Diversify overseas to beat country and currency risks amid volatility

The Iran war has not hit the domestic consumer’s wallet hard yet. The government has not raised retail petrol and diesel prices. Barring concerns about LPG availability and stress in certain businesses, retail consumers have largely been spared.

 

But two sets of people have already felt the shock: Those invested in domestic stocks or mutual funds, and those with impending expenses in a foreign currency. If you have exposure both ways, it is a double whammy. 

Stock portfolios have taken a knock. For those with expenses or liabilities in foreign currency, rupee depreciation has raised the bills. Of course, rupee depreciation cannot be pinned on a single event. But try telling that to a parent funding $100,000 for a daughter’s overseas education. The rupee cost of education has risen from ₹85 lakh to ₹94 lakh in a year. The reasons don’t matter to the pocket; only the actual outgo does. 

What can you do? 

No solution offers complete protection against such low-probability, high-impact events. However, no global event hurts all economies equally. India imports the bulk of its crude oil, so a shock from West Asia weighs more heavily on the Indian economy and the rupee. If the market believes the Iran war disproportionately hurts oil importers such as India, domestic stock prices take a bigger hit. 

Don’t limit yourself to domestic investments. And appreciate the risks properly. Risk is easier to see in equity, real estate, or gold. But even seemingly safe bank fixed deposits offer no protection against rupee depreciation. This realisation dawns sooner if you have an impending liability in a foreign currency such as travel or kids’ education. 

Invest in assets whose fortunes are not linked to those of the Indian economy. This builds an automatic hedge against the underperformance of domestic equities and rupee depreciation. 

Which assets serve this purpose? Foreign equities and precious metals such as gold and silver can do so. Foreign stocks are not tightly linked to the prospects of the Indian economy. Gold and silver, even when bought in India, are globally priced and adjust to currency movements instantly. 

Since the start of 2026, the Nifty 50 has returned -8.54 per cent in rupee terms. The S&P 500 is up 4.67 per cent, the MSCI All Country World Index 6.36 per cent, and gold 8.85 per cent in dollar terms. To make the matters worse, the rupee has depreciated 4.61 per cent against the US dollar this year. For an Indian investor, the combined effect is even sharper. A foreign asset would have delivered both the underlying return and the currency tailwind. 

Over five years, the Nifty 100 has returned 10.53 per cent per annum. But the rupee has depreciated 4.66 per cent per annum against the US dollar. In US dollar compound annual growth rate (CAGR) terms, the S&P 500, MSCI ACWI, and gold have delivered 11.34 per cent, 8.57 per cent, and 21.56 per cent, respectively. Clearly, portfolio diversification beyond domestic equities would have helped. 

What portion of your portfolio should you allocate to such assets? For the exposure to add value, the allocation must be meaningful. I prefer at least 25 per cent. You may allocate more depending on your comfort and outlook. For foreign equity exposure, you can invest in foreign equity funds domiciled in India, invest via GIFT City funds, or take the LRS (liberalised remittance scheme) route. When you hold assets outside India, remember to make the requisite disclosures in your income tax-returns. 

You could argue I have cherry-picked time periods. There is always a chance that domestic stocks may outperform and the rupee may appreciate, in which case these suggestions could look counterproductive. Fair enough. But diversification is not about having all your money in the best-performing asset all the time. It is about not having all your money in the worst-performing asset at any point in time. 

The writer is a Sebi-Registered investment advisor and founder, www.PersonalFinancePlan.in