When most people think about benchmarks in the stock market, they gravitate toward the S&P 500 and Nasdaq Composite. While these indices have performed well in the long run, the tariff drama at the start of the year made investors realize the importance of diversifying into international holdings.
Just as picking individual stocks is more cumbersome in U.S. markets than buying shares in an ETF, it’s also easier to buy indices in global markets than to pick the right international stocks. The Nifty 50, India’s index that holds the country’s 50 largest publicly traded corporations, is gaining momentum. The benchmark is up by 7% year-to-date and has more than doubled over the past five years. Here’s why the Nifty 50 may be a good addition to your portfolio.
The Weakening U.S. Dollar Strengthens Global Investments
The U.S. dollar has been losing a lot of value recently, shedding more than 10% of its value compared to other fiat currencies over the past six months. India’s Rupee will appreciate against the U.S. dollar, making Indian stocks more valuable for investors who put U.S. dollars into them.
The U.S. dollar may continue to fall when the Federal Reserve finally reduces interest rates. That’s because lower rates increase the supply of the dollar. These tailwinds can benefit international companies, including investors who poured capital into the Nifty 50.
Smaller Concentration In India’s Best Companies
Many people tout portfolio diversification, but you can miss out on great returns if you over-diversify. For instance, the S&P 500 is filled with underperforming stocks since it has 500 holdings. Most iterations of the S&P 500 that restrict it to the top 50 or 100 companies almost always perform better than the underlying index.
The Nifty 50 only gives investors exposure to India’s top 50 companies. It’s enough portfolio diversification to mitigate risk, but at the same time, you’re not getting so many companies to the point that some laggards drag the benchmark down.
India Is Growing Faster Than Most Countries
India’s GDP growth is higher than most countries, and that high growth rate has translated into some solid gains for the Nifty 50. Not only is GDP growth strong, but India is also one of the few countries that has a fertility rate that’s close to the replacement level. The country’s total fertility rate recently fell to 1.9, while Europe has a fertility rate below 1.50.
An elevated fertility rate can help India support population growth longer before a decline takes place. The country’s close proximity to the replacement level fertility rate also makes it more feasible for the country to switch course and return to replacement levels of reproduction.
A country’s fertility rate is arguably the most important statistic to help people gauge how its investments will perform in the long run (i.e., 20+ years). As populations decline, stocks also go down since fewer consumers result in lower revenue growth for corporations. If India can maintain a fertility rate that’s close to replacement level and possibly recover, then it’s better positioned for the future than most countries.
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