Should You Invest In Foreign Stocks?

In a scenario where international markets have started recovering due to a slowly stabilising outlook, should you invest in foreign stocks, particularly of large tech firms?

- Teena Jain Kaushal

NOT TOO LONG AGO, many Indians took to investing abroad as stocks of tech firms like Meta (Facebook), Alphabet (Google) and Netflix, among others, hit record highs. It was in the midst of this euphoria that India’s capital markets regulator, the Securities and Exchange Board of India (Sebi), had to step in and stop mutual fund (MF) companies from taking fresh subscriptions in international schemes on account of crossing the regulatory limit of $7 billion for overseas investments.

However, the story soon changed when high inflation and recessionary fears in some developed economies sent their stock markets on a downward spiral. Sample this: Nasdaq in the US, China’s Shanghai SE Composite Index and Germany’s DAX fell by 34 per cent, 15 per cent and 12 per cent, respectively, in CY22. The crash in the global markets was so steep that Sebi again allowed MFs to invest in foreign stocks due to the headroom that became available. However, after underperforming over the past year, international MFs have again started rallying. Consider this: over the past one year, international funds have delivered an average negative return of 4 per cent. However, over the past three-months they have given an average return of 13 per cent, according to Value Research (as on February 10). With no increase in the investment limit by the Reserve Bank of India (RBI), recently Edelweiss Mutual Fund and Kotak Mutual Fund have decided to temporarily suspend subscriptions to their seven and one international-focussed MFs, respectively.