Nasdaq 100 is on a free fall. Should Indians invest in Apple, Google, Tesla, or index funds?

Last week, the Nasdaq broke below its weekly 200-day moving average for the first time since 2008. The index, comprising some of the best tech stocks in the world, is on a free fall since January 2022. This could be a big opportunity for Indian investors to take exposure when it’s available at a low valuation of 25x, and also because the US dollar is on the rise. Last year, the index was trading at a PE multiple of 29x.The tech index tends to go through massive ups and downs on the back of rising interest rates. The last time it touched a high of 5,132 in March 2000, it lost 80% in value as the dotcom boom turned into a bust because of a sudden rise in interest rates. It happened in March 2000 and lasted till October 2002.It took around 16 years for the index to return to the same levels. On a YTD basis (from January 2022), the Nasdaq is down 33%. Against this, the S&P 500 is down 23%. At a time when the US Federal Reserve is hiking interest rates, the Nasdaq has been hurting bad. The index includes stocks such as Apple, Alphabet (Google), Amazon, Tesla, and Facebook (Meta) -- some of the biggest tech companies in the world. Most of these stocks are listed before 2005 with the exception of Tesla and Facebook. Tesla got listed in 2010 while Facebook (Meta) in 2012. Interestingly, YTD both Tesla and Meta have underperformed the market. Tesla is down 45% and Meta by 61%. They account for 6% of the Nasdaq 100 Index. On the other hand, Apple, which is down 20%, has 13% weightage. Should Indian investors buy these fallen angels or simply go for the Nasdaq?Will ‘buy’ in dips work?Advisors are asking their clients to buy Nasdaq-based index funds or even ETFs. Motilal Oswal Mutual Fund has a Nasdaq 100-based ETF and Kotak Mahindra has a Nasdaq 100 fund of funds available for Indian investors. 94993039“Nasdaq 100 is down 35% since the start of the year, giving investors an attractive opportunity to take benefit of the connection. If you were willing to invest in Nasdaq, the reason becomes even more compelling now. However, investors need to have the maturity and patience to ride out the volatility as the outlook for US equities is bleak currently,” says Ravi Saraogi, co-founder, Samsthiti Advisors. The US inflation reading for September has come hotter than expected, which Sarogi feels will force the Federal Reserve to maintain its hawkish stance. So, there could be more pain, but for investors who can live through this volatility, the long-term return potential looks attractive.On the other hand, those who want to be stock-specific, Meta and Tesla are available at lower PEs. Meta has a PE multiple of 11x, which is at an all-time low, and Tesla is at around 70x. At the end of 2021, Tesla had a PE multiple of 571x. These two are also the hottest stocks Indians have been buying in the US markets over the last two years. Many actually purchased these stocks in 2021 and are now facing losses. The bulk of these investors are Tesla car enthusiasts and are not worked up about the present fall in the stock prices. While there are others who want to average out considering the present fall as a big opportunity.“Buying the dip had been a bullet-proof strategy for much of the last 10 years (even the sharp pandemic dip in March 2020) but has proven to be fool’s gold in the past 12 months starting with the decline in the Nasdaq in the fourth quarter of 2021 to a five-headed monster (Covid-19, Russia-Ukraine war, inflation, higher interest rates, and supply-chain constraints) that has crushed these markets in 2022. At some point, buying the dip will work again, we just do not know when but putting money to work here could certainly be beneficial in the long-term,” says Jake Dollarhide, CEO, Longbow Asset Management.Stocks or index?There is a general optimism that the top Nasdaq companies are fundamentally strong and have a global customer base, mainly in Asia. While the developed market is severely affected due to high-interest rates, markets like Brazil, India and even Indonesia are faring well. FB Meta, Apple, and Google have a big base in these markets and are still growing. Meta India clocked a gross ad revenue of INR16,189 crore or USD1.92 billion (74% growth) last year. Yet the company is losing on EPS growth. Its stock price has fallen faster than the trailing 12-month EPS. For example, Facebook Meta is down 60% over the last one year while the June quarter 2022 EPS is down 32% at USD2.36 over the previous quarter. Meta is looking a lot like Microsoft of 1998 when it was formally charged with constituting a market monopoly by making it difficult for users to install rival software. The government ruled that the company should be broken into two companies. Microsoft challenged and won. Meta is also facing the heat. The company has invested heavily in the metaverse. Currently, Wall Street analysts are saying that this could be a dead investment but if the metaverse picks up, Meta can have a comeback like Microsoft. However, according to advisors, instead of being stock- specific, it’s better to buy Nasdaq via ETFs or related index funds. The strategy should be used as part of diversification. “Mostly, global markets follow the US trends and subsequently, many of them are down. However, our (Indian) indices are showing resistance and are down by just about 2%. Considering this, if there is further bearishness in the Nasdaq or Dow, our market will be impacted but not significantly,” says Santosh Pasi, a trader, and an investor.(Graphic by Mohammad Arshad)