Mutual fund schemes investing in US stocks have fared spectacularly in the past year. While most of these schemes have earned at least 37%, Motilal OswalBSE 1.41 % MOST Shares Nasdaq 100 topped the chart with an eye-popping 51.95% returns for a period of one year till February 10.
However, according to some investment advisors, it may be time to book profits in these funds. "We have asked our clients who have been invested in US-focused equity funds to book some profits and park them in liquid funds," says Uday Dhoot, deputy CEO, International Money Matters.
Many experts are asking investors to book profit in US stocks also because of the quick run-up in stock prices in a short span. For example, Nasdaq Composite index and S&P 500 index have gained 30% and 19%, respectively, in the past year. However, due to 16% depreciation of the rupee against US dollar in the past year, gains in rupee terms for Indian investors stood at 50% and 37%, respectively. "Liquidity was good and US economy was coming out of woods, which resulted in superior returns in US stock markets. The markets may now consolidate as they start tracking earnings growth," says Ankit Swaika, head-investment advisory & research, Religare Wealth Management. The valuations have gone up as stocks saw rerating in price-earning multiples. He rules out a possibility of a repeat performance from the US stock market in the next financial year. If the economy fails to tread on the growth path and US corporate earnings don't grow as anticipated, the rally may fizzle out.
The dollar-rupee exchange rate dynamics will also spoil the party for Indian investors, say experts. Many of them rule out the possibility of the rupee falling sharply against the greenback. In fact, some of them even talk about the rupee strengthening against the dollar. "The rupee may climb up to 58 per piece against the US dollar in the next 18 months," says Hiren Dhakan, fund manager, Bonanza Portfolio. A strong mandate for a pro-reform government in the forthcoming election can attract a fresh bout of funds to India. This may push the rupee upward. Most agree that investors may not gain huge in dollar-denominated investment.
Many investment advisors recommend selling some of these investments, but they have different view about what the investors should do with the profits. "The US is a structural story and will unfold over a long period of time. As the market consolidates, it will offer opportunity to re-enter US markets at lower levels," says Uday Dhoot. He advises investors to make a systematic transfer plan from a liquid fund to Franklin US Opportunities Fund. However, some experts prefer to look beyond the US.
"Switch from the US to Europe to benefit from recovery in European economy," says Ankit Swaika. There are three dedicated mutual fund schemes - DWS Top Euroland Fund, JP Morgan Europe Dynamic Equity Offshore Fund, Religare Invesco Pan European Equity Fund - that can help you invest your profits in Europe. Another voice, Hiren Dhakan, asks investors to park their money in emerging markets to play the next leg of global recovery. "After the US, it is the time to see some action in emerging markets in Asia. As the global risk on trade catches up, one can expect inflows in emerging markets in Asia, including India," he says.
ICICIBSE 1.80 % Prudential Indo Asian Equity Fund and Templeton India Equity Income Fund are his top picks. Since these funds invest at least 65% of the corpus in Indian stocks and the rest in foreign stocks, they are treated like an equity fund for tax purpose and gains earned on investments for more than one year are tax-free. International funds are taxed like debt funds, and the long-term capital gains are taxed lower at 10.3%.
However, according to some investment advisors, it may be time to book profits in these funds. "We have asked our clients who have been invested in US-focused equity funds to book some profits and park them in liquid funds," says Uday Dhoot, deputy CEO, International Money Matters.
Many experts are asking investors to book profit in US stocks also because of the quick run-up in stock prices in a short span. For example, Nasdaq Composite index and S&P 500 index have gained 30% and 19%, respectively, in the past year. However, due to 16% depreciation of the rupee against US dollar in the past year, gains in rupee terms for Indian investors stood at 50% and 37%, respectively. "Liquidity was good and US economy was coming out of woods, which resulted in superior returns in US stock markets. The markets may now consolidate as they start tracking earnings growth," says Ankit Swaika, head-investment advisory & research, Religare Wealth Management. The valuations have gone up as stocks saw rerating in price-earning multiples. He rules out a possibility of a repeat performance from the US stock market in the next financial year. If the economy fails to tread on the growth path and US corporate earnings don't grow as anticipated, the rally may fizzle out.
The dollar-rupee exchange rate dynamics will also spoil the party for Indian investors, say experts. Many of them rule out the possibility of the rupee falling sharply against the greenback. In fact, some of them even talk about the rupee strengthening against the dollar. "The rupee may climb up to 58 per piece against the US dollar in the next 18 months," says Hiren Dhakan, fund manager, Bonanza Portfolio. A strong mandate for a pro-reform government in the forthcoming election can attract a fresh bout of funds to India. This may push the rupee upward. Most agree that investors may not gain huge in dollar-denominated investment.
Many investment advisors recommend selling some of these investments, but they have different view about what the investors should do with the profits. "The US is a structural story and will unfold over a long period of time. As the market consolidates, it will offer opportunity to re-enter US markets at lower levels," says Uday Dhoot. He advises investors to make a systematic transfer plan from a liquid fund to Franklin US Opportunities Fund. However, some experts prefer to look beyond the US.
"Switch from the US to Europe to benefit from recovery in European economy," says Ankit Swaika. There are three dedicated mutual fund schemes - DWS Top Euroland Fund, JP Morgan Europe Dynamic Equity Offshore Fund, Religare Invesco Pan European Equity Fund - that can help you invest your profits in Europe. Another voice, Hiren Dhakan, asks investors to park their money in emerging markets to play the next leg of global recovery. "After the US, it is the time to see some action in emerging markets in Asia. As the global risk on trade catches up, one can expect inflows in emerging markets in Asia, including India," he says.
ICICIBSE 1.80 % Prudential Indo Asian Equity Fund and Templeton India Equity Income Fund are his top picks. Since these funds invest at least 65% of the corpus in Indian stocks and the rest in foreign stocks, they are treated like an equity fund for tax purpose and gains earned on investments for more than one year are tax-free. International funds are taxed like debt funds, and the long-term capital gains are taxed lower at 10.3%.
