Whalesbook
US Holdings Grew Passively
Indian investors' exposure to US equities has grown significantly, now averaging 22-25% of portfolios. This increase has largely been passive, driven by market performance rather than active capital deployment. While US indices like the S&P 500 and Nasdaq 100 have seen strong gains and hit record highs, this ascent now highlights underlying valuation risks.
US Valuations Soar as Currency Gains Slow
Current US equity valuations are elevated. The S&P 500's trailing P/E ratio stands at roughly 30.24, far above its historical average of 19.4. Its CAPE ratio is at 40.44, a level historically associated with lower future 20-year returns. The Nasdaq 100's P/E is also high at about 37.62, exceeding its 13-year median. These high multiples reduce the margin for error and increase potential for sharp declines. Meanwhile, the boost from a depreciating rupee is fading. With the dollar around ₹92.8 per rupee in mid-April 2026, currency gains that previously amplified returns are unlikely to continue at the same pace.
Risk Profile and India Comparison
This valuation gap between US and Indian equities is significant. The S&P 500's equity risk premium (ERP) is low at 5.28%, offering limited reward for bearing equity risk compared to potentially more attractive options elsewhere, including India. Many investors hold US stocks passively, simply because they have performed well. This can lead to unintended overexposure, particularly for those with concentrated holdings in large-cap US tech stocks via mechanisms like RSUs. Such concentration exposes portfolios to sector-specific downturns if the market shifts.
Experts Advise Strategic Rebalancing
Experts now advise a shift from passive holding towards strategic rebalancing. While selling may not be necessary for everyone, an incremental approach to redeploying capital into more attractively valued areas is recommended. Investors are urged to review their US exposure, especially if it exceeds 20%, not to time the market, but to re-establish intentionality and ensure current allocations align with long-term financial goals.