Why does it make sense for Indian investors to diversify in US stocks?

By Raj Gandhi

Investing about 15-20 per cent of your portfolio in US markets makes a good investment strategy against two major risks – rupee depreciation and inflation. It also works well with aligning financial goals to future Dollar goals – higher education for children, a destination wedding, international holidays, purchasing real estate overseas.

Diversification does not only equate to minimisation of risk. The US Markets offer investment opportunities among the top companies of the world. One need not limit themselves to corporates that operate within the same geography and actually include megaliths that have the largest market capitalization in the world.

As a beginner, here are some sectors that one may consider investing in the US stock market.

Banking and Financial Services

It’s no wonder Warren Buffett loves bank stocks. The legendary billionaire investor has more than $80 billion of the $330 billion Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) stock portfolio invested in this one industry.

The reason is simple: Bank stocks possess many of the Buffett must-haves. First, banks serve an important societal need that will never go away. Second, banking business models are relatively simple to understand. Third, despite the health of many banks improving dramatically since the 2008 financial crisis, some bank stocks are trading at a bargain — a key indicator that now is the best time to invest.

Pharmaceuticals and Biotechnology

Early-stage biotech companies are prone to wild swings in revenue due to going from nearly no revenue to having a significant revenue stream once a drug is approved or a partnership with another company is reached. That means that growth numbers have to be thought of more as indicative of the company having achieved some sort of breakthrough regarding where they were with research, corporate partnerships, or other events in their corporate lifecycle, rather than how you’d normally think of growth.

Artificial Intelligence

Generating alpha: For firms seeking organic growth through outperformance, adopting alternative data sets and Artificial Intelligence (AI) have proved to be a differentiating factor for generating additional alpha.

Enhancing operational efficiency: Firms will continue to deploy AI and advanced automation to continuously improve the efficiency of their operations. Beyond this, firms can transform these traditional cost centres into AI-enabled “as a service” offerings.

Improving product and content distribution: Customer experience is a new battleground and AI is helping advisors to generate more insights, customise content more effectively, and deliver it to clients with greater agility and speed.

Managing risk: AI is a game changer for risk management. AI equips firms with the tools to bolster compliance and risk management functions, augment and automate data analysis, and anticipate and manage ambiguous events.

AI is created through machine learning, which involves training a system with huge amounts of data. It then uses the trained system to make inferences about new data it’s never seen.

The simplest example is a system designed to detect objects in images. Images with those objects are provided to the system, which “learns” how to detect those objects in other images. The more objects in images it detects, the more accurate the detection system becomes.

Companies employ artificial intelligence in two main ways. Many tech companies use AI to make their existing operations more powerful such as through high-profile applications, including robotics, self-driving cars, and virtual assistants. Google, a subsidiary of Alphabet (NASDAQ:GOOGL), (NASDAQ:GOOG), uses AI to filter out spam for Gmail users. Amazon (NASDAQ:AMZN) uses AI to recommend products to customers, while Netflix (NASDAQ:NFLX) uses AI to guide content creation and recommendations.

Cloud Computing

These are companies that serve the cloud and help make it run. They supply the software, the hardware, and services needed to keep the cloud going. Companies like Dell Technologies and Intel are part of this group. They own the biggest data centres and control the flow of information across the cloud. These include companies like Meta (formerly Facebook), Alphabet (Google’s parent company), Apple, Amazon.com, and Microsoft.

Another faction of cloud computing includes cloud service companies. They are the major players delivering information and services across the internet – often they are offering services that weren’t possible before the internet developed, or have migrated their services to be internet based. Salesforce.com and Netflix.com are examples of web-based businesses that rely on the cloud for their primary business model.

(Author is Co-founder, DollarBull Fintech Platform empowering Indian investors with global investing solutions)