Differences Between Indian Stock Market and US Stock Market

Today, there are various options available for Indians to invest in the US. The question on investors' minds is whether they should transfer some of their money to a US bank. To make this decision, it is important to understand the differences between the two markets.

For the sake of discussion, let us compare S&P 500 (US) and Nifty 500 (India) with the stocks included in these indices. Both indices follow the trends of the free stock market and represent the top 500 companies, with large companies accounting for 80-85% and small and medium-sized companies accounting for 15-20%. Total market capitalization is the percentage of a company's shares held by individual investors rather than shares held by distributors, company managers, investors, or the government. 

Indian vs US stock market

However, in 2024, the leading indices of the Indian stock market failed to outperform the leading indices of the US stock market. The Nifty 50 index surged 6.40% YTD, while the BSE Sensex surged up to 2.73% in 2024. The Bank Nifty index rose near 0.54. %. In the overall market, the BSE small cap index has surged over 7% YTD, while the midcap index has gained 10.24% in 2024.

On Wall Street, the major benchmark index, the S&P 500, is up 9.73% YTD, tech giant Nasdaq is up more than 10% in 2024, and the Dow Jones has surged 3.15% this year.

Thus, in 2024, the leading indices of the US stock market outperformed the leading benchmark indices of the Indian stock market.

Market Size and Capitalisation

The U.S. stock market, which includes major indices such as the S&P 500, Dow Jones Industrial Average, and NASDAQ, is the world's largest in terms of market capitalization. It attracts a variety of domestic and foreign companies from various industries. In comparison, the Indian stock market, represented by indices such as BSE Sensex and Nifty 50, is important but small in size. This difference in scale reflects the different stages of economic development of the two countries.

Portfolio diversification

America's major stock market indices include not only American companies but also companies from around the world. Other than a national emergency, there are no major disruptions that could affect the U.S. stock market.

On the other hand, only Indian companies dominate the Indian indices. If the country is even slightly confused, the index can plummet. The U.S. stock market is diverse and resilient despite adversity. However, this cannot be said to be the case in the case of Indian stocks.

The interesting thing about U.S. stocks is that many of the companies operate globally, but are listed on U.S. stock exchanges, giving them exposure to the U.S. and the world.

The coronavirus pandemic has led to repeated declines in stocks around the world, including declines of 20 to 30 percent. This is where investing in diversification can help. By June 8, 2020, the U.S. stock exchanges had recovered all of their losses due to the coronavirus. But almost simultaneously, the Sensex fell 17%.

Currency Of Exchange

When you invest in the US stock market, you are trading USD. This is because most companies listed on U.S. exchanges are located in the United States. Similarly, when you trade in the Indian stock market, you will be exchanging INR. Exchange rate fluctuations are important to consider as they affect the value of your investment.

If the US currency appreciates against the Indian rupee, the value of your investment in Indian stocks will be lower in US dollar terms. Similarly, if the value of the Indian rupee falls against the US dollar, the value of your investment in US stocks will increase due to the Indian rupee. When trading in overseas markets, you must be aware of exchange rate volatility.

Volatility

What is volatility and what is its importance? Volatility is the measure of how much returns vary from the average. It provides a reliable measure of the extent to which the market fluctuates within the specified timeframe (ideally within the short term).

Many long-term investors overlook volatility, yet it is crucial as being in a highly volatile market could result in selling prematurely due to a market decline.

Therefore, volatility can serve as an indicator of risk. I revisited the previous ten years' returns when analyzing volatility. In the past decade, the Dow Jones Index exhibited a volatility of 3.92%, while the BSE Sensex showed a significantly higher volatility of 5.06%. Based on this information, it can be concluded that over the past decade, the Indian markets have been more volatile yet have yielded similar returns compared to the US markets.

Should you prioritize Indian stocks or US stocks?

Investing in the US stock market along with India has several advantages. Both markets offer a unique perspective on the investment landscape with vibrant investment environments, lower correlations, and better risk-adjusted returns. Before investing in foreign markets, investors must consider additional factors such as exchange rates, investment-related costs, taxation, and most importantly, familiarity with the market. Investors who do not understand U.S. stocks or do not have the time to research them should look into options such as investing in actively managed foreign funds, funds of funds, or passive index funds.

FAQs

Q. Is it beneficial to invest in US stocks from India?

A. Investing in US stocks is a sound idea for Indian investors to gain access to the largest and most liquid stock market globally. However, investors must thoroughly research the companies, understand the risks involved, and diversify their investments to ensure maximum potential returns while mitigating them.

Q. Who is No 1 in Indian stock market?

A. Reliance Industries, a conglomerate holding company, is the largest company in India by market cap. It operates in various sectors, including energy, petrochemicals, textiles, natural resources, retail, and telecommunications.

Q. What is India's rank in stock market?

A. Indian Stock Market is Fourth-largest Globally

Q. Which is better, the US or the Indian stock market?

A. Indian stock market vs US stock market: On account of a strong rally in the small-cap and mid-cap indices during the January to March 2024 quarter, small-cap and micro-cap indices on Dalal Street have outperformed their counterparts in the global market, which includes Wall Street

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