Risks of Investing in the US Stock Market

Buying a piece of Apple, Tesla, or Nvidia feels like holding a ticket to the future of technology and innovation. The thrill is undeniable, and many Indians have already started exploring global markets. But just like flying to a dream destination comes with turbulence along the way, investing in the US stock market also carries its own set of risks.

Let’s break down with this blog the key risks that Indians should know before putting their money into US equities, from currency swings to compliance hurdles, and everything in between.

Currency Fluctuation Risk: Dollar Can Cut Both Ways

• Indians see US investing as a hedge because the dollar has been historically appreciating against the rupee.
• But currency moves are not one-way. If for any reason the rupee were to strengthen, your dollar returns shrink in INR terms.
• And once you add conversion charges by banks and brokers, your gains can reduce further.

Suppose Amazon (AMZN) is giving you a 12% return in dollars. If during the same time the rupee appreciates by, let’s say 10%, your effective INR gain drops to just 2%.

Volatility Risk in US Stocks

• Growth names in the US like Apple (AAPL), Oracle (ORCL), or Intel (INTC) often attract Indian investors because they are globally recognized and exciting opportunities.
• But these stocks can be just as volatile, reacting sharply to weak guidance, analyst downgrades, or global events.
• Unlike India, where lower circuits limit how much a stock can fall in one day, US markets don’t have such strict caps. That means sudden drops can feel much steeper.

Suppose you’re buying a stock like Oracle (ORCL) at $20 today, only for it to tumble 25% overnight after weak earnings. In India, circuit filters would have slowed that fall across multiple sessions, but in the US you take the entire hit in one go.

Tax and Compliance Risks

• US dividends face a 25% withholding tax upfront. You can claim credit in India under the DTAA, but paperwork is needed.
• All foreign assets, even small investments, must be disclosed in your Indian income tax return.
• Missing this disclosure can attract penalties.

Even if you own just $200 of Microsoft (MSFT), it must be reported as a foreign holding.

Geopolitical and Regulatory Risks

• US stocks like most stocks don’t just respond to business performance, they’re also affected by politics and regulations around the world. 
• Trade disputes, tariffs, or sanctions can have a big impact on stock prices. Not to mention, the government crackdowns, new privacy rules, or climate-related policies can change a company’s outlook almost overnight.

For instance, Meta (META) and Alphabet (GOOGL) have both faced multibillion-dollar fines and regulatory scrutiny in the US and Europe. 

Hidden Costs Risks Beyond Brokerage

• There are always charges involved beyond brokerage like currency conversion fees, foreign transaction charges, or simply higher brokerage spreads compared to domestic trades.
• Transfers via LRS (Liberalised Remittance Scheme) involve bank charges and compliance paperwork.
• Over time, these costs can eat into returns, especially for small investors.

If you invest ₹1 lakh in Netflix (NFLX), you might lose 1-2% right away in forex spreads and fees.

Fed and Economic Policy Risk

• The US Federal Reserve’s interest rate decisions can always move markets a lot, even for big, stable companies.
• If the Fed raises rates to control inflation, borrowing costs rise and investors often tend to avoid growth stocks.
• Whereas, if the Fed cuts rates sharply, it can signal worries about the economy and thereby may cause stocks to dip unexpectedly.
• Even the companies with strong earnings or innovative products can see their stock prices swing purely because of Fed announcements.
• Indian investors need to watch these decisions closely, as the timing and magnitude of moves can affect their US holdings significantly.

Information Gap and Awareness Risk

• Many Indian investors are familiar with companies like TCS or HDFC Bank well, but US companies often operate in industries that are less familiar like semiconductors for example.
• Complex business models, government contracts, new technologies or subscription-based revenue streams can be hard to understand at first glance.
• Quarterly filings and SEC reports often use jargon that may confuse new investors who are unfamiliar with them.
• Without proper research, it’s easy to misjudge a company’s performance or take on risks unintentionally.

Let’s take Palantir (PLTR) for example, it earns a large share of revenue from US government contracts. Without knowing this, investors may wrongly assume it has the same growth trajectory as a typical tech company.

Key Takeaways for Indian Investors

• Keep your allocations balanced as US exposure should complement, not replace, Indian investments. That’s the essence of diversification.
• Track currency movements, Fed policy updates, and company earnings closely. Learn to read SEC Filings.
• Choose brokers that are transparent on charges and tax documentation.
• Consult a tax advisor if unsure about compliance and disclosures.

Investing in the US stock market opens doors to global leaders and exciting industries. But just as the upside can be huge, the risks are real, from midnight earnings shocks to tax paperwork headaches. For Indian investors, the smart move is not avoiding US equities altogether, but entering with awareness, discipline and a well-balanced portfolio.

Disclaimer:

The content is meant for education and general information purposes only. Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Past performance is not indicative of future returns. The securities quoted are exemplary and are not a recommendation. This in no way is to be construed as financial advice or a recommendation to invest in any specific stock or financial instrument.The figures mentioned in this article are indicative and for general informational purposes only. Readers are encouraged to verify the exact numbers and financial data from official sources such as company filings, earnings reports, and financial news platforms. The Company strongly encourages its users/viewers to conduct their own research, and consult with a registered financial advisor before making any investment decisions. All disputes in relation to the content would not have access to an exchange investor redressal forum or arbitration mechanism. Registered office address: Office No. 507, 5th Floor, Pragya II, Block 15-C1, Zone-1, Road No. 11, Processing Area, GIFT SEZ, GIFT City, Gandhinagar – 382355. IFSCA Broker-Dealer Registration No. IFSC/BD/2023-24/0016, IFSCA DP Reg No: IFSC/DP/2023-24/010.