
Our savings and spending are done in Rupees. All our portfolios are stated in the Indian currency. It is therefore natural for us to think about our investments in rupee terms.
But most global investors think about their returns in terms of the US dollar. Is this something we should be concerned about?
We may not realize it, but today we spend more of our money in dollar terms than ever before. We go on foreign trips or send our children for studies abroad. Most of the electronics we buy are imported; the latest iPhone or Google Pixel is first priced in dollar terms before being converted into rupees and sold in India.
And the Indian rupee has a tendency to depreciate over time. One dollar in 2010 cost approximately 45 rupees. In 2020 that figure was closer to 75. This means that our purchases that are priced in dollars continue to get more and more expensive as the years go by.
It is therefore critical for us to look at our returns using a dollar base. If, for example, an investment we have made goes up by 5 per cent in rupee terms, but the currency has depreciated by the same amount, then we are back to square one.
One of the first things that investors are told when they first start thinking about the stock markets is to buy what they know and understand.
Let’s take a typical Indian consumer: She will have a Xiaomi Android Phone, drive a Hyundai car, watch Amazon Prime on her Samsung TV, use an LG Washing Machine, do work on a Dell laptop and maybe have a Cadbury chocolate in her break time.
None of these companies are listed on the Indian stock markets. If we are increasingly consuming brands that are global, why should we restrict our investments to the local markets?
And, it is not like we are sacrificing return for buying international funds. Some of the best performing stocks globally have been companies such as Apple, Netflix, Tesla and Nvidia over the last few years.
International equities are not for everyone. There are other alternatives that investors with a lower risk appetite can look at for dollar-based investing; you must invest based on your risk taking ability. What is more important is to start evaluating how your portfolio is doing on a dollar base over time.