ETMarkets Smart Talk | Is gold the new growth asset? 3 reasons why yellow metal rose 28% in 4 months: Ajit Banerjee

In this edition of ETMarkets Smart Talk, we spoke with Ajit Banerjee, President and Chief Investment Officer at Shriram Life Insurance, to decode the remarkable rally in gold.

With prices surging nearly 28% in just four months, gold is no longer seen as just a safe haven—it’s emerging as a serious growth asset.

Ajit breaks down the three key factors fueling this surge, including aggressive central bank buying, global macroeconomic uncertainty, and inflationary fears.

He also shares insights on asset allocation strategies in a low-interest-rate environment, market volatility, and where investors can find long-term value in today’s turbulent times. Edited Excerpts -

We are seeing some volatile swings in the markets, thanks to the back-and-forth from Trump on tariffs and now some geopolitical concerns amid tensions between India and Pakistan. How are you looking at all this?

A) We are all aware markets do not like uncertainty of any type, and by nature, it is forward-looking. Hence, it reacts either positively or negatively depending upon the underlying developments.

Presently, most of the countries are grappling with the tariff turmoil and the perceived negative impact on its economic growth once the temporary pause is over.

There is too much uncertainty and confusion emanating from the tariff announcements followed by roll backs, then pause, which is adding to these uncertainties.

India is better placed relative to many countries primarily for the following reasons:

1) The initial tariffs announced upon India on 2nd April at 26% was comparatively lower than many other countries, even though it wasn’t the lowest.

2) The domestic market is large enough to consume a substantial part of good and services produced in the country, so the impact of external shocks gets moderated to a great extent.

3) India contributes 2.7% of the US imports, 18% of its exports (2.2% of GDP) depend on US demand, posing a moderate risk despite lower direct exposure

4) India is also in advance stages of bilateral talks with the US, which is expected to create a win-win situation for both the countries

5) India remains the fastest growing major economy even after the recent downward revision by the IMF and other agencies to 6.2% GDP growth.

6) The recent geo-political escalation between India and Pakistan is certainly a disturbing news as any form of war isn’t desirable. However, the market seems to discount any significant impact of this potential risk at this point of time.

7) USD has weakened significantly, and inflation levels are going up, so there’s a possibility of a stagflation happening as US and US stock markets aren’t attractive now

Keeping all the above into consideration, we are seeing positive signals for the time being, which is leading to FIIs, DII, and retail investors again participating.

Having said that, we need to be very vigilant as we need to see what is finally coming out after the 3-month pause gets over.

Q) It looks like we have entered a low-interest-rate environment. What should the asset allocation strategy be for an individual in the age bracket of 30–40 years?
A) With the commencement of a rate cut cycle in Feb’25 by the RBI and subsequent announcement of change of stance to accommodative by the MPC, it can be construed that we have entered into a low-interest rate environment.

Whilst age of the investor is an important determinant in planning the portfolio construction of an individual, one also needs to consider the existing financial commitments, obligations, and priorities before deciding on an asset allocation strategy.

Assuming that the individual has a corpus for investments, then he may perhaps allocate his portfolio in the proportion of 60:30:10 (Equity: Fixed Income: Commodities). Again, there are a host of options available within these which should be planned along with a professional portfolio advisor.

Q) What is your take on the results that have come out from India Inc., and what are your expectations for the next few quarters?
A) Getting into the results season of Q4FY25, the street expectations were quite muted both on the earnings and on the revenue side, even though in Q4 some green shoots started coming up.

The initial results for the January-March 2025 quarter (Q4FY25) point towards a slowdown in earnings growth for corporate India even after having a benign cost environment that has led to an improvement in margins.

The results demonstrate divergence within the major sector as far as the performance is concerned. In view of the initial deadline of April 2nd for the onset of tariffs in the US, a lot of export order shipments were preponed, which also resulted in skewed revenue numbers for export-oriented companies.

We have seen strong numbers from the pharma sector stocks, especially among contract development and manufacturing companies due to higher orders received from the US and European countries.

However, the results of large IT companies have been muted in line with the market expectations. The management commentaries also haven’t been able to evoke optimism to the market and were quite cautious in view of the prevailing uncertainty in the US accompanied with remote chances of discretionary spending taking place.

The next year guidance from the management, therefore, has also been in low single digits, thereby making it lesser coveted.

The banking, financial services, and insurance (BFSI) sector saw a sharp slowdown in earnings and revenue in Q4. However, the sector still outperformed expectations despite the slowdown.

BFSI companies’ combined net sales (or gross interest income) grew by 9.6 per cent Y-o-Y in Q4FY25. Within the BFSI space, the larger private sector banks posted a very balanced growth on all major parameters. Capital goods and manufacturing goods sector are showing encouraging results and commentaries up to this point of time.

Q) Gold is back in the limelight as it hit the Rs 1 lakh mark in the physical market. Is it no longer just a safe haven but also a money-making machine? It has been outperforming equities for the past couple of years.
A) The sudden spurt in gold prices is a combination of multiple factors. Data points show that it has risen by 28% in last four months.

1) The prevailing challenging global macroeconomic backdrop amidst rising recession fears, subdued growth is propelling investors to invest in safe haven assets like gold.

2) This persisting rise in gold prices is also attributed largely to some of the central banks of the world—mainly from Asia like China, India, and Turkey—increasing their gold purchases.

3) Further, as there is a global concern about the return of inflation, primarily driven by tariffs and supply constraints, people are investing in gold as a hedge against inflation.

These factors are driving the gold prices which is even outperforming equities.

Q) How should one be looking at the small- and mid-cap space in FY26?
A) We have been seeing that the midcap and smallcap indices have left behind their largecap peers in the recent market pull back in April. Nifty small cap indices have shown a positive movement of 18.4%, Midcap 100 15.9% and Nifty 50 11.9% between April 7 and April 28.

It has also been seen that generally, when a market pull back happens, the mid and small caps tend to do better.

These pull backs are primarily driven by the pause in the tariff announced by the US and comparatively better position of India vis-à-vis its emerging market peers.

At this point of time there is so much uncertainty that it’s very difficult to say about the full-year trend as there are multiple uncertainties which can play out.

The investor has to be very vigilant and should focus on domestically focussed mid and small cap stocks and may be better placed if a bottom-up stock picking is done with the intent of longer period of holding.

One should not go all out only for small and midcap stocks and should have a reasonable component of large cap stocks in their portfolio as well. The mix between large –mid – small should be on the basis of the investor’s risk appetite.

Q) Where is the value in the market after the recent fall we have seen?
A) We can look at the BFSI sector, pharma with CDMO segment, capital goods, discretionary consumption items and specialty chemicals from a longer-term perspective.

Q) How are FIIs viewing Indian markets? We have seen some net buying in the past few sessions, but for the month, FIIs have pulled out more than Rs 13,000 crore from the cash segment of Indian equity markets.
A) Over the entire FY25, FIIs have remained a big seller. Their main concerns remained the higher valuations and weakening currency vis-à-vis USD.

Since both the parameters are relatively favourable over FY25 and India’s growth story is reflecting better compared to its EM peers at this point of time, hence, we are seeing FIIs coming back to India.

Apart from these, it is also perceived that India would be less impacted than China, Vietnam, Indonesia due to the tariff-related turmoil, so the adverse impact on its economy will be lesser.

Q) Have you made any changes to your strategy or portfolio to balance out the volatility arising from external factors such as tariffs or geopolitical concerns?
A) We are a long-term investor, and we invest as per Asset Allocation matrix and how business mix evolves.

So, we are monitoring the markets closely and taking some asset allocation calls depending on markets movements.

We predominantly invest in Alpha Quality Low volatility stocks largely hovering in the large cap and selective mid cap stock universe.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)