New Delhi /Bhubaneswar, February 20: The Indian currency has been going through a rough phase. This difficult ride for the Indian Rupee is not new. In the past 5 years, the USD has appreciated 14.85% against the INR. But why is this important? It is important because a change in the currency value, also known as an exchange rate shift has an outsized impact on the returns earned from the stock market.

Since the USD has been gaining against the INR for several years, it is clear that investing in the US, a robust market, is a prudent idea. Due to this, and other driving factors such as the presence of the world's biggest companies, the S&P 500's dominance over the world markets, an increasing number of retail investors in India are diversifying in the US markets. The emergence of digital trading apps , such as Appreciate has played an important role in easing out the entire US market investment process. By charging zero AMC, withdrawal, and remittance fees, Indians can now invest in the US just like in India, without spending anything extra.

What is an Exchange Rate?

The exchange rate is the value of one currency in relation to another, driven by international trade and monetary policies of countries. An exchange rate tells us the rate at which one currency can be exchanged for another. For instance, if the USD/INR exchange rate is Rs85 then 1 USD can purchase 85 Indian rupees, and it will cost Rs85 to buy $1. As this number grows more Indian rupees can be exchanged for a single US dollar. This is called rupee depreciation.

In early February this rupee depreciation was at its peak. With a single US dollar costing Rs87.59. As mentioned earlier, for the last 15 years, the INR has continued to depreciate against the USD. Since 2003, the USD has grown a massive 90.9% against the INR.

Using Dollar Appreciation to Your Advantage

When a foreign currency, like the US dollar, appreciates, it directly affects the stock market returns, and in the long run, these returns can compound to a large number.

Over the last 5 years, the S&P 500 grew by 80.91% whereas the Nifty 50 grew by 89.29%. While, at the surface, Nifty's returns look more attractive, if we look deeper the reality is much different. That is because, in the same period, the USD appreciated 21.3% against the INR. Therefore if an Indian investor had invested in the S&P 500 index, 5 years ago they would have gained 102.21% in returns, significantly outperforming the Nifty.

By investing in the US market, a fall in the rupee's value will no longer hurt you. On the contrary, it would add to your portfolio value.

Why the US Markets?

The US dollar is not the only currency the Indian rupee has depreciated against, there are others too. For instance, the Euro/INR exchange rate peaked at Rs93.75 in October 2024, and the Kuwaiti dinar is considered the world's strongest currency and stands at Rs281.50. But looking at the overall performance, we see that while the Euro and the Kuwaiti Dinar rose 28.95% and 34.42% respectively the USD outperformed them all, growing by 40%.

On top of that the US market currently commands over 63% of the world markets, standing at a massive market capitalization of $63 trillion, obliterating the second biggest market in the world China with $12 trillion. This is largely due to the number of mega-cap companies present in the US. Of the 12 trillion dollar companies in the world, the US is home to 9, and these 9 companies alone have a combined valuation of more than $17 trillion.

Coming to market performance, the S&P 500, for the last 25 years, has consistently outperformed the MSCI World, which tracks 1500, large and mid-cap companies of the developed world. In 2024 alone, the S&P500 returned 25.02% while the MSCI World could only return 19.19%.

Though the NIFTY 50 has been successful in beating the S&P 500 in the last 5 years, if we look at the 10 year-performance, the S&P 500 has not only outpaced the NIFTY but almost every other global index. Since 2010 the S&P 500 has been beaten only by two other indices, both being US-based. NASDAQ Composite and the tech-heavy NASDAQ 100.

Another important fact to consider is the US dollar's status as the world's reserve currency. Countries around the world, use USD for international trade. Since the end of World War II in 1945, the US has become the world's principal currency and has continued to be so, thanks to its stable political environment, fast-growing economy, and military influence. Governments and financial institutions of different countries hold the USD as part of their foreign exchange reserves, positioning the US dollar as the currency on which the world depends.

Conclusion

The US markets are not only known for their consistent growth but also for their strong regulations. Having been active for a quarter of a millennium, the US markets have witnessed various reforms and amendments to its regulatory systems, focused on protecting investor interests and increasing financial transparency. This makes the US among the safest markets for investors worldwide, looking to diversify their portfolios globally.

The Liberalised Remittance Scheme (LRS), has made it easier for Indians to remit their money to the US. Add this to the rise of digital trading apps like Appreciate, investing in the US markets from India has become easier than ever. On Appreciate, an IFSCA-registered trading platform, each portfolio is insured for up to $500,000 under SIPC, a US government corporation, making Appreciate one of the most secure trading platforms in India.

While the US market has performed exceptionally well in the past, it is in no way an assurance for future returns, this is true for all markets. Before investing it is important to do your due diligence to make the most out of your investments.

However looking at the factors and the recent performance, the US market presents an exciting opportunity for Indian investors to grow their wealth.

Disclaimer: Investments in securities markets are subject to market risks. Read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory

(ANI)

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