Gold is a better option as a short to medium-term investment, as long-term returns on the yellow metal are often as low as 10 percent per annum.
“We are not firm believer that one should switch to gold whenever there is global turmoil. We would rather allocate in Mutual Fund Schemes and in blue chip companies as we believe in the old maxim of Buy when others are fearful,” Akash Jain, Vice President - Equity Research, Ajcon Global, said in an interview to Moneycontrol.
Is gold really a safe bet as we always see whenever there is global turmoil? It’s a traditional concept and generally people do switch to gold as downside is limited. However, in terms of returns it is a laggard when compared to other asset classes especially equities.
We are not firm believer that one should switch to gold whenever there is global turmoil. We would rather allocate in mutual fund schemes and in blue chip companies as we believe in the old maxim of Buy when others are fearful.
In addition, with the rising gold prices, the yellow metal is no longer considered a hedge against inflation along with the uptick in crude oil prices and global trade war pushing it further. The annualised returns have down by more than half in the past 20 years. Over the last three years, gold has fetched a lower return of 4.68 per cent from 10.05 per cent earlier.
Gold is better option as a short to medium-term investment, as long-term returns on the yellow metal are often as low as 10 percent per annum. We would suggest investors not to make too heavy or long-term investments in gold.
Allotting 5 per cent to 10 per cent of your investment portfolio to gold ETFs is a wise idea. This will also help keep your portfolio robust and the returns stable.
Always keep an eye on the gold price trends before you start transacting. Just like with stocks, you may want to buy gold ETFs at low prices and sell them as prices go up. It would be advisable to use gold ETFs as safe assets and hedge investment rather than as a daily profit-trading tool.
What is your gold outlook for FY19 or till next Akshaya Tritaya?We expect there would be volatility in gold prices owing to concerns like tensions between US – Syria, rising crude oil prices etc. We do not have target for gold prices till next Akshaya Tritaya as we do not believe in predicting it as the basis of gold prices are dependent on global factors and other asset classes.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?
We would always prefer Gold ETFs as it has many advantages over physical gold which are as follows:
> Simple trading: You need to buy a minimum of 1 unit of gold – equal to 1 gram of gold – to start trading in gold ETFs. Buying and selling the units works just like equities – you can trade through your stockbroker or ETF fund manager.
> Open trading: Gold prices on the stock exchange are publicly available. You can check the gold prices for the day or the hour without any confusion.
> Easy transactions: You can buy and sell gold ETFs at any time of the day – when the stock exchanges are open – from any part of the country. You will also not be affected by local price differences in gold due to VAT or other taxes.
> Inexpensive: Gold ETFs listed on the stock exchange have no entry or exit load for purchase or sale of units. You have to pay only around 0.5 to 1 percent as brokerage charges.
> Tax benefits: Gold ETFs older than a year attract long-term capital gains tax. However, there is no VAT, Wealth Tax or Securities Transaction Tax on gold ETFs.
> Secure investment: Gold ETFs are an easier investment than physical gold as there are no concerns over theft, secure storage or payments such as locker charges or making charges.
> Safe asset: Gold prices do not usually fluctuate very heavily. Even if your returns on equities decrease, gold ETFs could prevent you from sustaining big losses.
> Portfolio diversification: Gold ETFs are a good way to add diversity to your portfolio. Amid unstable market conditions, a diversified portfolio can give your better returns and reduces your risks.
> Loan collateral: Your gold ETFs can function as collateral security if you want to borrow from financial institutions.
What is your outlook on gold loan companies like Muhoot Finance and Manappuram Finance?
At CMP of Rs. 442 (Face value: Rs. 10), the stock trades at a P/BV of 2.68 x. We are bullish on this Company as it the largest gold financing player. In addition, factors like rising gold prices amidst rising tensions between US and Syria, stable regulatory environment, benign competition, 70 per cent-80 per cent of their customers are repeat customers augurs well for Muthoot Finance business model.
The management plans to achieve expansion in AUM by expanding into new states like Haryana, Karnataka, Andhra Pradesh and Telangana. The company witnessed good set of numbers in Q3FY18 result. Topline in Q3FY18 improved 16.4 percent on YoY basis to touch Rs 1,566.7 crore.
Its NII came at Rs 1,085 crore as against Rs 744 crore, which has improved by 45.8 per cent YoY. PAT witnessed a strong YoY growth of 59.53 per cent to touch Rs 463 crore. The provisions for the quarter came at Rs 56.4 crore as against Rs 3.9 crore YoY. Its capital adequacy ratio as on Q3FY18 end stood at 27.65 per cent. NII witnessed a strong traction with YoY growth of 45.8 percent to touch Rs 1,085 crore.
The company enjoys strong operative leverage as around 50 percent of the operating costs are fixed which boost RoA, ROE and ROCE as there would be efficiency on the capital employed in the business. Additionally, the company has strong loan book with stable asset quality.
The company in the past has witnessed minimal write offs. Going forward, we expect that with management’s focus on recoveries and rising gold prices will augur well for the Company. We can expect a target price of Rs. 530 plus by the end of FY19.
We would avoid Manappuram Finance as we believe it is expensive and does not provide us the visibility of an upside. In Q3FY18, the company reported weak set of numbers with muted AUM growth of just 0.7 per cent although it has a much superior asset quality compared to its peer Muthoot Finance which we believe is factored in the CMP.