Global Diversification for Indian Investors, Why the Fastest-Growing Economy is Not the Only Bet

Global Diversification for Indian Investors, Why the Fastest-Growing Economy is Not the Only Bet

Introduction

India has been celebrated in recent years as the world’s fastest-growing major economy, consistently outpacing other large markets in GDP growth. This has led many domestic investors to believe that “India alone” could be the best investment strategy. However, Devina Mehra, founder of First Global and author of Money, Myths and Mantras: The Ultimate Investment Guide, cautions against such a narrow view. Her argument is rooted in currency realities, historical market cycles, and the dangers of overconcentration.

This article explores why, despite India’s strong growth story, global diversification remains essential for Indian investors. Drawing on decades of financial data, market behavior, and currency trends, it underlines the risks of “single-country, single-currency, single-asset” exposure — what Mehra calls SCCARs (Single Country Single Currency Single Asset Risks).

The Currency Factor: A Silent Wealth Eroder

At first glance, the rupee’s recent performance in 2025 might appear relatively stable — depreciating by only 2.2% against the US dollar since January. But a broader look reveals more dramatic fluctuations against other currencies:

• 15% drop against the euro.

• 15% drop against the Swiss franc.

• 9% drop against the British pound.

For Indian families with overseas financial commitments, such as tuition fees for children or living expenses abroad, these fluctuations have significant implications. For example, the US dollar cost of sending a child to Europe could suddenly rise by 15% in a matter of months, purely due to currency depreciation.

Historically, the rupee’s story is more alarming. In the 1980s, $1 equaled ₹12. Today, it has depreciated by about 90% in four decades. That erosion of purchasing power is a crucial factor many investors overlook when they choose to hold the majority of their assets domestically.

Home Bias and Its Pitfalls

Investors worldwide tend to favor domestic markets disproportionately — a tendency called home country bias. For example:

• Canadian investors keep 60% of their assets in Canadian equities, despite Canada representing far less than 60% of global equity markets.

• Similarly, Indian investors often keep 90–100% of their investments in India, though the country represents less than 5% of global market capitalization.

In India, this bias is further amplified because for decades, residents were legally prohibited from investing abroad. Until the early 2000s, the only way an Indian could hold foreign currency was through physical gold. This cultural and regulatory history has reinforced a mindset of domestic concentration.

Regulatory Liberalization: The LRS Window

India’s Liberalized Remittance Scheme (LRS) now allows residents to invest up to $250,000 per person per year abroad. For a family of four, that’s up to $1 million annually — roughly ₹8.3 crore at current exchange rates.

This policy enables affluent Indian households to build globally diversified portfolios. Yet, despite the opportunity, investor behavior has been slow to change. Many still limit themselves to Indian stocks, bonds, and real estate, potentially missing opportunities and taking on avoidable risks.

The Illusion of Permanence in Market Outperformance

A recurring theme in global markets is that no market outperforms forever. Mehra gives the example of the US Nasdaq index:

• After three stellar years leading up to 2022, it crashed by 40% that year.

• Between 2003 and 2007, emerging markets outperformed dramatically, with indices rising up to six times in value while US markets lagged.

• However, from 2008 onwards, the trend reversed, and US markets regained dominance.

These shifts highlight the cyclical nature of market leadership. Investing exclusively in a single country — no matter how fast-growing — exposes investors to the risk of being caught on the wrong side of these cycles.

Lessons from the Asian Financial Crisis

In the late 1990s, the “Asian Tigers” — economies like Thailand, South Korea, Malaysia, Indonesia, and Taiwan — were hailed as unstoppable growth stories. In 1997, Asian stock markets had risen between 50% and 90% in just one year.

Then came the Asian Financial Crisis:

• Currencies collapsed.

• Stock markets lost decades’ worth of gains.

• Investors who were overconcentrated in these markets suffered catastrophic losses.

The lesson: fast GDP growth does not always translate into sustained stock market returns. Economic booms can be derailed by financial instability, political shocks, or global events beyond a country’s control.

The Importance of Asset Class Diversification

Mehra emphasizes that true global investing involves:

• Exposure to multiple countries.

• Exposure to multiple asset classes (equities, bonds, commodities, real estate, etc.).

At First Global, her firm invests across all countries and all asset classes, with a minimum portfolio size of $10,000 (about ₹8–9 lakh). The aim is to avoid overreliance on any single market, currency, or economic cycle.

This approach also cushions against SCCARs — the risk of:

1. Single Country downturns.

2. Single Currency depreciation.

3. Single Asset volatility.

The Changing Cost Landscape for Hard Currencies

Hard currencies like the US dollar, euro, Swiss franc, and British pound have been strengthening in recent years. As a result:

• The cost of overseas travel, education, and investment has been rising for Indians.

• This trend amplifies the need to earn returns in foreign currencies to maintain global purchasing power.

By investing abroad, Indian investors can hedge against the rupee’s long-term depreciation and protect their ability to spend overseas.

Market Memory is Short

One of the most dangerous investor habits is recency bias — assuming that recent performance trends will continue indefinitely. The Nasdaq example is instructive:

• From 2019–2021, Nasdaq was one of the best-performing indices in the world.

• In 2022, it became one of the worst.

Similarly, between 2003–2007, emerging markets boomed, only to falter afterward. Investors who piled in late often suffered heavy losses.

The lesson is to resist the temptation to “chase” recent winners without considering long-term diversification.

The Psychological Barrier for Indian Investors

Even though regulations now allow for overseas investment, a psychological resistance remains:

• Many investors are unfamiliar with foreign markets.

• There is a perception that investing abroad is complicated.

• Some believe that as long as India is growing fast, there is no need to diversify.

Mehra argues that this mindset ignores both historical precedents and the mathematics of risk reduction.

Why Even the Fastest-Growing Economy Can Disappoint Investors

Stock market performance is influenced by multiple factors beyond GDP growth:

• Corporate governance standards.

• Depth and liquidity of capital markets.

• Global risk sentiment.

• Domestic political stability.

• Currency movements.

Fast GDP growth can coincide with flat or negative stock market returns — as seen in several emerging markets over the past decades.

A Global Perspective for Indian Portfolios

A balanced investment portfolio should:

• Spread exposure across geographies.

• Include multiple currencies.

• Diversify into different asset classes.

This not only reduces risk but also opens the door to opportunities in markets or sectors that may be temporarily outperforming.

For Indian investors, the availability of instruments like international mutual funds, exchange-traded funds (ETFs), and direct global equity accounts makes such diversification more accessible than ever.

Conclusion

The message from Devina Mehra’s analysis is clear: while India’s economic growth story is compelling, it is not a substitute for global portfolio diversification. Relying solely on the domestic market exposes investors to the triple risk of single-country, single-currency, and single-asset concentration.

History has shown that market leadership rotates. The winners of one decade can easily become the laggards of the next. The prudent investor builds a portfolio that can weather these shifts — one that earns returns in multiple currencies, participates in multiple growth stories, and is not hostage to the fortunes of any single economy.

5 Exam-Oriented Q&As

Q1. What does SCCAR stand for, and why is it important for investors to avoid it?
A:
SCCAR = Single Country Single Currency Single Asset Risks.
It is important to avoid SCCAR because concentrating all investments in one country, currency, or asset class exposes investors to high systemic risk. Economic downturns, currency depreciation, or asset volatility in that single exposure can severely impact returns.

Q2. What is the Liberalized Remittance Scheme (LRS), and what limits does it set?
A:
The Liberalized Remittance Scheme (LRS) allows Indian residents to remit up to $250,000 per person per financial year for permissible current or capital account transactions, including investments abroad. For a family of four, the limit is up to $1 million annually.

Q3. Why does the author emphasize currency depreciation as a major risk for Indian investors?
A:
Because the Indian rupee has historically depreciated significantly against major currencies (around 90% since the 1980s), eroding the purchasing power of purely rupee-denominated assets. Currency depreciation also raises the cost of overseas expenses, making foreign-currency-denominated returns valuable.

Q4. Give two historical examples mentioned in the article where overconcentration in a fast-growing market led to losses.
A:

1. Asian Financial Crisis (1997): Markets in Thailand, South Korea, Malaysia, Indonesia, and Taiwan collapsed despite prior rapid growth.

2. Nasdaq Crash (2022): After three strong years, Nasdaq fell 40%, becoming one of the worst-performing indices globally.

Q5. What is “home country bias,” and how is it reflected in Indian investor behavior?
A:
Home country bias is the tendency of investors to allocate a disproportionate share of their portfolio to domestic markets. In India, many investors hold 90–100% of their investments domestically, despite India representing less than 5% of global market capitalization.