It is a big day for Tesla shares as the stock is expected to see unprecedented activity ahead of its entry into the S&P 500 index on Monday. With a dramatic surge of 700% in the last one year, Tesla is the most valuable company to be ever added to the American index. With roughly 80% of shares of the company available for trade, Tesla will make for 1.5% weightage in the index.
The stock's meteoric rise this year has also made the electric car maker the world's most valuable automobile company and that too by a wide margin. Tesla's market cap, at Thursday's closing price, stood at $621.73 billion, which is significantly higher than Toyota Motor Corp's valuation of $25 billion, the now second most valuable automaker in the world.
A Reuters report said that Wall Street analysts have long been sceptical of Tesla, due to its sudden dramatic rise in share value this year. The 35 analysts tracked by Refinitiv have an average price target of $396.30 per share, which would represent a 36% decline from its current price.
Yet in a sign of how split Wall Street is on the stock, target prices range from a high of $774 per share by Elazar Advisors to a low of $40 by GLJ Research.
Some long-term investors say that they still expect to see Tesla post-above-average gains due to increasing adoption rates in the global electric vehicle market and its solar energy business. At the same time, investors remain convinced that billionaire Elon Musk, the chief executive of Tesla, will continue to push the company's disruptive technology ahead of its competitors.
Tesla is expected to earn $2.29 per share on $30.8 billion in revenue during its current fiscal year, while General Motors is expected to earn $4.67 per share on $120.7 billion in revenue, according to Refinitiv.
The stock's inclusion in the S&P will push the forward price to earnings ratio of the S&P 500 index up an additional 0.4 times to near its highest valuation in history, according to a note from Goldman Sachs.
"Tesla's multiple of earnings is very high in nominal terms for any company in any industry at any time in history," the firm noted, keeping its $80 price target on the company's shares.
Investing in US stocks from India
Of late, Indian investors are looking at diversification beyond asset class and investing across geographies.
Investment in the US looks especially attractive as Wall Street is home to some multi-billionaire stocks like Google and Facebook, that have rewarded its shareholders with its high valuations and growth.
While it is possible to invest in the US from India, one should note that there are high fees associated with brokerages that allow you to do so as these are charged in US dollars.
Also, RBI's notification in the Liberalised Remittance Scheme (LRS) allows Indian resident individual to invest only up to $250,000 (around Rs 2 crore) overseas per year without any special permission.
How can you invest in companies listed in the US from India?
If you wish to invest in American companies like Tesla to take advantage of their substantial growth, here are a few ways to do it:
1. An overseas account with Indian brokerage
Many full-service fund houses like 5paisa, Vested Finance, ICICI Direct, Kotak Securities and various others allow its customers access to foreign markets.
Zerodha is also working at offering the option to invest in US stocks with no minimum investment.
2. An account with foreign brokerages
Stockbrokers like Charles Schwab International Account, Interactive Brokers, TD Ameritrade etc. give access to Indian investors to open an account and trade in US securities and mutual funds.
The account may come with heavy maintenance charges and minimum deposit requirements.
3. Indian mutual funds/ETFs with foreign investment
The easiest and cost-effective way to invest in US stocks is to buy into mutual funds or ETF run by Indian Asset Management Companies (AMCs) that invest directly into global equities or are feeder funds of an existing international fund. You can invest in these with your existing trading and Demat accounts. However, note that you will have to invest in a fund which means that you cannot buy individual stocks using this method.
Mutual funds like Motilal Oswal S&P 500 Index Fund, ICICI Pru US Bluechip Equity, Motilal Oswal NASDAQ 100 ETF, invest in US stocks. With Tesla's inclusion in the S&P 500 Index, you can invest in the stock indirectly through mutual funds that are linked to the index.
The article is purely informational and is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.