BW Communities

Gold Lining In Dark Equity Clouds

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[The red-tape in the country and lack of investment from the government has disappointed Ritesh Jain, Head Investment at Canara Robeco AMC, who feels all the past good work done by the government has lost its shine and with no developmental work happening in the past two years has pushed India back to being a third world country. Talking to Businessworld he feels pain is still left in the equity market and today is overweight on precious metal and fixed income. Though he feels this could be a good time for investors to build a good equity portfolio for a long-run and accumulate stocks of quality companies which otherwise they weren't able to pick in a bull-run. Excerpts from the conversation: What is your view on the current market? What is happening in the market across asset class? Till when do you see such a drag market condition and why? Markets do not like uncertainty and that is exactly what we are seeing in all asset classes. Sometime back it was uncertainty about US growth now it is about European solvency. I think there is still lot of pain left in market as the excess debt piled up in the last 10 years cannot be paid back so soon. We are in age of deleveraging where most asset classes will struggle to perform. I think pain will last for 2 more years basically till the end of 2013 to the beginning of 2014. Everyone feels the Reserve Bank of India (RBI) may not hike interest rates. What is your view? Do you think RBI may surprise or shock the market in the monetary policy on 16 December 2011? And why? Are we at the fag-end of rate hike by RBI and why? India is having a peculiar problem where supply is not able to catch up with demand. For creating supply you need supportive business environment. In absence of that the only way of keeping inflation low is curtailing demand and that is what RBI is doing by keeping interest rates high. We have reached at the end of rate hike because demand has started softening but supply side bottlenecks still exist. Inflation is becoming structural in nature and RBI is helpless at this point because any further interest rate increase will only hurt growth. Saying that I don't think RBI will raise rates in the forthcoming December monetary policy. What is your take on the 10-year G-Sec yields and why? I think 10 year bond will top out between 9.25 and 9.35 per cent levels unless fiscal deficit surpasses 5.5 per cent. In times of uncertainty where will you advice investors to invest? I am of the view the best way to approach investing at current levels is to have an allocation of 25 per cent in precious metals (gold), 50 per cent in fixed income fund (income funds) and another 25 per cent in equities (it should be diversified equity with large cap bias). This is not a static allocation. As bond yield come down investor should switch profit of fixed income into equities. Fixed income, particularly FDs and bonds have become a flavour among investors, even equity fund managers. In your view has fixed income become a cushion for equity investors? When the interest rates are so high, fixed income (FD) do provide a lot of cushion. Currently where are you investing your money? And why? Are you a fan of equity at this juncture? Most of my own investments are into precious metals (gold, silver and gold mining companies) because I believe in uncertain times like today precious metals will provide lot of safety. I approach investing in equity only through SIP (systematic investment plan) route because that is the best way of creating wealth in equity markets. As a fund manager how are you managing the money in your portfolio and where are you investing in this market? I manage three asset classes, equity, fixed income and gold. In equity we are overweight consumption because we believe that the  India consumption story has still a long way to go. In fixed income, either we are invested in cash or near cash or long-term bonds because we believe we are near the top in 10 year yields. In Indigo fund where we invest in gold ETF, we are overweight gold allocation because we believe gold prices are set to rise sharply over next 3-4 years. What is your take on the 1 year, 2 years, 3 years, 5 years and 10-years yields in corporate bonds? Will you be a buyer in corporate bonds and what would be the tenure? We are overweight 10 year corporate bonds because we believe that corporate balance sheets are in much better condition than government balance sheet. Hence the spread between these two should come down. It's been seen that the market is favouring CDs than corporate bond. Why is that? When the short term rates are equal to long term rates then people tend to go for short dated CDs (Certificate of Deposits). In different funds we are buying based on investment mandate either 1 year CDs for carry purpose or long term bond for capital gains.