Indians raise bets on American stocks ahead of US Presidential elections

Increased interest because of expected short-term volatility, say brokerages

Domestic brokerages have seen clients raise bets on American stock markets in the run-up to the US presidential elections, results of which are awaited.

Some brokerages announced tie-ups to offer overseas stock market access to their clients in recent months, fuelling increased investment activity, even as volatility increased ahead of poll results.

Many younger customers look to invest in technology firms that they are familiar with but which are not available in India, said Prakarsh Gagdani, chief executive officer at 5paisa Capital. Companies like Facebook and Twitter are listed in the US.

“We have started offering customers investment opportunities in US equities with zero commission since the last two months in partnership with Vested. The traction has been very good.... We have seen steady demand and new customer queries for investing in US markets,” he said.  

“There is increased interest in the markets on account of the expected short-term volatility that elections typically cause... During the run-up to polling dates, we saw a 20-25 per cent increase in US investing among Indians. This was evident from the increase in enquiries as well the increase in smaller overseas remittances that we saw,” said Arun Chaudhry, head of online business and products, broking and distribution at Motilal Oswal Financial Services.

The Chicago Board Options Exchange Volatility Index (VIX) was higher than usual, at above 30, even as votes were being counted. The index is a measure of how sharply the stock market is expected to move. It is often called the stock market’s ‘fear gauge’. 
 

“Our advice has been to hang tight and take a long-term view of the market. Indians looking at the US market are not trading, they are investing. So it’s best to be patient in these volatile times,” said Chaudhry.

The current financial year began with a higher investment in overseas debt and equity than during the 2016 US elections, shows Reserve Bank of India data. It was $431.4 million at the beginning of this year, compared with $317.9 million in March 2016. This rise runs in contrast to investments in immoveable property, which fell from $90.8 million to $86.4 million over the same period (see chart).

More brokerages have sought to offer overseas trading options since then. ICICI Bank offered it through its brokerage arm ICICI Securities in August. Axis Securities, the brokerage arm of Axis Bank, and Geojit Financial Services followed suit.

Interestingly, US stock markets underperformed emerging markets as well as a basket of countries in Asia, excluding Japan, last month, noted  financial services group Jefferies in their November 2 ‘Microstrategy — Oct 2020 Wrap: Election time’ report. Companies have begun to bounce back around the world, including in the US, according to Jefferies.

“Earnings upgrades continued for the US while Europe and Asia revisions have now been positive for past two months. It’s early days into the... (September quarter)... result season but the outcome is supportive of further improvement in earnings revisions,” said the note.