Why Holding On To Your Global Funds May Help

Vishal Dhawan: So, there’s two or three different angles to this that are very important. One is clearly this story of our performance of India versus the rest of the world. Very clearly, what happened in the last 12 months, and since we are talking Samvat, it’s good to talk Samvat to Samvat. 

You will really see that the Nifty, for example, is down roughly about 2% in this period. Global markets, if you use the S&P 500, for example, as a good benchmark are down maybe about 20-23%. 

But you need to add the U.S. dollar strength on top of it and then you suddenly see that if you look at it on a rupee basis, the difference is not as significant as it appears to be. 

Of course, global markets have underperformed but the difference reduces because the rupee has also lost about 11% against the U.S. dollar in the same time frame. 

So, one of the big reasons why investors also need to diversify overseas is to manage currency better. 

What has happened in the last 12 months is the asset class impact of underperformance in equity has been larger than the impact that has come up on the currency side. 

Therefore, we are saying that when you look at your numbers, just look at them in the same currency always. Don’t look at one number in one currency and one number in the other currency because it may end up enabling you to make wrong decisions just because you are looking at the absolute number in the local currency. 

Besides that, the important element is if you go back in history and look at data, it’s very common to see one geography outperform another year on year. 

In fact, it actually feels a bit like you being able to predict the future because if we pick the best performing market in a particular year, it’s very likely that that’s going to be amongst the worst performing markets in subsequent years, and vice versa. 

While no one knows whether that will happen next year or not, probabilities are always in that favour, that you don’t want to chase the winners of the last year because that normally tends to be a bad strategy. For a lot of equity investors, they really spent a lot of time looking at valuations. 

If you look at global valuations versus India valuations, you can clearly see that a very large number of global markets now are either in line with long-term averages or actually at a discount. 

Whereas if you look at India, India is clearly at a big premium towards long-term averages. 

Therefore, you also want to keep in mind that you might be buying a more expensive geography, if you now start to think about tilting your portfolio towards India, and you may end up therefore repeating a mistake that may have happened earlier where you may have chased the higher return from a particular international geography and then found that valuations have actually normalised. 

So, I would say that it’s very, very important for you just like you have asset allocation amongst equity, debt, gold, etc. You also have a clear idea in terms of what is going to be my mix of domestic versus international equities in my portfolio. 

If, let’s say, you have decided that that mix is going to be 80-20 and that mix is now shifted towards 65-35 because equity markets internationally have corrected much more, then you want to go back and rebalance, which means that you want to actually buy more international equities by selling down Indian equities and not vice versa. So, clearly, if you are running an SIP, you might want to redirect that SIP towards international so that you can minimise taxes and still achieve the same objective.