Without borders

EDITORIAL

The world is my oyster.” This has been the mantra of global investors for a couple of decades now. The last decade, though, has seen the most action. Had that mantra not been translating into action, the Indian equity indices would not have been able to scale the heights they have. Foreign institutional investors have contributed the most to the domestic market movement. Behind the global equity funds are armies of individuals, families, trusts, pension managers and sovereign wealth funds from the US, Europe, Japan, West Asia and other places. These investors want a share of the global pie, and why not. The time is perfect for Indian investors to think big and do the same. Almost every broker will educate you on the growth story that India itself is. But what they won’t tell you, since they haven’t carried out the necessary research, is that there are potentially exciting growth stories happening, or waiting to happen, around the globe. Many Indian companies have already been active outside India for growing their businesses. Dhirubhai Ambani, at age 16, acquired precious business acumen in Aden in Yemen in the late 1940s that helped him a lot in later years in founding and growing Reliance Industries. Recently, Tata Steel’s acquisition of Corus highlighted the need for Indian companies to look globally for growth. If large companies can exploit international markets for their growth there is nothing that prevents you, a financial investor, from doing the same. The time is also right, from the diversification perspective, to scan relatively less known global markets and potentially upcoming sectors anywhere in the world. There is no fun or sense in investing globally if the procedures are painful and costs are high. The conventional way of investing in other securities markets has been through the stock exchanges in those markets. You can invest directly in, say, US stocks and exchange-traded funds (ETFs) listed on the NYSE Euronext or Nasdaq through a brokerage firm. Or, you can invest in a global equity fund that will do this on your behalf. In the former case, there could be restrictions. In India, for instance, the Reserve Bank of India says your investments abroad cannot exceed $200,000 (around Rs 94 lakh). Restricted capital account convertibility further hinders free movement of funds in and out of the country. In recent years a new style of global investing has emerged. Investors buy or sell units of ETFs or futures and options on indices listed on their local exchanges. A few international exchanges such as the NYSE Euronext and the London Stock Exchange have been listing a large variety of ETFs. Some ETFs mirror an equity index in another country by investing in the stock of that index. Some of them are sectoral ETFs which invest in stocks of companies located anywhere in the world, operating in specific sectors such as oil and gas, infrastructure, alternative energy, real estate, metals and solar energy. In India, the National Stock Exchange is ready to launch futures trading in the US S&P 500 Index as soon as Sebi gives it the green signal. It is now keen to go for futures trading in the UK’s FTSE 100 Index. Once the regulatory inertia is shaken off, India’s stock exchanges can offer domestic investors an exciting array of futures and options on international indices as well as global ETFs. The day is not too far. Get excited.