9 factors that affects the Indian Stock Market

9 factors that affects the Indian Stock Market
by Nikita Bhoota 12/07/2020
The fluctuating stock prices make equity investments risky. Risk-averse investors usually prefer to stay away from the share market. Whereas, the risk-takers invest aggressively in stocks to create wealth in the long-run. The dynamic nature of the share market makes it an intriguing prospect to venture into. One cannot predict the future performance of the stock market. This keeps the investor awake with whether to invest in or not. But why does the stock market tend to be dynamic in nature? What impacts the stock market so much that they keep on fluctuating? This blog tends to look at some of those factors that affect the Indian stock market. Let’s discuss them in detail.

  1. Government Policies:
    Economy and business are largely affected by Government policies. The Government has to implement new policies in regard to the economic condition of the country. Any new change in policy can be profitable for the economy or tighten the grip around. This creates a possibility of the stock market being affected due to any change or introduction of the new policy by the Government. For instance, the increase in corporate taxes impacts the industry severely as their profits will take a hit and at the same time the stock price will fall.

  2. Monetary Policy of RBI and Regulatory Policies of SEBI:
    Reserve Bank of India (RBI) is the apex body which regulates the monetary policy in India. RBI keeps on reviewing its monitory policy. Any increase or decrease in Repo and Reverse Repo rates impacts the stock prices. If RBI raises the key rates it reduces the liquidity in the banks. This makes borrowing costlier for them and in turn, they increase the lending rates. Ultimately, this makes borrowing highly expensive for the business community and may find it difficult to service their debt obligations.
    Investors see it as a barrier in the expansion of business activities and start selling the shares of the company which reduces its stock price. A reverse of this happens when RBI follows a dovish monetary policy. Banks reduces the lending rates which leads to credit expansion. Investors consider it as a positive step and stock price starts improving.
    Similarly, any changes in trading and investment policies done by the Securities Exchange Board of India (SEBI) who keeps an eye on the entire stock market activities impacts the performance of the shares of the listed companies on the stock exchanges (NSE, BSE). Nifty50 and Sensex are two major benchmark indices in India.

  3. Exchange Rates:
    The exchange rates of Indian Rupee keep fluctuating vis-à-vis other currencies. When the rupee hardens in respect to other currencies it causes Indian goods to become expensive in foreign markets, Companies that are highly affected are the ones involved in overseas operations. Companies dependent on exports experience a drop in demand for their goods abroad. Thus, revenue from exports decline and stock prices of such companies in the home country fall.
    On the other hand, softening of rupee vis-à-vis other currencies results in opposite effect, in this, the stock price of exporters rises whereas, that of importer drops.

  4. Interest Rate and Inflation:
    Whenever the interest rates go up, banks raise the lending rates which increases the cost for corporates and individuals alike. The rising cost will tend to create an impact on the profit levels of the business affecting the stock prices of the company.
    Inflation is a surge in the pricing of goods and services over a period of time. High inflation discourages investment and long-term economic growth. The listed companies in the stock market may postpone their investment and halt production, leading to negative economic growth. The fall in the value of money could also lead to a fall in the value of savings. The stocks of luxurious companies also tend to suffer as nobody will want to invest in them. This not only adversely affects one's purchasing power but also the investing power.

  5. Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs):
    FIIs and DIIs activities highly impact the stock market. As they have a prominent role in the stocks of the company, their entry or exit will create a huge impact on the equity market and will influence the stock prices.

  6. Politics:
    Factors like election, budget, government intervention, stability, and other factors have a huge impact on the economy and the financial markets. The political events and budget announcements create tremendous levels of volatility in the market influencing the stock market deeply.

  7. Natural Disasters:
    Natural disasters hamper the lives and the market equally. It impacts the company’s performance and the capacity of people to spend the money. This will lead to lower levels of consumption, lower sales and revenues ultimately hitting the company’s stock performance.

  8. Economic Numbers:
    Various economic indicators affect the overall economy, ultimately creating an impact on the financial market. The movement of oil prices and GDP have a huge impact on the stock market. A country that is dependent on imported oil, any price change is likely to impact the economy. The movement of oil prices is one of the key determinants of the stock market. As and when the prices rise, the expenses will increase and will lower the buyers’ ability to invest in the market.
    Similarly, Gross Domestic Product (GDP) looks at the aspect of total economic production of the country and its overall economic health. It helps to showcase the economic developments and the future direction of the market. A healthy GDP status will create a positive impact on financial markets and investment.

  9. Gold Prices and Bonds:
    There is no established theory that expresses the relationship between stock price and gold & Bonds. Usually, stocks are considered a risky investment whereas gold & bonds are considered as a safe investment havens. So at the time of any major crisis in the economy, investor prefers to invest in safe instruments. As a result, gold and bond prices increase while the stock price tumbles.


Conclusion:
Stock prices of the company may rise or fall due to different factors. Ideally, the investor should have a solid allocation strategy in place after a thorough understanding of the above factors. It will ensure that the investor makes the right investment decision and generate magnificent returns in the long-run.
Next Article

Yes Bank FPO: All details and How to Apply for Yes Bank FPO

Yes Bank FPO: All details and How to Apply for Yes Bank FPO
13/07/2020

The primary markets have been dry for the last four months due to the economic lockdown following the COVID-19 pandemic. Even as the economy is trying to recover from the lag effect of the pandemic, the capital market activity has already started. One such important issue is the Follow-on Public Offer (FPO) of Yes Bank that opens on 15th July and will remain open till 17th July.

What is follow-on public offer (FPO)?

An FPO is like an IPO, the only difference being that an FPO is by an existing listed company. An IPO is an initial public offer and is used to raise money from the capital markets as well as to list the stock. In the case of an existing listed stock like Yes Bank, the follow-on public offer route is used to raise fresh funds.

What are the highlights of the Yes Bank FPO?

The Yes Bank FPO opens on 15 July and closes on 17 July. Here are some of the key points you need to know about the Yes Bank IPO.

Particulars

IPO Details

Nature of Issue

Book Built FPO

FPO price range

Rs.12 to Rs.13

Market Lot

1,000 shares

Minimum order (Retail)

1,000 shares

Maximum order (Retail)

15,000 shares

QIB / NIB / Retail

50% / 15% / 35%


Yes Bank FPO Tentative Date/Timetable

FPO opens on

Jul 15, 2020

FPO Closes on

Jul 17, 2020

Basis of Allotment closes

Jul 22, 2020

Refunds Initiated

Jul 23, 2020

Credit to Demat Account

Jul 24, 2020

FPO shares listing

Jul 27, 2020

Shares of Yes Bank FPO will be listed on the BSE and the NSE. The FPO intends to raise nearly Rs.15,000 crore to shore up its Tier-1 capital and the number of shares will be based on the final price discovered in the FPO.

The FPO issue will be lead managed by 8 book runners; Axis Bank, BOFA Merrill, Citigroup, HSBC Securities, ICICI Securities, Kotak Mahindra Capital, SBI Capital Markets and Yes Bank. KFIN Technologies (formerly Karvy Computershare Ltd.) will be the registrar to the FPO.

Why is Yes Bank coming out with an FPO?

Yes Bank, it may be recollected, had been put under moratorium in early March 2020 by the RBI due to solvency concerns. However, the RBI intervened and syndicated a rescue of Yes Bank led by SBI along with a consortium of large Indian banks. Currently SBI owns close to 50% of Yes Bank. Out of the FPO issue, SBI also proposes to invest Rs.1760 crore in the offer.

Yes Bank FPO will be raising the funds for 3 reasons. Firstly, the bank needs to shore up its Tier-1 Capital urgently. Secondly, Yes Bank, like most of the other Indian banks, expects the gross NPAs to go up once the EMI moratorium is lifted in August 2020. Lastly, Yes Bank also needs the FPO to create a capital buffer so that it can start building its loan book to participate in the pick-up in the credit cycle.

Understanding the financials of Yes Bank

On a YOY basis, Yes Bank has witnessed a contraction in its assets and revenues due to the crisis that it had to face in March this year. That has also resulted in the bank booking huge losses in FY20. However, now Yes Bank has a major shareholder like SBI, which should give the much needed comfort and stability to the bank.

Particulars

FY-20

FY-19

FY-18

Total Assets

Rs.257,832 crore

Rs.380,860 crore

Rs.312,450 crore

Total Revenues

Rs.10,335 crore

Rs.14,488 crore

Rs.13,032 crore

Net Profits

Rs.(-16,433) crore

Rs.1,709 crore

Rs.4,233 crore

The challenge for the bank is recoup its business position in the coming quarters, with the major consolation being the unstinted backing of SBI.

How to apply for Yes Bank FPO?

Yes Bank FPO applications can be made through banks using the online ASBA facility. Application supported by blocked amounts (ASBA) is a facility to hold funds in your account without actually debiting the same. Investors are also permitted to apply through the broker’s trading interface, subject to their banks supporting ASBA.

It is always advisable to consult with your broker about the fitment of the FPO to your financial needs.

For 5paisa trading customers, you can log on to your Demat cum Trading Account via www.5paisa.com or use the 5paisa app for investment.

Know the steps to invest in Yes Bank FPO - 

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Mahindra Finance Rights Issue: Details, Price, Issue Size

Mahindra Finance Rights Issue: Details, Price, Issue Size
29/07/2020

M&M Financial Services has a rural and semi-urban customer base as it is involved in financing new and pre-owned tractors, utility vehicles, cars and commercial vehicles. The purpose of the issue is to repay/prepay certain outstanding borrowings, augment long-term capital and resources for meeting funding requirements for the company’s business activities and for general corporate purposes.
 
The issue that has been announced at the steep discount is been managed by Kotak Mahindra Capital Company, ICICI Securities, BNP Paribas, Axis Capital, HDFC Bank, Citigroup Global Markets, HSBC Securities and Capital Markets (India), SBI Capital Markets, and Nomura Financial Advisory and Securities (India).
 

Issue Details

Equity Shares being offered by the Company

617,764,960 Equity Shares

Issue Size

? 3,088.82 Crore(Assuming full subscription)

Rights Entitlements

1 (one) Equity Share for every 1 Equity Share held on the Record

Date

Record Date

July 23, 2020

Issue Price

? 50 per Equity Share (including a premium of ? 48 per Equity

Share


How to apply M&M Financial Services Rights Issue? 
 
There are 3 ways to apply for M&M Rights. 
 
ASBA
For this option, you need to have a Demat Account. Search for M&M Financial Services Rights Issue, fill the required details and submit. 
 
R-WAP
You can visit rights.kfintech.com (website). Go to Mahindra Finance option there and click on R-WAP apply for rights issue option. Fill the required details and submit. You can make payment through net banking or UPI.
 
Offline 
You must have received an application form in your registered email id by the company. Fill in all the required details and submit the print out of the form to the bank, where you can pay by DD/cheque.  
Take a look at the video below to know in detail:

Should Investors Subscribe to the Rights Issue?

 

It is always advisable for an investor to look beyond the discount offered. The rights issue is different from the bonus issue as one is paying to get additional shares of the company. So, it is best to subscribe to it only if the investor is completely sure of the company’s long-term performance.

Issue Schedule

Issue Opening Date

Tuesday, July 28, 2020

Last Date For On Market Renunciation Of Rights

Entitlements*

Friday, August 7, 2020

 

Issue Closing Date^

Tuesday, August 11, 2020

Finalisation Of Basis Of Allotment (On Or About)

Thursday, August 20, 2020

Date Of Allotment (On Or About)

Friday, August 21, 2020

Date Of Credit (On Or About)

Tuesday, August 25, 2020

Date Of Listing (On Or About)

Thursday, August 27, 2020

Next Article

5 Well Known Stocks that Outperformed Benchmarks in FY20

5 Well Known Stocks that Outperformed Benchmarks in FY20
by Nikita Bhoota 06/08/2020

From the general election to the slowing economy to coronavirus pandemic, FY20 witnessed it all. Share markets have been is under pressure since the coronavirus (COVID-19) pandemic broke in the country and all over the world. Domestic stock market benchmarks Sensex and Nifty slumped 24% and 26% respectively from 1st April 2019- 31st March 2020, posting their worst performance in over a decade. In 2008-09, the Sensex had declined 37.9%, while the Nifty50 cracked 36.2% on account of global financial crisis. Apart from these, factors such as massive corporate tax rate cuts, tussle between the RBI and the government, Union Budget, repo rate cuts, Ayodhya verdict, abrogation of Article 370, US-China trade deal were among the major triggers in FY20. However, even during this fall in markets, there are certain shares that not only outperformed the benchmark, but also gave investors stellar returns during the year. 5paisa have picked five such stocks that have outperformed the Nifty50 in the past financial year and have been strong despite tough economic conditions.

Company Name

1-Apr-19

31-Mar-20

Gain

Abbott India Ltd.

7,256.2

15,455.5

113.0%

Gujarat Gas Ltd.

147.1

232.6

58.1%

Berger Paints India Ltd.

329.6

497.4

50.9%

Nestlé India Ltd.

10,895.6

16,302.4

49.6%

Avenue Supermarts Ltd. (DMart)

1,493.9

2,200.7

47.3%

Source: Ace Equity

Abbott India

Abbott India has given stellar returns, gained 113% in FY20.  This stock is not deterred by the current pandemic. The Pharma MNC stood strong despite the crash in markets. The company’s 9 out of top 10 brands are leaders in their respective participating markets and their rigorous restructuring measures have aided to achieve this market-beating performance. Over the years, the company has also operated with a net debt-free structure having more than sufficient cushion of cash.

 

Gujarat Gas

Gujarat Gas share price gained 58.1% in FY20. Gujarat Gas (GGL) is an amalgamation of Gujarat Gas Company and GSPC Gas. Gujarat Gas is India's largest city gas distribution player, with a total sales volume of 6.2mmscmd and presence across 24 districts in the states of Gujarat and Maharashtra and the Union Territory of Dadra Nagar Haveli. It has a network of a 15,000 km-long gas pipeline and 291 CNG stations, constituting 25% of all CNG stations in the country.

 

Berger Paints

The stock gave magnificent return of 50.9% in FY20. It has not only managed to outperform Nifty 50 but also the country’s largest paint company Asian Paints. Berger has presence in the decorative paints and industrial coatings segments in domestic and international markets. Further, it has a presence in external insulation finishing systems. In the industrial coatings segment, Berger caters for the protective coatings, automotive (primarily two-wheeler and three-wheeler, and commercial vehicles) and general industrial segments. In the international segment, Berger has a presence in the decorative paints segment in Nepal and has presence in the external insulation system in Poland (where it is the second largest player, with 11-12% market share through Bolix SA, which it acquired in 2008 for US$39m. It has the second-largest distribution network, with more than 23,000 dealers.

 

Nestlé India Ltd

Nestlé India, the Maggi maker, has also gained over 49.6% in FY20. The company primarily operates in four segments, viz. Milk Foods & Nutrition, Chocolates & Confectionery, Prepared Dishes & Beverages.

Nestlé India has strong brands like Cerelac, Lactogen Nestlé Dahi and Slim milk (Milk food and nutrition), Maggi (Prepared dishes), KitKat (Chocolates) and Nescafé (Beverages) under its fold. Company has seen strong growth in its Maggi and chocolate brands during the CY19.

 

Avenue Supermart (DMart)

Avenue Supermarts (DMart) shares were up 47.3% in FY 20. DMart is an emerging supermarket chain, with major presence is in the states of Maharashtra, Gujarat, Telangana and Karnataka. DMart operates most of its stores in densely located areas and focuses on customers in the lower and middle class segments of society. DMart provides lower prices for its products across various categories and sub-categories, which is appealing to the price-sensitive customers. In order to minimise operational costs, the company follows an ownership model (including long-term lease contracts, where lease period is over 30 years), rather than a rental model.


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Is Auto Sector Reviving? Stocks to bet on

Is Auto Sector Reviving? Stocks to bet on
by Nikita Bhoota 14/08/2020

The nationwide lockdown was a challenging period for the auto sector in India. As per the media articles, the domestic sales of all manufacturers dipped nearly 80%-90% in May 2020. However, the auto sector is now seeing a recovery as the Government is easing the lockdown restrictions in a phased manner. Secondly, the new realities of social distancing and the fear of contracting the virus is driving more and more individuals to buy their own vehicles who were earlier dependent upon public transport. However urban areas have been adversely impacted by Covid-19 and the lockdown, industry players say that rural India is seeing a faster recovery.

graph
Source: Ace Equity

Nifty 50 have rallied 36% between the period March 25, 2020 – August 12, 2020. Whereas, Nifty auto index has jumped 57% in the same period.

We are bullish on the prospects of the Indian auto industry over the next 2-3 years. We expect multi-fold earnings growth in the recovery period. Hence, we have identified some of the stocks which are significantly cheaper than peers, have better growth prospects and hence can give superior returns in the coming years. We believe Hero, Ashok, Exide and Apollo Tyres can rerate from current levels, if they deliver on a few parameters.

Hero Motocorp:

Hero has held on to the 51-52% motorcycle market-share over the past 5-6 years. Its overall share came off due to loss in scooters, especially as scooters were gaining share in the overall 2W industry. Scooters now account for only 6% of its domestic volumes. We believe scooter share has bottomed out, and may not be a drag any more. High growth in rural markets would support motorcycles more than scooters; this would favour Hero. Further, success of new models can bring confidence in Hero’s R&D and be a re-rating catalyst.

Ashok Leyland (AL):

AL has low volume/earnings visibility at this point. If & when Covid-19 recedes and the economy becomes fully functional, we expect demand for trucks to pick-up quite sharply. Improvement in truck volumes should drive a re-rating. FY21 MHCV sales would be below FY09 levels (GFC) and, hence, may see a sharp rebound in FY22.  Further, AL plans to launch the new LCV platform ‘Phoenix’ within the next three months. Management expects it to double the addressable market and further reinforce AL’s growing traction in the LCV market. These products can be configured for both right- and left hand drive, which augurs well for expanding into export markets.

Exide Industries:

Replacement demand for batteries should bounce back fairly quickly, as it is less discretionary in nature (difficult to postpone). The OE segment should also normalise soon, going by sales volumes being reported by OEMs. Other segments are picking up gradually. We expect Ebitda margin to normalise in upcoming quarters, as volumes revert to pre-Covid levels and production ramps up in sync with sales. The other potential catalyst for Exide would be an exit from the Life Insurance business, which has needed periodic cash infusion from the core batteries business. The market seems to be assigning zero value to the insurance business at this point.

Apollo Tyres:

Apollo generated negative FCFF for four straight years (high capex phase). However, the capex phase is largely behind; we expect Apollo to be FCFF-positive over FY21-24. Revival in CV tyre demand (both OE and replacement) would drive up earnings from current cyclical lows. Sharp cost cuts in the European business (headcount cuts in the Netherlands) would push up EU margins, from high single-digit to mid-teens; this would be a big earnings driver starting FY22.

Nifty Auto Index Stock Performance:

Company Name

25-Mar

12-Aug

Gain/ Loss

Mahindra & Mahindra Ltd.

277.9

635.0

128.5%

Motherson Sumi Systems Ltd.

60.6

116.8

92.7%

Amara Raja Batteries Ltd.

409.2

743.5

81.7%

Tata Motors Ltd.

70.3

125.4

78.4%

Bharat Forge Ltd.

253.7

434.8

71.4%

Hero MotoCorp Ltd.

1,667.7

2,774.0

66.3%

Balkrishna Industries Ltd.

852.0

1,378.3

61.8%

Ashok Leyland Ltd.

34.5

54.0

56.6%

Bosch Ltd.

9,212.1

14,327.5

55.5%

Bajaj Auto Ltd.

1,946.8

3,023.0

55.3%

Eicher Motors Ltd.

14,516.6

22,116.7

52.4%

Maruti Suzuki India Ltd.

5,006.0

6,730.3

34.4%

Exide Industries Ltd.

132.2

167.9

27.0%

TVS Motor Company Ltd.

332.5

417.7

25.6%

MRF Ltd.

56,579.3

61,634.8

8.9%

Source: Ace Equity

The stocks in the auto segment have given magnificent returns in the past 5 months. Mahindra & Mahindra Ltd and Motherson Sumi Systems Ltd have rallied 128.5% and 92.7% respectively. MRF jumped the least 8.9% in the same period.

Next Article

How to Invest in the US Stock Market from India?

How to Invest in the US Stock Market from India?
by Vested Team 24/08/2020

We believe that the economy is global and connected. As such, it is important that your investment portfolio be global as well. We created this guide especially for you, the Indian investor, to help you better navigate the international investing landscape. After reading this, you will understand:

  • Why it may be a good idea to invest and diversify in the US market
  • The different ways you can invest in the US
  • Popular terms used when discussing the US market


Why should you invest in the US Market?

Superior returns compared to India


The US market consistently outperforms the Indian market over the last 10 years. In Figure 1, we compare returns of the DOW Jones Index in the US to the BSE Sensex. During this time period, the DOW returned 196%, while the SENSEX returned 150%.


vested-blog-graph-1

 

Figure 1: Returns comparison between the Dow Jones index vs. the Sensex.


In addition to equity returns, the savvy investor should also think about the effect of currency fluctuations between INR and USD. In the past 10 years, the Rupee has depreciated 44% compared to the USD. This has a significant negative impact towards returns of Indian stocks widening the performance gap.

 

 

 

vested-blog-graph-2

Figure 2: INR to USD exchange rate from the last decade – INR has depreciated by more than 44% in the past decade.

 

 

 

 

 

Exposure to other markets

 

 

Investing in the US can be an easy way to invest in other international markets. For example, you can easily invest in the Chinese economy through investing in the US market. The fast growing Chinese economy – driven by a growing middle class and rapid technology adoption – has led to the creation of some of the world’s leading technology companies. However, instead of going public in China, more and more of these Chinese technology companies are choosing to list in the US.

vested-img-IPOs of Chinese companies in the US

 

 

Figure 3: IPOs of Chinese companies in the US.

 

 

For Indian investors, another benefit of investing through the US stock market is that the ecosystem is very well regulated, with strict controls on financial reporting, transparency, and standardized governance practices, making it easier for the investors to evaluate the different opportunities. To learn more about this, you can read more here.

You can Invest in MNCs directly rather than the local Indian subsidiary.

Many investors living in India invest in international MNCs because they assume there is a higher level of governance, technological proficiency and transparency in MNCs. However, investing in Indian subsidiaries is often a more expensive proposition. We studied 16 MNCs that are traded in reputable US exchanges and that have Indian subsidiaries that are also publicly traded in India.

On average, investors from India are paying ~3X higher multiples (P/E trailing twelve months) when investing in the Indian subsidiaries vs. investing directly in the parent company in the US. And despite paying significantly higher multiples, the average returns can be similar. The average 2019 returns of the US parent companies was ~14% (blue line in Figure 4), while the average returns of the Indian subsidiaries was ~17% (orange line in Figure 4).

vested-blog-graph-3


Figure 4: Average 1 year return of US parent companies (blue) vs. Indian subsidiaries (orange). The grey lines represent the returns of the individual entities over the past year.

 

 

Given these reasons, savvy investors from India may want to consider investing in the US. Your next question might be – how can one invest in the US from India?

 

 

Things to consider when investing

What are the different ways I can invest in the US stock market?

  • You can invest directly by opening a US brokerage account. 5paisa along with Vested offers a unique platform that caters specifically to investors from India, with no minimum balance and commission-free investing. Furthermore, just as 5paisa, Vested’s process is completely paperless and can be completed in minutes. You will need your PAN number, an image of your PAN card, and proof of address. To open an account with us, sign up here.The brokerage approach typically involves overall lower costs for the investor, but requires you to wire funds to the US. As an Indian resident, you are allowed to do this per the Liberalized Remittance Scheme (LRS), where you are allowed to invest up to US $250,000 per year per person.

  • Invest in US focused International Mutual Funds in India. Unlike the brokerage method, there is no investment limit for residents of India, as investments are made within India using Rupees. However, this approach can be more costly. You must keep in mind that the expense ratio (fees charged to manage the fund) for these funds tend to be higher since the fee is for both the general management of the fund plus an additional expense charged by underlying international schemes they invest in. For example, the Franklin Templeton feeder fund in India invests in the Franklin Templeton US Opportunity fund. The Feeder fund charges 1.54% expense fee, which is on top of the 1.82% fee charged by the underlying US Opportunity fund (see the fine print at the bottom of fund prospective here).

How will I be taxed for these investments?

When you invest in the US stock market, there are two types of taxation events:

  • Taxes on investment gains: You will be taxed in India for this gain. Taxes will not be withheld in the US. The amount of taxes you have to pay in India depends on how long you hold the investment. The threshold for long-term capital gain is 24 months, with the rate of 20% with indexation benefit. If you sell a stock in less than 24 months, capital gains are considered short-term and are taxed according to your income tax slab.

  • Taxes on dividends: Unlike investment gains, dividends will be taxed in the US at a flat rate of 25%. Fortunately, the US and India have a Double Taxation Avoidance Agreement (DTAA), which allows taxpayers to offset income tax already paid in the US. The 25% tax you already paid in the US is made available as Foreign Tax Credit and can be used to offset your income tax payable in India. For more info on how taxes would work, please read here.


How do I fund my account?

Since investments in US equities must be made in USD, you must wire (remit) USD to your brokerage in the US before you can start investing. Along with Vested, we the 5paisa team has simplified this process for you.

What are the brokerage charges?

Different entities charge different rates and have different structures. For example, brokers might charge a fixed fee per trade or charge a percentage of total trade or total asset. In contrast, Vested, just as 5paisa, will offer zero commission, unlimited investing. Since the investing process requires international transfers from Rupee to USD, in addition to any potential brokerage fees, there might be other fees that investors incur in order to invest in the US. These fees could be international wire fees or FX conversion fees that the investor’s bank charges, which may vary depending on the bank that the investor uses.

How much can I invest?

In accordance with the LRS, an individual can remit a maximum of US $250,000 USD per year for investments.

Popular US Investment Glossary

Investment Indices:
Instead of investing in individual stocks, when investing in the US, investors can easily invest in a broad diversified basket of stocks through indices. Several popular US indices are:

 

  • S&P 500: tracks the performance of the 500 largest US companies by market capitalization. In the year 2019, the S&P 500 surged more than 28%, which is the highest increase since 2013.
  • Dow Jones Industrial Average: tracks the performance of 30 large US companies trading on the New York Stock Exchange (NYSE) and the NASDAQ. In 2019, the Dow Jones gained 22% for the year.
  • Nasdaq Composite Index: tracks over 2,500 securities listed on the NASDAQ. In 2019, the Nasdaq Composite Index broke through the 9,000 level for the first time ever.

vested-blog-graph-4


Figure 5: Annual return of the three major indices in 2019

Sectors: The US is the world’s largest economy and is home to the world’s largest stock market. Its economy can be classified into 11 major investment sectors, which encompasses communication services, energy, real estate and utilities. In 2019, all 11 sectors posted positive returns.

 

vested-img-2-500 sector performance

 

Figure 6: 2019 S&P 500 sector performance

If this blog motivates you to invest in the US market, click here to start your journey.

The content is originally posted at vested.co.in.