May 20, 2013, 08.23 AM | Source: CNBC-TV18

Gold not best asset to be in; look at equities now

One may be satisfied with 16 percent returns from fixed income, considering it is enough to combat inflation, but one should look at equities too, believes Mukherjee.

Udayan Mukherjee, managing editor, CNBC-TV18, believes gold is an unproductive asset. In CNBC-TV18's special show, Investor Camp, he said there is no way to actually value gold other than to compare it with other asset classes.

The yellow metal has had a rough week . Its price fell for a seventh day in a row on Friday. Gold futures were trading at USD 1,362 per ounce, which is almost 28% down from its September 2011 high of USD 1920.

"People’s opinion on gold have formed or shaped by price action. When gold is at USD 1,800 per ounce then gold is the best thing to be in. when gold comes to USD 1,400 per ounce everybody says gold is finished and dead. However, gold may easily surprise. So, one does not want to get into that argument at all because it is a very difficult asset class to value,” he added.

Also read: Hedge funds sell gold after propping mkt a month ago

The Indian stock market showed a stellar performance in 2012. Despite 2013 not performing so well, Mukherjee believes investors should invest in equities.  The BSE30 index gave 22% returns in dollar terms in 2012. According to media reports, Indian equities’ were the 23rd best performed equities of 94 global indices tracked by Bloomberg.

One may be satisfied with 16 percent returns from fixed income, considering it is enough to combat inflation, but one should look at equities too.

“Once growth picks up and people start feeling good about being in the equity universe once again, which may well happen next year. But if the Nifty goes back to 5,500-5,600, it may not be a bad idea to put some money to work there,” he elaborated.

He believes the US Federal’s policy towards the end of the calendar year 2013 and the results of Indian general elections, will help shape investors’ asset choices.

"It is possible that we get a bad election verdict and that worries a lot of people because when the first UPA government was formed, after that election day, the market fell 20 percent quickly,” he explained.

People are still left with last election’s memories and once that event gets out of the way, people will get excited and start parking their funds in equities, he added.

Below is the edited transcript of Mukherjee’s views.

On Nifty's rally

Mukherjee believes the Indian equity market has taken a lot of people by surprise. The market was at 5500 a few weeks back and no one thought it could see two years high so quickly says Mukherjee in his analysis of the market in Investor Camp.

However, the rally has not happened automatically. Some things have changed. Liquidity is spoken about everyday but liquidity is not an external factor to the market. It is very much a part of the core market. Now, whether this is a bull market or not, time will tell. However, liquidity is very much a core requisite for a bull market, so we should not talk about liquidity as something from another planet. It isn’t just something that came and triggered the rally off. It is very much within the realm of parameters that one should be discussing in a market outcome in any case.

The commodities, namely, gold and crude collapsed suddenly without notice and that is when people’s eyes lit up on India. That is when we started outperforming once again. We have seen these liquidity fueled rallies many times in the past over the last few years but more often what happens is that that rising tide lifts all boats. Hence, the stock market will go up but crude will go up as much and sometimes gold will go up too. So, commodities usually go up inline with equities in this kind of strong risk-on phases.

I do not remember in the last few global liquidity rallies when it happened. It hasn’t happened atleast in the last few years.

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READ MORE ON  Udayan, Nifty, gold, equities


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