Plugging the global gap

Why Indian investors cannot afford to ignore US ETFs and the industries missing from Dalal Street Can you build a complete portfolio with Indian stocks alone? Yes, if you’re okay with missing out on global companies reshaping the modern economy. While most Indian portfolios lean heavily on banks, energy giants, IT services and consumer staples, the most powerful global growth engines like chips, EVs (electric vehicles) and AI (artificial intelligence) remain missing. That absence leaves investors tied to one geography and a narrow set of industries. US-focused ETFs (exchange-traded funds) listed in India are the most practical way to correct this imbalance. With a single trade, you get exposure to global leaders and sectors you cannot otherwise own here. This is not an argument against India. Domestic markets have delivered enviable returns. But portfolios confined to India mean missing out on what the world has to offer. 

1. They diversify your risk. The Nifty 50 draws over 60 per cent of its weight from financials, IT and energy. The S&P 500, by contrast, spreads its weight across technology, healthcare, consumer and industrial leaders. That ensures the two indices rarely move in sync, diversifying risk. A look at the 10-year rolling returns of the Sensex and S&P 500 shows alternating leadership. At times, India has comfortably outperformed; at others, the US has pulled ahead. Exposure to both markets not only reduces dependence on one economic cycle but also smoothens returns. 2. You get exposure to industries missing in India. Some of the world’s most dynamic industries are absent on Indian exchanges. Semiconductor chips, for example, are the foundation of modern technology yet India has no listed manufacturer. The same is true for global internet platforms, advanced healthcare innovators and leading EV makers. Waiting for these industries to develop here could take decades. US ETFs provide immediate exposure. A single Nasdaq 100 ETF brings Microsoft, Nvidia and Amazon into your basket, helping future-proof your portfolio with businesses central to global growth. 3. They hedge rupee weakness. Currency plays a quiet but powerful role. The rupee has depreciated by 3–4 per cent annually against the dollar for two decades. That steady slide boosts INR returns from US equities. Since 1980, the S&P 500 has delivered 9.3 per cent annualised returns in dollar terms. Add rupee depreciation and the returns in INR jump to 15.1 per cent. To illustrate, Rs 1 lakh invested when the rupee was at 70 to the dollar would be worth Rs 1.14 lakh if the rupee weakened to 80, even if the index went nowhere. The hedge against currency depreciation is built in. 

The advantages are clear, but trade-offs exist. The very forces that make them attractive currency, cycles, concentration, can also work against you. 1. Currency risk in the short term. The rupee weakens over time, but not in a straight line. If you invest Rs 1 lakh when the rupee is at 83 and it later strengthens to 80 while the US index stays flat, your holding falls to about Rs 96,000. Over decades, depreciation supports returns; in the short term, it can cut them.

2. Opposing market cycles. US markets also have down cycles. Since 1990, the Sensex has logged negative returns only three times in any 10-year period. For the S&P 500, that number is 27. Between 2007 and 2017, the S&P 500 barely managed 5 per cent annualised returns. Indian equities outperformed handily in that stretch. Too much US exposure would have muted your overall performance. Diversification cushions risk but it does not eliminate cycles of underperformance. 3. Premiums to NAV. Like international mutual funds, global ETFs also face the structural problem of an RBI-imposed investment cap, currently set at $1 billion. With supply capped and demand high, new units are rarely created. The result is demand-supply mismatches, pushing ETFs to trade at a premium to NAV (net asset value). Over the past year, they traded at a premium on 82 per cent of their trading days on average. That means investors often pay more than the intrinsic value, which eats into returns. 

 

 

The right question is not whether to invest in India or the US, but how much should you hold of each. India’s growth story remains powerful and should anchor your equity portfolio. But ignoring US markets leaves you blind to industries that will shape the global economy. The sweet spot is to treat US ETFs as a satellite allocation big enough to add genuine diversification, but not so large that it derails performance if global markets struggle. A range of 10–30 per cent of US exposure is a sensible band. Within that, broad-market indices like the S&P 500 or Nasdaq 100 are the most practical vehicles. They give you exposure to the biggest companies and industries with minimal complexity. The point of US ETFs is not to earn quick gains but ensuring portfolios aren’t locked into one geography or set of industries. The smarter strategy is not to guess whether Infosys or Nvidia will lead the next cycle. It is to hold both. That way, you stay rooted in India’s growth story while plugged into the innovations rewriting the global economy