Although, there has been some redemption of gold exchange-traded funds (ETF), Sanjiv Shah of Goldman Sachs AMC tells CNBC-TV18, the total amount that has gone out is about Rs 200 crore, whereas the ETF size is more than Rs 10,000 crore. Hence, it is a marginal amount and he does not see any significant pressure on gold ETFs.
Shah further adds that gold ETFs are the only option to invest in non-rupee assets for an Indian investor who wants to play in the currency market. The best bet for him is to buy gold either in the physical form or as ETFs, as the golden metal acts as a very good hedge to invest in a non-rupee asset.
Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.
Q: What is happening with gold, we are seeing quite a bit of redemption from gold exchange-traded funds (ETF) and withdrawal of money. Just profit taking or something else?
A: If you look at the total amount which has gone out is about Rs 200 crore and given that the ETF size is more than Rs10,000 crore now, I would think it is marginal, not even marginal for that matter.
You would see the gold prices and the rupee appreciating quite a lot because of which the gold ETF net asset value (NAVs) have been pretty high. You would find some people book profits. But I won't even call it anywhere close to huge amount of redemptions.
Q: Even so it's more than what you have seen in the past. What is feeding it - some concern about gold, the fact that it's run up so much in the last year?
A: You got to look at it from the perspective that when we started off the gold ETF. It started off at Rs 100 crore. Now it's up Rs 10,000 crore plus. Obviously, the size has increased. On a corpus of Rs 100 crore, if Rs 2 crore redemption happens, the size is very small.
Similarly, if you look at Rs 10,000 crore, Rs 220 crore is exactly the same amount. The other side of it is basically to be honest, there has been a huge appreciation of the rupee and which has fueled the NAV of the gold ETFs. Obviously, people have seen returns and you would theoretically think that if you are doing asset allocation, you should be selling some bids because you already had huge amount of returns on that.
Gold has become a very large part of your portfolio. Obviously it would mean that you should pare down some amount of your investments in gold. But given where we are, most Indians are still buying into gold as an asset class. I don’t see how that's going to reduce the flow into ETFs.
Q: Conversely, what's the experience in terms of incremental flows? Someone from the equity side was just pointing out how monthly inflows have petered off. On a monthly tick what are you guys getting for gold ETFs?
A: It's been positive. In India, if you want to play even in the currency market how does a small investor, a middle class investor really invest and take a bet on the currency? The only way he can do it is by buying gold, whether it's in a physical form or as ETFs.
Typically, in India we don't have access to assets which are dollar denominated, nor do you see more and more Indians actually investing in funds which are invest in equity assets of the country. This makes gold a very good hedge, a proxy to invest in a non-rupee asset.
That has been going on for years and I don't see that changing. Our only hope is that people are actually buying. Instead of buying physical gold, start buying the ETFs to make it more organized, if I can call that so.
Q: What's the experience of some of the other ETF products - the bank ETF or even some of the global funds or products that you had launched?
A: If you look at our broad indices ETF, the Nifty and the others, we have seen nice flow of funds coming through, albeit the size is pretty small. But, what we have seen thanks to the success of gold ETFs, where we have 500,000 demat holders actually buying in, we have seen more and more people getting warmed up to the whole idea of ETFs.
If you look at the Nifty ETF, slowly the sizes are getting larger and it’s now close to about Rs 700 crore. This is the trend which we have seen over a period of time. People are really getting warmed up to the idea of ETFs. If you look at the bank, there was an institutional product. Right now, the institutions and FIIs are not in the Indian market.
We haven't seen flows there. But we have been pretty encouraged by the fact that more and more people are looking at ETFs as a way to invest in the markets and we have to thank the gold ETF product for that.
Q: What about the international products?
A: As I said in the beginning that more and more Indians have not been buying equity assets outside the country. And Indians have also not been buying equity assets in the country. So that has not been one of the stellar flows for our ETFs to be honest.