Earnings growth may be tepid next 2 years but equities offer better returns than gold: Siddharth Bothra

Time of India

6 days ago

Siddharth Bothra
, Fund Manager,
Ambit Asset Management
, says gold and silver are viewed differently from other commodities due to gold's historical role as a hedge against market uncertainty. However, gold has outperformed expectations, even surpassing some top-performing markets over the long term. While central banks are increasing gold reserves, suggesting concerns about the global financial sector, equities may offer better returns than gold or silver moving forward.
What is your view on the market?
Siddharth Bothra:
Our view on the market is that if you look at the next two years, the
earnings growth
looks a bit tepid, more in the early double digits, and valuations across the market – be it largecaps, midcaps, or smallcaps are above their long-term averages. So, the return outlook for the next two-three years looks muted and as this market is coming on the back of a couple of very strong years, going forward it is going to be very stock specific and that is one advantage that India has.
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There are good opportunities across various sectors. We had a very easy time over the last three-four years, when money-making was relatively easy in the stock market and the market was very broad-based. Our house view is that over the next two-three years, the market is going to move from a very broad-based market to a more concentrated one, a move more towards quality, more towards stock specific. So, it is going to be a difficult market and we need to be very stock specific to earn more than the outlook we have on the returns given the muted earnings growth and valuations being high.
What are your sector takes and your sector approach? Looking at the churn going on sectorally, which are the laggards according to you and which are the ones which you would bank on for maybe two to three quarters now? I know you will be talking about the long-term as far as your strategy is concerned, but there has to be some sectors you are betting really high on and some that are out of flavour and trend.
Siddharth Bothra:
While the broader outlook remains muted, there are not many sector-specific standouts. but the sectors we would look forward to, include the consumption sector. It has not done that well over the last one-two years. Now, there seems to be many green shoots which suggest that this sector could come back whether it be the moves from the government side on the tax side or whether it be the upcoming pay commission opportunity and all these things suggest that the consumption theme could be something to look at with a one- to two-year perspective.
The other segment where we would be positive on is industrials. We believe that while private capex could still be a couple of quarters away, in the industrial segment, there are a lot of stock specific opportunities. Many companies seem to be benefiting in a big way from the advent of AI by the fact that increasing use of software and technology is getting embedded in most of the industries. So, companies which have technological advantage, which are dominant in those particular segments, could see opportunities there.
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So, consumption, industrials, and the broader BFSI still looks fairly attractive. These are the two-three sectors other than pharma where we like some of the domestic plays. So, these are the three-four sectors we would be focusing on.
What is your view on the real estate sector? It was the top sectoral gainer yesterday. How do you see this sector because it is once again linked to the economy?
Siddharth Bothra:
Real estate is a rate sensitive sector and stands to benefit from the recent rate cuts and also the loosening liquidity environment that we are seeing. In that sense, real estate is not a sector where you can take a very long-term view, but within that, I believe it looks attractive and certain things have also changed in real estate sectors over the last few years. Increasingly consolidations are happening, some of the companies have now become more broad-based like earlier the value was coming more from future growth and now there are some good opportunities where valuations could be justified by cash flows.
This is a sector where one needs to be still very stock specific and the view has to be more short- to medium-term because this is still not a sector where I would take a very long-term call. But again, this is a sector where one needs to be very stock specific and within that, there are some stocks which stand out and even we have looked at them though we do not own any of them.
What is your view on gold and silver?Considering the rally in these metals, one cannot think about not having them in the portfolio and for that reason you need to have at least 10% to 15% exposure in gold and silver. Is this the time for one to go heavy in gold or silver? At a portfolio level, you have always guided in favour of diversification.
Siddharth Bothra:
Gold and silver I would look separately from other commodities because overall outlook on the commodity including crude is weak in a way but gold has been a complete contrast. Right from the beginning of the career we have always thought of gold as a hedge. So whenever markets looked very upbeat or when markets were weak, you would look for gold or silver as a contrary bet.
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But in the last few years, it has almost turned out to be the other way, like everything is going up. In fact, if you look at gold on a 20-25-year basis, it has even beaten some of the best markets. So, I am a bit baffled here because the inherent thinking on gold other than the fact that now more and more central banks are looking to increase their hedge and have more gold, which in a way shows lesser confidence in the global financial sector, is a very broad theme.
But other than that, the view on gold has always been that this is an asset class which does not produce cash flows and hence for investors, other than as some kind of a diversification, should be avoided. Other than that broad view that central banks are now increasingly looking to add more and more gold, I would believe that you would probably make better returns in equity from here on rather than being in gold or even silver.