As Indian investors increasingly look beyond domestic markets for diversification, identifying the right global themes has become more important than ever.
While emerging opportunities such as space technology and defence are gaining attention, artificial intelligence (AI) and semiconductors continue to offer the strongest long-term investment case, says Niteen Dongare, Director & CEO of Anand Rathi International Ventures IFSC Pvt Ltd.
In an interaction with ETMarkets' Kshitij Anand, Dongare explains why AI is here to stay, why semiconductor leaders remain well-positioned, how investors can build global exposure through ETFs, direct stocks and GIFT City funds, and why a well-diversified global portfolio can enhance both returns and risk management. Edited Excerpts –
Kshitij Anand: Now, with US markets hovering near record highs while geopolitical risks remain elevated, does it still make sense for Indian investors to diversify globally?
Niteen Dongare: I think the question is very interesting. The thing is that Indian investors have just started investing outside India. So, whether they should invest in global markets or not is something they have only recently started thinking about. I am seeing this trend whereby, despite the turmoil and geopolitical tensions we are facing right now, the US market has still performed well compared to other markets. The recent IPO of SpaceX and the other two IPOs lined up—Anthropic and OpenAI—have generated tremendous interest among Indian investors, who are now ready to look at global markets.
Now, there could be two reasons for this. One is that they are now aware of these markets because there are various platforms that provide awareness and knowledge about these stocks and what is happening in global markets. The second is that platforms are now available for Indian investors to invest through, and these are all safe, regulated, and digital platforms.
But one very important question that an Indian investor should consider is whether they want to have all their wealth tied up with one single country, one single currency, or one single market, because, traditionally, we have been doing this. We are all bullish on the Indian economy. There is nothing negative about that. But the time has come for Indian investors to consider shifting some of their investable amount to global markets.
Now, the Liberalised Remittance Scheme (LRS) is the scheme through which any Indian investor can invest outside India, with a limit of $250,000. There are three clear benefits that global markets offer to Indian investors. The first is diversification. You are not relying only on one country or its mood, but are investing outside India in global markets. The second is that you are creating a USD asset base in your portfolio, which you may use in the future. The third is the benefit of USD appreciation.
We are all aware that the dollar has appreciated against the INR. Every year, it is around 3–3.5%. The dollar was at around 96–97 levels, and because of RBI intervention, it came down again to around 94 levels. But in the long run, we expect the dollar to appreciate further. So, the benefit of USD appreciation can also help Indian investors.
So yes, a 20% to 30% allocation to global markets is always recommended for Indian investors. Platforms through GIFT City are now available, along with digital platforms for Indian residents, which are safe, digital, and regulated.
Kshitij Anand: Now, how should Indian investors think about global allocation in a portfolio today? You just mentioned 20–30%. So, can we say it is a return enhancer, or is it primarily a risk diversifier? How should investors look at it?
Niteen Dongare: It is actually both. Please understand that the US market—I am considering the US as the prominent market where we all want to invest and be part of the economy—remains the largest equity market. All the big players in semiconductors, AI, energy—you name the sector, and they are there. All the blue-chip companies with trillions in market capitalisation are there.
So, global diversification gives Indian investors access to themes that are not present in India. That is point number one. It also helps diversify risk because you are not dependent on just one market, which is India.
If you look at the last one year, Indian markets have not generated strong returns for various reasons. There is nothing wrong with the economy, and we all remain bullish on it. However, there are still factors beyond our control. For example, tariffs dominated the story over the last six months. Then there are geopolitical tensions in the Middle East, and the Hormuz crisis is still ongoing. We do not have any role to play in these situations, but we still face the consequences if something happens there.
So, why not diversify our risk by investing globally? That is point number one.
The second point is returns. We should not ignore them. Over the last one to one-and-a-half years, we have seen how Micron Technology has grown from around 84 levels to 1,100 levels. There are other companies as well. To name a few, Nvidia, TSMC, and Hynix are all AI and semiconductor-related companies that have delivered strong returns to investors.
So, why can't we consider global investments as a return enhancer in our portfolio as well? As I said, a 20% to 30% allocation to global markets, focused on specific themes, is recommended for investors. It provides access to unique themes as well as the benefit of dollar appreciation.
And I am repeating this again: these factors can add to the overall returns for Indian investors.
Kshitij Anand: In fact, one big IPO that came recently was SpaceX, and that has highlighted the conversation around whether, over the next decade, the space economy could emerge as one of the biggest wealth creation themes globally, much like AI and the semiconductor theme that we are seeing today.
Niteen Dongare: See, we have been talking about semiconductors and AI for the past three to four years, ever since they came into the picture. When all the big players like Nvidia, Micron Technology, and TSMC started delivering strong returns, their stock prices surged, and their market capitalisation crossed the trillion-dollar mark. Some prominent examples are Micron Technology, Nvidia, Hynix, and TSMC.
Now, investors have started understanding AI. This is not yet the case with space tech. If you ask me, as a layman or an investor, whether I know much about space tech, I would say no. But because of the recent IPO of $75 billion, which took SpaceX's valuation higher and Elon Musk's net worth beyond $1 trillion, it has generated tremendous interest among Indian investors, and now they are talking about space tech.
AI, over the past three to four years, has generated significant interest not only from investors but also from institutions and government agencies that now want to use AI for various purposes. We are seeing this through investments by companies like Micron Technology in India, to give you one example.
AI is here to stay because it has already proved its value. Many sectors have started using AI technology. But coming to SpaceX and the broader space technology ecosystem, it has generated interest among Indian investors because of this IPO, as I mentioned. Because of this IPO, people have started recognising the potential of space tech.
The two changes that I have observed are, first, governments are now ready to invest in space technology, mainly because of defence and national security considerations. The second is that space technology is a highly capital-intensive industry. However, because of reusable rockets and launch-related innovations introduced by SpaceX and other companies, launch costs have come down significantly.
We generally think that space technology is only about rockets, astronauts, and launches, but it is much broader than that. That is only one part of space technology. Other applications include communications, satellite networks, satellite logistics, navigation, climate tracking, defence intelligence, and many more. All these industries and sectors have also started adopting space technology.
So, I think over the next nine to ten years, investor interest will definitely increase, and governments as well as industries will take space technology to the next level. But for the next three to four years, I believe AI, semiconductors, and the chip-related ecosystem will continue to dominate.
Kshitij Anand: In fact, the next question I am sure you must have also faced from your investors is whether they should use ETFs, international mutual funds, or direct stocks. How should they build that global exposure? What would be the right methodology? And what are the trade-offs in each approach?
Niteen Dongare: This typically depends on the objective of that particular investment—whether the goal is risk diversification, returns, or both.
Now, investors should be aware that whenever an Indian resident invests outside India, there are certain regulations that come into play. For example, there is the LRS limit, the 180-day usage requirement for LRS transfers, and taxation. I am not referring to Indian taxation here, but US-related taxes which are applicable to investments in direct US stocks and US ETFs.
Indian investors should understand these implications because they can affect overall returns. If they are not aware of the taxation or regulatory framework, it could become an issue.
The other factor is dollar appreciation or depreciation because returns will definitely be impacted by how the dollar moves over time.
To begin with, global ETFs should certainly be considered. For example, if you choose the S&P 500 Index or the Nasdaq 100 Index, you are investing in a diversified basket of leading companies. In the case of the S&P 500, you gain exposure to 500 of the largest companies. Global ETFs, defence-related ETFs, commodity-related ETFs, and technology-focused ETFs are always recommended.
Another advantage is that you can rebalance your portfolio if you see changes happening in a particular market.
Investing in direct stocks is not necessarily challenging, but you should know exactly where you are investing. Sitting here and talking about TSMC or Hynix simply by reading Google or newspapers is not enough to make an investment decision. Themes like AI or healthcare innovation require substantial research from the investor's side.
Direct investments in US stocks also attract taxation because you are investing directly in US equities and ETFs.
Another option is investing through GIFT City funds, which are fund-of-funds that invest in global ETFs and international markets. Several such funds are available.
So, a combination of select US stocks that are not part of ETFs, along with ETFs and GIFT City funds, could be a good strategy for investors looking to build exposure to global markets. That is what I think.
Kshitij Anand: Now that people have decided where to park their money—whether in direct stocks or ETFs—I think the next big question that usually comes up is: what global themes should they invest in? Is it AI, healthcare innovation, defence, clean energy, or semiconductors, which we have already talked about, or something else? So, how should they approach this?
Niteen Dongare: Now, let me give you my own example because I started my global investment journey about three years back, when the dollar was around 86 levels. At that time, AI was very new to the market. There were only a few companies making news in the AI sector.
So, I was bullish on two things. First, I believed the USD would appreciate. Second, I believed AI would perform well. Fortunately, I had Nvidia shares in my portfolio. I exited the market when the dollar reached around 91 levels, and then I invested again at those levels. Now, the dollar is around 94–95 levels. So, I gained on two fronts. One was that I had good themes in my portfolio, such as AI and semiconductors, and the second was that I benefited from USD appreciation. So, that is my story.
Coming to what investors should look at—AI, yes, of course. Semiconductors, yes. Healthcare innovation is also a good sector to consider. As for defence, the reason we are talking about it is that there are war-like situations and geopolitical unrest across the world. That is why defence has emerged as an area of interest for investors.
I have received many calls from Indian resident investors saying, "Niteen, I want to invest in defence-related ETFs." A few months ago, when gold was making new highs in international markets, many investors were looking for gold-related ETFs.
So, it actually depends on how the market is moving. Investors generally move in the direction where they see opportunities. But right now, if you ask me, AI is number one and semiconductors are number two in terms of where we should allocate our investments.
Of course, there are other sectors like defence and clean energy, but to invest in such sectors, we should have sufficient knowledge about those companies. Today, people are aware of what Anthropic is because of its investments in India, what OpenAI is, what ChatGPT does, and what TSMC is, just to give a few examples. People have started educating themselves about these new technologies.
So yes, AI and semiconductors are likely to remain attractive for the next three to four years, during which we will see the actual impact of AI unfold. Everything currently looks positive in the AI sector.
However, there is one more point that I want investors to note about the AI sector. There is a concentration risk because the top AI companies are delivering strong returns—for example, Micron and others. But what about the other companies in the AI ecosystem? Are they delivering the same kind of returns or not? That is something investors need to evaluate before investing in the AI sector.
Kshitij Anand: In fact, you have talked about TSMC and other companies outside the US. So, I wanted to understand whether you are seeing opportunities in Europe, Japan, Taiwan, or other emerging markets outside India. Do they offer better risk-reward opportunities? How should investors look at them?
Niteen Dongare: Apart from the US, if somebody wants to invest internationally, they should also track Taiwan, South Korea, and markets like Vietnam and Indonesia.
The reason I mention Taiwan and South Korea is that they are also doing very well in semiconductors, chips, and AI-related technologies at a lower cost. For example, TSMC is based in Taiwan, while Hynix is a South Korean company. They are major players in chip manufacturing. They are leaders in semiconductors, batteries, automotive technologies, and several other advanced industries.
So, if someone wants exposure outside the US market, Taiwan and South Korea should definitely be on their radar.
I am not very sure about the European market. Japan, on the other hand, is a very stable economy. However, a lot of exciting developments are happening in China and the ex-China markets such as Taiwan and South Korea. These are markets we should continue to track, and they also offer good investment opportunities.
Kshitij Anand: Looking ahead, say over the next five years, what is more likely to outperform—Indian equities, US equities, or a well-diversified global portfolio?
Niteen Dongare: That is like predicting something that even I am not aware of. We cannot predict the markets.
But considering where we are today and the current global environment, I believe a well-diversified global portfolio makes the most sense for investors who want to build dollar-denominated assets over the long term and who understand global markets.
Today, US stocks and US ETFs are readily available to Indian investors through safe and regulated channels. You can also invest in China and ex-China funds through the GIFT City route. So, the investment channels are available now, and they are all regulated.
If somebody wants to invest globally, the products and the investment avenues are already in place. We remain bullish on the Indian economy—there is no doubt about that. But combining Indian equities with global exposure through US ETFs, US stocks, and other international investments makes sense for investors with a long-term horizon. That is what I believe.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
