India is booming. But you still need international exposure

livemint.com:

₹8,330 (equivalent to $100, at ₹83.3 per US dollar) to invest. If you invested in India and assumed a 15% CAGR over five years, your investment would have grown to ₹16,755. Now, let’s assume that the international investment also delivered a similar return.

The value of your investment would have grown to $201. What we now need to factor in is the depreciation in the value of the India rupee. Let’s stick to the 5-year average of 3.6% per annum.

The value of the dollar at the end of five years would have grown to ₹99.5 per US dollar. As a result, the rupee investment value at the end of five years would be ₹20,023. That 19.5% more than what you’d have made in profits if you had invested in India.

Before you start jumping with joy, or anguish, understand that I have grossly oversimplified the situation to show you the impact of a depreciating rupee, or conversely, the advantage of investing in a US dollar-denominated stock market. Again, these are assumptions, which can and do go wrong from time to time. What we do know is that if history repeats, then a scenario like this is also a possibility.

Also, there are other ways to guard against depreciation. For instance, there’s gold. But we will go into the lustre of gold in more detail in subsequent issues of Contramoney.

For now, let’s talk about diversification. We have always said, “Be super bullish on India, but cautiously optimistic on Indian stocks". This is a strategy with a high probability of success.