Why 10–20% Global Allocation Makes Sense for Most Indian Investors
As Indian equity markets continue to set new records, a growing number of investors are recognizing that sustainable wealth creation cannot solely depend on domestic prospects. With India representing only a minor fraction of the global equity market capitalisation, there is a vast landscape of innovation, growth themes, and diversification opportunities available overseas.
The Case for Global Investing
– Market Share: India accounts for just 4–4.5% of global equity market capitalisation, indicating that over 95% of potential investment opportunities exist beyond domestic borders. This reality underscores the necessity of international diversification.
– Overseas Financial Assets: Data from the Reserve Bank of India reveals a significant upward trend: Indian residents’ overseas financial assets surpassed USD 1 trillion in FY2024–25, marking a major shift towards global asset ownership. This transition has transformed global investing from a niche strategy to a mainstream approach for Indian households.
Rising Demand for Global Investment
– Outbound Investment Queries: Despite the domestic market’s impressive performance, there is a notable increase in outbound investment inquiries. Investors are beginning to see India’s growth narrative harmonizing with global innovation cycles.
– Liberalised Remittance Scheme (LRS): Outward remittances continue to be robust. The RBI’s data shows that LRS outflows in FY2024–25 reached approximately USD 29.6 billion, with an increasing portion allocated to equities, ETFs, and global funds. Interest remains strong for global markets, particularly in the US and Japan, indicating sophisticated investment strategies.
Key Global Themes Driving Investment
– Focus Areas: Currently, technology and AI innovation lead the charge in attracting Indian investors. The top U.S. tech companies alone constitute nearly 30% of the S&P 500’s market capitalisation, highlighting their role in driving global growth.
– Investment Sectors: In addition to technology, notable sectors drawing interest include:
– Clean Energy: Projecting nearly USD 2 trillion in global investments by 2024.
– Healthcare and Life Sciences: This sector has an estimated market size between USD 8–11 trillion, representing long-term structural themes underrepresented in India.
Navigating Compliance and Regulations
– Liberalised Remittance Scheme (LRS) Insights: While the LRS limit remains capped at USD 250,000, regulatory frameworks emphasize enhanced compliance and transparency. Key points to remember:
– Strict adherence to accurate TCS compliance.
– Meticulous reporting of foreign assets (Schedule FA).
– Transparent traceability of investment flows through authorized channels.
– Compliance Responsibilities: Properly managing global investments involves:
– Filing precise LRS declarations.
– Understanding capital gains tax implications on foreign assets.
– Diligent reporting as part of the income-tax return.
Recommended Global Portfolio Allocation
– Ideal Allocation: A strategic allocation of 10–20% to global assets is generally advisable for most Indian investors. This approach balances India’s growth potential with the benefits of global innovation and currency diversification. High-net-worth individuals may seek even greater exposure, typically ranging from 25–40%, particularly to capitalize on sectors like AI, clean energy, biotech, and advanced manufacturing.
Efficient Channels for Global Exposure
– Investment Vehicles: The most cost-effective and practical methods for accessing global assets include:
– Global ETFs: Available through direct or India-listed feeder routes.
– International Mutual Funds: Managed by experienced professionals, offering diversification and simplified tax handling.
– Direct Stock Investments: More sophisticated investors might pursue direct investments in foreign stocks through LRS, albeit with an understanding of potential currency volatility and additional reporting responsibilities.
Attractive International Markets
– Top Markets for 2026:
– United States: Home to approximately 45% of global equity market capitalisation, it remains a leader in technology, AI, and healthcare sectors.
– Japan: Emerging as a strong secondary market, supported by corporate reforms and favourable valuations.
– Emerging Markets: Present selective opportunities, while Europe and China require cautious, risk-aware approaches.
Conclusion
With foreign asset allocation on the rise and global themes shifting swiftly, a structured global investment strategy is no longer optional but essential for Indian investors aiming for resilience and long-term wealth creation. By embracing a 10–20% allocation to global assets, investors can enhance their portfolios significantly, accessing opportunities that the domestic market cannot replicate. Global investing is a vital component of the modern Indian investor’s strategy.