, a 15-year high, said Emkay.
The US market-cap to GDP ratio is at 200% but American equities look more expensive because of the top 10 stocks – mainly the technology giants.
“If you look at the old economy kind of stocks in the US, a large number of these stocks have fallen 50% or more in the last one year since the time US Fed started increasing interest rates,” said Ranawade. “Now, there are some very interesting mutual funds in India which invest in the overseas markets. We believe that with Trump coming in, and with interest rates in the US headed down, some of these funds will do very well. And an investor needs one or two good funds.”