Even as global markets reach new highs and diversification beyond domestic stocks becomes increasingly relevant, many Indians investors remain hesitant to fully invest abroad.
In this edition of ETMarkets Smart Talk, Himanshu Kohli, Co-Founder, Client Associates, analyzes the key obstacles holding back investors: from tax complexities and cash flow issues related to TCS under the LRS route to limited awareness and operational ambiguity around global investment structures.
He also shares practical ideas on how investors can approach global allocation more strategically, why rebalancing is more important than timing, and where opportunities lie in the US and US. emerging markets in the current context. Edited extracts –
Q) Thanks for taking the time. Well, in the midst of darkness and misfortune, American markets reached a new record in April. What do you advise your clients who have invested in the American markets?
A) For investors who already have significant exposure to US assets, we advise holding these investments. Selling existing U.S. securities may have tax implications, and in the case of feeder funds, structural limitations often make switching difficult. Instead, investors should first review their overall asset allocation.
If the strong performance of the US market has resulted in an overweight, additional allocations may be directed towards non-US markets, particularly emerging markets. Although the dollar has recently strengthened due to geopolitical factors, we expect this trend to reverse over time as interest rate spreads narrow. Our analysis shows that during periods of US dollar weakness, emerging markets have historically outperformed developed markets. Therefore, rather than making abrupt portfolio changes, a more measured rebalancing approach is recommended.
Q) I’m sure you must be getting calls to invest overseas. What are the main concerns that investors are most concerned about?
A) Investor concerns mainly revolve around taxation and operational clarity. Under the LRS route, many investors are concerned about possible scrutiny by tax authorities, as well as the impact of TCS on cash flows. Another challenge lies in comfort and familiarity: domestic investors are accustomed to the wealth of information available on Indian leaders and companies, which is not always easily accessible for global investments.
There is also persistent ambiguity around investment structures, particularly in GIFT City. Investors are not always clear whether they should invest via pooled vehicles or whether personalized investment structures are possible. Even though tax rules have improved significantly, apprehensions regarding compliance and regulatory issues remain. Limited awareness of overseas investment opportunities and restricted mutual fund routes further limit global allocations, making access to global markets more restricted than investors would like.
Q) Tim Cook announced he is stepping down as CEO of Apple after nearly 15 years. Do you see this moving in the right direction and will it impact stock performance?
A) Leadership transitions are a natural part of the evolution of large organizations. We’ve seen this in several global companies moving from founder-led structures to professional management, and even within professional management teams over time. Tim Cook’s 15-year tenure has been quite long, so a transition offers the opportunity for renewed energy and perspective.
With John Ternus assuming the role of CEO and Tim Cook remaining as executive chairman, Apple maintains continuity while allowing for leadership renewal. Apple today is an institution rather than a personality-driven organization. In the short term, management changes could cause some stock price volatility. However, from a long-term perspective, performance will continue to be driven by innovation and execution. As Apple recognizes that it is lagging behind its peers in AI, the new leadership will be closely watched for its ability to drive growth beyond hardware leadership.
Q) FAANG and the Magnificent Seven are well-known acronyms. Is there a new one gaining traction?
A) A newer acronym that is getting attention is MANGO – Meta, Apple, Nvidia, Google and OpenAI. This reflects the shift in market focus from traditional consumer platforms to companies dominating the artificial intelligence ecosystem.
As U.S. markets reach record highs, how much should investors allocate to foreign stocks or foreign stocks monthly? ETFs?
Rather than focusing on a fixed amount, investors should evaluate their existing exposure. Those already well allocated to U.S. markets could benefit from channeling additional investment into emerging markets or other global opportunities. This can be done through active strategies or ETFs, depending on investor preferences.
In our model portfolios, we have recommended global funds of funds operating from GIFT City, active funds focused on emerging markets and selected ETFs. While active managers in developed markets often struggle to consistently outperform indices, managers in emerging markets have demonstrated a better ability to generate alpha, making active management an attractive option in this segment.
Q) It’s the first month of FY27. When should investors rebalance their global portfolios?
A) The start of the financial year provides investors with a new annual LRS payment window, making it an effective time to plan overseas investments. For those using systematic routes, starting early helps spread investments evenly over the year. Even quarterly investors benefit from the launch of allocations in the first quarter.
That said, rebalancing decisions should ultimately be driven by asset allocation rather than timing alone. With US markets at high levels, a staggered or systematic approach may be more prudent. Also considering the volatility of emerging markets, systematic investing can help mitigate entry price risks. Starting early in the year allows investors to gradually build their exposure while managing entry risk.
Q) What are the priority sectors in 2026?
A) We have a constructive vision on certain sectors. While earnings momentum in the U.S. technology sector remains strong, the recent pullback provides opportunities to selectively add exposure through a disciplined buy-on-the-dip strategy. Electric utilities are also gaining importance due to the growing demand for energy linked to artificial intelligence infrastructure. Additionally, defense has become a priority, as geopolitical tensions have prompted many countries to increase defense spending to invest in national capabilities amid shifting global alliances.
Q) Are there any ETF investors who should stay on their watch list?
A) Our approach favors broad-based developed market ETFs rather than narrowly defined sector ETFs. That said, thematic exposure to areas such as energy, defense and artificial intelligence can be considered. For emerging markets, we prefer actively managed funds over ETFs.
