Last Updated : Apr 18, 2018 03:03 PM IST | Source:

Askhaya Tritiya 2018 | Equity is the only gateway to make wealth in rising inflation scenario

If you are buying stocks and bonds, it may be advisable to put a small percentage of your portfolio in gold for a long timeframe, said Sumit Bilgaiyan, Founder of Equity99

Sunil Shankar Matkar
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If you compare the returns given by Sensex and gold in the last 30 years, Sensex has massively outperformed gold! And the difference is quite huge Equity is the only gateway to make wealth in this rising inflation world, Sumit Bilgaiyan, Founder of Equity99 said in an interview to Moneycontrol’s Sunil Shankar Matkar.

Is gold really a safe bet as we always see whenever global turmoil happens, gold gains ground? Is gold really a better option than shares?

We're in a very confused state as far as understanding the geopolitical concerns with very mixed messages coming from different nations around the world. And, confusion and turmoil help gold to shine!

We have turned neutral and believe that investors should use gold as insurance in their portfolios due to prevailing risk aversion in financial markets and mounting global growth risks, a bearish outlook on gold is not warranted anymore!

Buying only gold is a Fool’s Game. Let me tell you why. Gold doesn’t have any intrinsic value; it doesn’t pay a dividend. I want to stress here that I’m not talking about gold coins or other collectables, like jewellery. I’m talking pure gold bullion. The best way to make a decision on investing in something like gold is to look at history.

If you compare the returns of Sensex versus Gold in the last 30 years, Sensex has massively outperformed gold! That’s a big difference. Equity is the only gateway to make wealth in this rising inflation world!

Should gold be a part of your portfolio and what percentage one should allocate for gold?

If you are buying stocks and bonds, it may be advisable to put a small percentage of your portfolio in gold for a long timeframe. If you’re using it as a hedge against downside market moments and following the principles of rebalancing your portfolio at key times, keeping good quality investments and not trying to time the market, then gold does have a place in the portfolio.

You can take either position and still come out with good returns. It’s all about your risk tolerance. Historically you will make more money in a 100 percent equity portfolio; however, if your risk tolerance doesn’t allow you to do that and you don’t want to place money in traditional bonds or other fixed income positions, gold may be a good alternative.

What is your outlook on gold loan companies like Muthoot Finance, Manappuram Finance?

India is one of the largest consumers of gold with an estimated stock of 23,000 tonnes and we believe that value of organised gold loan market in India will grow to Rs 3,00,000 crore by 2020 at a three-year compounded annual growth rate of 13 percent. About 40 percent of the gold loan market is in South India.

Public sector banks and NBFCs like Muthoot Finance and Manappuram control nearly 80 percent of the organised gold loan market and we are bullish on both the counters! Muthoot and Manappuram are expected to continue delinking the gold price volatility risk by offering more variants of lower tenure loan products.

Both the companies are on a growth trajectory and key players have started leveraging technology like online gold loan, personalised loan schemes, improved branding and targeted marketing. We have BUY recommendation on both the stocks with target price of Rs 490 and Rs 140 on Muthoot and Manappuram respectively.

What is your gold outlook for FY19 or till next Akshay Tritaya?

Market has now started picking up after the industry faced the Nirav Modi scam. Moreover, the demand was muted last year, so there is likely to be a spillover of demand from last year to this Akshaya Tritiya. Things are looking positive this year mainly on the back of positive market sentiment, stable prices and ongoing wedding season. We are bullish on gold this year with target of Rs 32,500-33,800 per 10 gm.

For investment in gold what should be better option - physical gold, buying gold in futures & options, investing in gold through Gold ETFs or buying gold through monthly scheme?

So, before you make your investment decision, narrow down on the reason as to why you want to invest -- is it for an occasion like a wedding or is it for wealth creation. If it is wedding than you have to opt for physical gold. But make sure you do not put in more than 10 percent of total portfolio in gold, be it physical or paper gold. For wealth creation I would recommend to invest in paper gold. You can do either through Gold exchange-traded funds (ETFs) or Sovereign Gold Bonds (SGBs).

Here, unlike physical gold, you will not get physical possession of the yellow metal instead you hold it as an investment which can be redeemed when you need it. You can invest in SGBs through banks, Stock Holding Corporation of India, designated post offices, and stock exchanges like NSE and BSE. Units of gold ETFs can be purchased through stock exchanges via brokers. SGB benefits those who want to invest in gold for the long term as it comes with a maturity period of eight years, lock-in ends from the 5th year.

Keep factors such as taxation and liquidity while evaluating these two investments options. Select the product depending on how comfortable you are managing investments online and keep the worries of purity, security aside.
First Published on Apr 18, 2018 03:02 pm
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