Gold has always been the proverbial safety net. But, should we try to time our allocation to gold? Maybe not.
Don’t increase your exposure to gold, instead look out for arbitrage funds that historically have given more than FDs (post-tax) and on the side, slowly start nibbling at the stock market on each fall, Jay Shah, One Tree Hill Wealth Partners founder, said in an interview to Moneycontrol’s Kshitij Anand.
Q) Slowdown is the word that is echoing in markets not just in India but across the globe. What are the steps the finance minister should take to prop up the economy?
A) Investors in India mostly are like high beta stocks. They are very quick to get optimistic and pessimistic on the slightest change in perception.
In this regard, the finance minister needs to send out the right signals (which could play out over time) to improve optimism.
I would like to add two things which FM could announce: concrete steps to alleviate the NBFC (non-banking financial company) crisis, and a significant stimulus for the economy.
Q) The RBI’s August 7 policy was pro-growth but the governor stressed the need for transmission of rates. When will we see the full impact of the policy moves on the ground?
A) This time around, the RBI has been signalling a very resolute intent on making sure that transmission occurs at a rapid pace and we have started seeing some banks already cutting down, which is a positive sign.
Q) Are you holding on to cash to wait for more dips or do you think the time is right to deploy the money for a minimum investment horizon of two-three years?
A) We suggest a long-term asset allocation which will be a mix of equity and debt, depending on the risk profile. For the equity portion, we would keep some cash for a rainy day.
Q) Any stocks that you feel have come back to attractive valuation and could be wealth-creators with an investment horizon of 2-3 years?
A) We have started nibbling at a few stocks in the hospitals as well as private banking space.
Q) With the government’s emphasis on growth, do you feel that small & midcaps could see a turnaround in 2019?
A) I think quite a few stocks that we have been tracking (with great businesses) have been beaten down in this carnage.
The next two quarters will be crucial to see if they are on the same path and then again become potential candidates for re-rating.
Q) Excessive debt played a vital role in the troubles facing Café Coffee Day and other companies. Should investors avoid companies with high debt in face of the slowdown?
A) High debt, per se, is not an issue. Most companies walk the fine line of balancing cash flows to servicing debt. As long as the outlook on the business does not deteriorate rapidly, most of them will be able to ensure that companies are profitable.
In a hostile environment, the uncertainty and perception of that outlook hurt the most and can snowball into something much bigger.
Q) Some experts are recommending investors to focus on capital protection. Is it time to increase allocation towards gold and maybe look at FD (fixed deposit) as part of portfolio strategy?
A) Gold has always been the proverbial safety net. Almost all Indian families have exposure to gold through jewellery.
Hence, should we try to time our allocation to gold? Maybe not. Instead, lookout for arbitrage funds, which historically have given more than FDs (post-tax), and slowly start nibbling at the stock market on each fall.
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