The Indian stock market has seen significant growth over the past decade. Even after the challenges posed by COVID-19 in 2022, the equity markets have continued to rise. For instance, investments in Indian mid-cap mutual funds have been yielding over 20% in annual returns, consistently outperforming the index.

However, it’s important to note that there are risks involved, as with any market, and certain segments of the Indian equities may be overvalued. Due partly to the country’s transition from an emerging to a developed market, driven by a growing population, prosperity and an expanding middle class.

The Indian stock market comprises two primary exchanges: the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) located on Dalal Street in Mumbai, often compared to Wall Street. As of the 2022 financial year, over 6,819 companies were listed on these exchanges, and the market cap stands at around $5 trillion. Huge…

Having been bullish on India since visiting the country in 2011, I believe that India presents significant opportunities for growth. However, entering the Indian stock market can be challenging for non-Indians. While the market holds promise, it also comes with its complexities, such as understanding the financial statements denominated in rupees, lakh, and crore.

It’s essential to acknowledge that investing in emerging markets, including India, carries inherent risks, similar to investing in other developing countries with well-established exchanges. Nevertheless, public equities and mutual funds remain popular among Indians as a means of wealth generation and retirement planning, akin to traditional investments in gold and real estate.

The most common Benchmarks.

The below are the most common benchmarks for the Indian Stock Market. If you take the Nippon Nifty 50 you can see the wild run it has had…these are on large/mega cap stocks.

1. S&P BSE Sensex: A market-capitalisation-weighted index of 30 large-cap companies listed on the Bombay Stock Exchange (BSE). It is widely considered the benchmark index for the Indian equity market.
2. NIFTY 50: A market-capitalisation-weighted index of 50 large-cap and mid-cap companies listed on the National Stock Exchange (NSE). It is widely used as a benchmark for equity mutual funds and other investment products.
3. NIFTY Next 50: A market-capitalisation-weighted index of 50 mid-cap and small-cap companies listed on the NSE, excluding those already included in the NIFTY 50.
4. NIFTY 500: A market-capitalisation-weighted index of 500 companies listed on the NSE, representing a broader cross-section of the Indian equity market.
5. BSE 200: A market-capitalisation-weighted index of 200 companies listed on the BSE, covering a mix of large-cap, mid-cap, and small-cap stocks.

🤷‍♂️ So how do you access the Indian Stock Market?

You can invest in the Indian market with an ETF (Exchange Traded Fund) or mutual fund that focuses on businesses domiciled in emerging markets. There are ETFs that track the larger Indian companies such as the nifty-fifty. Then there are publicly listed companies in the US or Australia with business operations in India. While it’s not Indian equity, investing in these options still provides exposure to India’s growth theme.

If you are an NRI (Non-Resident of India) or an OCI (Overseas Citizen of India) cardholder, you can invest in the Indian stock market. NRIs, who hold Indian citizenship but live outside the country, are allowed to invest.

The OCI program now incorporates PIO (Person of Indian Origin) status. An OCI card offers permanent lifelong residency/visa and provides similar rights to Indian citizens, except for voting rights and ownership of agricultural land. It allows you to own property, have bank accounts, and be treated equally with Indian citizens.

👰 As the spouse of a person of Indian origin, I am an OCI cardholder.

I can invest in Indian equities markets. The process wasn’t easy, but it has been worthwhile. I can invest in small-caps, individual stocks, mutual funds, and IPOs in India. The opportunities are abundant but also challenging due to the nature of the game here.

I will share how I have been able to do it, as there might be other NRI and OCI holders who want to invest in India and are unaware of the process. Here is a guide to doing it.

As a side note, if you are not an NRI or an OCI there is no way to invest in the Indian Stock Market. It is locked off to foreigners. Foreign direct investment is allowed, and it is changing, but these are reserved for investment funds and other organisations that co-invest. As a private retail investor, you just can’t do it.

NRI and OCI Accounts for the Indian Stock Market.

As an NRI or OCI cardholder, the first step is to open two separate accounts. If you want to invest directly in Indian companies by buying and selling shares, you will need a PIS (Portfolio Investment Scheme) account. This account must be opened through a bank where you have created NRE and NRO accounts.

The second account to open is a Demat account, which gives you access to Indian securities but not individual stocks. It is mainly for investing in mutual fund-type structures. Most people opt for a Demat account to access the markets and utilise the services of a wealth manager at the bank to guide them on investment options.

If you want to trade or invest in individual stocks, you need the PIS account, which is linked to your bank and either the bank’s securities brokerage division or to an online broker such as Interactive Brokers.

There are two major differences between NRE and NRO bank accounts. NRO accounts are for funds originating within India, such as income, dividends, and interest, and the funds are not repatriable. On the other hand, NRE accounts are repatriable, allowing you to send money abroad after earning it.

The PIS Account in India is a scheme authorised by the Reserve Bank of India (RBI) that enables NRIs to invest in shares of listed Indian companies. It allows NRIs to purchase or sell shares on a recognized stock exchange, either on a repatriation or non-repatriation basis.

Overall, India has strict capital controls, making it difficult to move funds in and out of the country easily. So understanding these options and the pros and cons on each is important.

PIS, Demat, NRE, NRO, this all sounds confusing…

The process of investing in the Indian stock market can be a bit confusing, so let me break it down for you. First, you’ll need a PAN Card, which is essentially a tax file number for India. Once you have your PAN Card, you can open a bank account, preferably in person to avoid paperwork and delays. The following banks are recommended: HDFC Bank, ICICI Bank, and Axis Bank.

When opening a bank account, you can set up both NRE and NRO accounts, each with its own visa card for transactions. Additionally, you should consider setting up a Demat account or a PIS account, or both, to start investing in the markets.

If you choose to go through the banks’ security division, they will direct you to a specific platform such as HDFC Securities. Alternatively, if you use Interactive Brokers, you can connect your PIS account to trade via their platform. Other reliable online brokers in India include Zerodha and Upstox.

Your NRE and NRO bank accounts are central to the investment process. Any profits you make will be remitted to these accounts. If you want to take funds out of India, they must settle into your NRE account. However, if you want to use the profits locally, you can remit them to your NRO account.

Dividends can be paid into either account, and there are repatriable and non-repatriable options, providing flexibility based on your investment strategy.

Repatriable and non-repatriable are important terms to understand.

Keep in mind that PIS accounts are subject to the same taxes as local accounts, so it’s important to understand your tax obligations before repatriating funds. Also, both Demat accounts and PIS accounts are taxable at different rates.

While this is not an exhaustive guide, this should give you a good understanding of the process of opening and trading in the Indian stock market. If you cannot directly invest in Indian equities, you also have the option of ETFs that track the Nifty-Fifty or emerging market funds that include India, Brazil, China, Russia, and others.

India is an area that has been booming, for how long is anyone’s guess. There are some inflated and overvalued pockets but with the thriving IPO market and the small-cap and mid-caps there are a lot of opportunities for multibaggers.

I write about what I’ve done or am doing, and this is what I have done in person. I’ll be covering a lot on the topic of Indian equities and emerging markets, it is an area I am bullish on over the coming decade. I previously wrote about Vietnam after a recent trip, I am now back in India exploring some opportunities…watch this space.