India’s economy has had a good year, and many projections see the country playing a more and more significant role in the world’s economy in the future. This is great news for Indian investors, but global economic shifts will continue to be important. They will present both challenges and opportunities, and there are several ways that Indian investors can respond to these shifts.
Major Drivers of Global Economic Shifts
Before looking at how to respond to economic shifts, let’s first talk about what they are. Anything that changes society in a meaningful way is likely to also have an impact on the economy. When you couple that with how interconnected the world is today, changes in a society on the other side of the world could potentially lead to changes in your country’s economy.
Geopolitical tensions are one significant factor in shaping economies. As conflicts emerge between nations and new alliances are created, this can change the way trade is done. Things like trade disputes and sanctions have ripple effects across global markets.
Demographic shifts are another example. Ageing populations in developed countries contrast with younger demographics in emerging markets. As we move forward, a developed economy with an older population like Japan (49.1 years average age) will have different economic priorities than a country with a younger population like India (28.2 years average age).
Hedging Strategies for Indian Investors
One way Indian investors can manage global economic shifts is through hedging. This involves making protective investments to offset potential losses in your portfolio. Think of it as safeguarding your existing wealth rather than making massive profits.
While many Indian investors may already be familiar with hedging locally, it’s important to understand global instruments that can provide broader protection. An example of this is the ES1 futures that can help investors speculate or hedge against the movements of the broader U.S. equity market. If an Indian investor has exposure to U.S. assets or believes that a downturn in the U.S. economy might affect Indian markets, using an instrument like this can be a good way to hedge against potential adverse movements.
Diversification is another must-have part of a hedging strategy. Instead of putting all of your eggs in one basket, consider spreading them across different geographies and asset classes. This approach is useful for reducing exposure to any single economic event happening anywhere.
In terms of different asset classes, gold and commodities have historically been preferred choices when it comes to hedging. This is largely due to their values not moving in line with stocks or bonds, providing another way to protect yourself during turbulent times. Other types of investments like private equity, real estate, and even alternative investments like art could all potentially make up part of a hedging strategy.
If one thing is clear, it’s that the Indian economy will become a bigger and bigger player in the future. While Indian businesses and investors are well-poised to take advantage of this, there is always the risk of global economic shifts interrupting your plans. Be smart in your approach and always keep an eye on how the world is changing.
