Indian investors should maintain their exposure to US market

The United States (US) market, which has been in a prolonged bull run since 2009, has taken a beating this year. Year-to-date, the S&P 500 is down -14.1 per cent.

The NASDAQ 100 index has fared even worse: it is down -21.6 per cent. In comparison, the Nifty 50 is flat (0.88 per cent) year-to-date. Financial experts are of the view that the current downturn in the US market should not lead to Indian investors stopping their investments in overseas markets.

The reasons for the current round of volatility in the US market are well known. The US Federal Reserve is on a rate hiking spree in an attempt to curb inflation, which is at its highest level in several decades. It is also gradually withdrawing the liquidity which it had infused into the financial system in the wake of the Covid pandemic. As a result, bond yields are rising. Whenever the cost of capital goes up and liquidity becomes less abundant, equity valuations tend to take a knock.

Nonetheless, Indian investors should continue with their investments in the US market. One reason is that the downturn in the US market is a recent phenomenon. After such a long run, all markets tend to take a breather. Asset allocation in the portfolio should not be changed on the basis of short-term returns.