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Country risk

Country risk

TLDR: Country risk - Indian market risks, how to mitigate, options.

In this very website, i have argued about the long term trend of the Indian Market and how there are a lot of positives in general. Let us play devils advocate and argue the other side of the coin and understand the possible risks, how it could affect our investments and what are the mitigation options.


  1. Demographic Dividend - India is an old and young country. We have an ancient history, but a population whose average age is around 28 years old. We almost have a billion people with that average age. This youthful population allows for many working age adults to earn and drive the GDP up. But if there are not enough jobs to support this burgeoning population there will be civil unrest, poverty and crime.

  2. Population explosion - A second corollary to the above demographic dividend is in the impact on the increased population demands. Pressure on services, roads, commute, traffic, water, quality of food.

  3. Infrastructure collapse - The urban environment is bursting at its seems. The average speed of cars within cities during peak hours is less than 10 km/hr in most tier one cities. Don’t get me started on the condition of roads, bridges and other critical infrastructure.

  4. Water - Even though most of the country is blessed with monsoon rains, India is one of the most critically water starved nations. The ground water levels are severely depressed, lakes and canals are drying up and are being taken over by land mafia for illegal developments. Water is still not being treated as a this valuable resource but it clearly needs to be treated as one

5. Pollution - 9 of the 10 most polluted cities in the world are in India. Pollution brings with it complications to breathing, diseases, health risks and reduction in life expectancy.

6. Geo-political risk - India is surrounded by neighbours who do not act in a neighbourly fashion. Pakistan and China both nuclear weapon holders pose a existential threat to the overall peace and prosperity of the country.

Country Risk

As any good investor will tell you, investment is all about management of risks. How best we mitigate the risk the better. The key is diversification of investment assets across different asset classes as a start, but it should also take into account the country specific risk that we discussed in the previous section. To mitigate the country risk, explore options options outside India as well.

My asset spread

Given that I am residing outside India, I have options to diversify my asset spread across geographies to reduce the country risk. This is what my country bases asset spread looks like, not including real estate. (Asia is mostly ASEAN and east Asia ex Japan)

International funds

For those of you who are want to stick with going the mutual fund route for international funds, I pulled together a list of direct funds sorted by AUM > 50 crores below.

The other option would be use trading platforms that allow access to international markets. Interactive BrokersCharles Schwab International Account and TD Ameritrade allow you to trade directly in international exchanges. But beware of the currency risks and costs of trade,

As with any diversification advice, do not over diversify. But be aware of the country risk when you are just investing in the India market. The risk of India becoming Japan with economic stagnation is very low, but if you have options available to spread the risk around, why not make use of it?

What are you thoughts? Have you diversified your portfolio to include other countries or are you happy with Indian stocks alone in your portfolio. Leave your comments below.

Why Worry?

Why Worry?

Playing the long game

Playing the long game