Some of these healthy secular growth industries like banking, general insurance, retailing, in periods like this will give you some chance to get in. Some of the good businesses or good managements in these sectors should grow 15-20-25%, says the CIO, Equity Investments, Nippon India Mutual Fund.


What is the house call on gold?

It is very tempting to say gold has done very well for the last two years and typically being contrarian with the asset class like gold has worked, but it is also necessary to see where we are in the cycle from a long term view point and the macro around it.

First of all, gold is not very far from the peak it reached a few years back. Second, we are living in a time where we are seeing unprecedented action by central bankers, unprecedented action by governments in terms of the kind of fiscal deficits which are the highest in World War II. Now there is perceived to be a likelihood of two big extreme outcomes happening. You could have extreme deflation or you could have extreme inflation.

A lot of people say in spite of all kinds of central bank action for the last 10-12 years, the US bond yields have always gone down. We have always been in a deflationary environment and nothing is going to change in that. There are others who say that if you look at the kind of fiscal deficit that the US has at around 15%, the Fed balance sheet is going berserk and this will finally lead to massive inflation.

The point is that the good part is that gold works both ways and it is like insurance, may be a costly insurance but it is also a very necessary insurance because lot of macro parameters.

With this fund, what we are trying to say that do not try to time asset classes too much. You can have tactical allocations around a core but that core needs to be diversified, that core needs to be stable and so if you plan to have 5% or 10% of your overall net worth in gold, I do not think it is time to junk that and say oh! I will be zero in gold. I do not think that is warranted at all in spite of the recent bull run in gold.

As a portfolio manager are you tempted to look at good companies where businesses have broken down because of the crisis like PVR, Indigo, Inox or would you like to stay with the obvious themes like telecom, digital, IT, pharma?
On a very aggregate basis, we are more positive on the first rather than the second. The second, is I am not totally negative on IT and pharma. There are spaces which are cheap. A lot of the smaller stocks in IT, pharma are still interesting but the bigger money will be made on a two, three-year basis. Whether it is airlines or commercial vehicles or multiplexes or retailing, everyone may have a different segment to play within that because there is no doubt that a) it may take time for a lot of these stocks to report good earnings and b) I think that is a bigger problem that if the consumer behaviour has changed materially, then you need to be careful about what stocks you are buying because if the consumer behaviour has changed and you are in the third or fourth player in the industry, you are taking too much risk because even if demand collapses, the leader generally will do reasonably.

You have to be in the leader if you feel that consumer behaviour has changed. But having said that, if you keep these nuances aside on an aggregate basis, I think the first lot is more interesting than the second lot.

How can one really get rich by investing in this decade? What could be that outsize theme, idea or a clan where you should have disproportionate amount of capital allocation?
Clearly on a 10-year basis, the kind of stocks which will work are something which will ride the technology wave for sure because it is very difficult to engineer top line growth with an offline model at this point of time.

So yes, while these tech and digital oriented stocks are very expensive, they have done well and they may go through a crash like 2000 but the point is if you go back to that period, a Google or some of these stronger names actually emerged through that crash.

Clearly, from a 10-year basis, it is very difficult to make the big money without some IPR or a network centric business model. Unfortunately, in India, a lot of that action is happening in the private equity space and not in the listed space but I am sure we will get opportunities.

The other way is that some of these healthy secular growth industries like banking, general insurance, retailing, in periods like this will give you some chance to get in. Some of the good businesses or good managements in these sectors should grow 15-20-25%. But if you are looking to make 10x to 100x, it will have to be a bit of a technology oriented play.