Amid rising geopolitical tensions, volatile equity markets, and weakening confidence in traditional safe havens, gold has emerged not just as a hedge—but as a serious contender for alpha generation.
Gupta shares why gold’s role in portfolios is evolving, how macroeconomic uncertainties and central bank actions are fuelling its rise, and what investors should keep in mind while allocating to this asset.
From equity allocations to FII flows and small-cap strategies, he also outlines the key factors driving investment decisions in FY26. Edited Excerpts –
Q) Thanks for taking the time out. 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 in the camp that these elevated tariffs may not really sustain for long, and a middle path via trade negotiations will eventually come into play. India has already started on a positive note on that front.
We expect much of the concerns around tariffs to start settling in 2nd half of this year. As far as escalating tensions between India & Pak are considered, it remains a wait & watch mode for now.
Markets will remain cautious & volatile in coming few days. Historically speaking, Indian markets have never experienced a correction of more than 2% during times of elevated tension with Pakistan except for 2001 parliament attack (got amplified due to correction in S&P 500).
One will have to assess the balance between restraint & course of action. There are still many unknowns & overall sentiments will get anchored accordingly.While we don’t envisage a prolonged impact for now, things can escalate very quickly & so will be the impact on overall markets.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) Investors within this age bucket should/ or rather are better placed with growth orientation in their overall portfolio construct.
A 70%-20%-10% portfolio between Equity (comprising of global equities), Debt & Gold will be a prudent one to move ahead with.
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) While the earnings announcements are still underway, we were of the view that profit growth is likely to remain weak as we head into this quarter as well.
FY25 earnings growth is likely to be between 4%-5% (excluding OMC’s & Metal) thus providing a low base for the earnings as head into new fiscal.
We expect Y-o-Y top line growth to be anywhere between 5%-6% range for ongoing quarter. Our expectations are that NIFTY earning is likely to grow between 12%-13% for the next 2 years.
Q) How should one be looking at the small- and mid-cap space in FY26?
A) Selectivity is the need of the hour. Given the widespread distortion (nearly 55% of the small cap universe is down by 50% or more), it eventually comes down to bottom up/ selective pickings.
Even with ongoing corrections, small cap as a segment trades above historical average thus not imparting sizeable entry cushion. Market Cap-to-PAT ratio is still 50% above the historical median.
But clearly, there is a merit in buying into ongoing correction of this magnitude as suggested historically as well. We would advise to closely watch out for market liquidity while secularity and durability of earnings profile with quality centricity are the small cap idea pool one should look to take exposure into.
Narrative driven stock rally is behind us while any material BETA offtake must be done gradually.
Q) Where is the value in the market after the recent fall we have seen?A) Quite clearly, Large cap space given that valuations are back to historical average along with downside cushion that eventually comes into play till macroeconomic stability kicks in.
Nifty is trading at a P/B multiple of 2.7x on a 1 year forward basis & a 1 year forward PE of 18x which is closer to its long-term averages. On an earnings yield to bond yield ratio, NIFTY has started to look attractive.
As far as the SMID segment is concerned, it’s not a blanket call yet but select pockets have started to look attractive.
From a top-down perspective, staples & discretionary consumption part of the opportunity appears to be well poised given the expectations around normal monsoon, tax rebate, rural recovery etc.
Nearly 60% of our GDP is domestic oriented which is relatively shielded from tariff & remains resilient. In addition, current valuation comfort offers an attractive entry point. We continue to be positive on banks, domestic healthcare Pharma (minus US generics) as well.
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) That’s precisely how Gold as an asset class has moved over the course of last few years. While its difficult to call out the top even though not so conventional valuation template like BSE Sensex -GOLD ratio stands at 1.06 times vis-à-vis its long-term average of 0.70.
For us, gold remains one of the most well-placed hedging mechanisms against potential risk emanating from combination of stagflation, recession, debasement and US policy risks facing markets.
The macro environment remains perfectly poised for both sustained & elevated levels of purchases by central banks (nearly 900 tonnes forecasted in 2025) coupled with a further expansion in investor holdings, particularly from ETFs and China.
For central banks, the combination of economic, trade, and US policy uncertainty along with unpredictable geopolitical distortions will continue to maintain gold buying. Current tailwind also gained momentum as confidence in other safe havens has been shaken to a large extent.
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) FII’s behaviour thus far aren’t quite reflective of overall India positioning as we speak. They are currently underweight India. Larger part of the excesses has been taken out from Indian markets.
Valuations are back to neutral territory & have started to look attractive. India now trades at a premium of 75% to the EM Index- not too far from long-term averages of 61%. NIFTY still holds an earnings projection of 12%-13% for the next 2 years.
DXY is off its peak with weakening USD. India continues to be in a better position as against China when it comes to tariff related turmoil. We expect the flow rotation from China to India to start taking place soon while overall intensity of FII selling is also likely to start coming down.
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) Portfolio manoeuvring does become complex and tricky during times like this. However, it is important to remain rational and have a fair assessment of where one stands.
We weren’t comfortable with the valuations, cyclical slowdown, and the deteriorating earnings landscape in India. Consequently, we started pruning BETA exposure and, in parallel, ring-fenced client portfolios with a quality tilt by investing in defensive names with solid earnings trajectories.
Any material exposure to narrative stocks was exited where the fundamentals weren’t quite in sync.
Given the magnitude of the correction India has witnessed and valuations for large caps returning to neutral territory, we have once again started building exposure for clients, albeit even more selectively for mid and small caps.
Any exposure with export orientation or sensitive to tariff related turmoil has been pruned gradually. It will be a while before the dust settles on the ongoing global turmoil due to the tariff war.
We are in the camp that these tariffs may not really sustain for long, and a middle path via trade negotiations will eventually come into play.
There are a whole lot of moving variables in play as we speak, thus warranting caution- but not necessarily panic.
Quality centricity is the need of the hour, and we would look to judiciously deploy as the macroeconomic distortions start taking concrete shape.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
