Ajit Dayal: Global issues and views on Gold
| http://www.business-standard.com/india/news/qa-ajit-dayal-director-quantum-advisors/441655/ Jitendra Kumar Gupta / Mumbai July 6, 2011, 0:54 IST |
Ajit Dayal, founder director, Quantum Advisors, on why investors should hold gold, the status of recovery in the US, euro zone issues, its impact on India and the themes to invest, in an interview withJitendra Kumar Gupta. Edited excerpts:Does your bullish view on gold still hold, given that we have already seen a huge rally?
The argument for investing gold has not changed. As long as the world’s central banks, led by the US Fed, is willing to print money irrationally, investors should be buyers of gold. Gold is a currency. We have been brainwashed into believing it is some sort of asset like a stock or a bond, that must give us some dividend yield or some capital gain on a continuous, daily basis.
The argument for investing gold has not changed. As long as the world’s central banks, led by the US Fed, is willing to print money irrationally, investors should be buyers of gold. Gold is a currency. We have been brainwashed into believing it is some sort of asset like a stock or a bond, that must give us some dividend yield or some capital gain on a continuous, daily basis.
Gold is a store of value over decades and has been one of the strongest currencies in the world. In August 1971, President Nixon took the US dollar off the gold standard. It then cost $34 to buy one ounce of gold. Today, it takes $1,520 to buy one ounce of gold. Which currency would you have rather owned? Depending on their situation, investors could have as much as 20 per cent of their portfolio in gold.
Is silver on your investment radar?
We do not like silver. Silver is half precious metal, half industrial metal. So, it is like buying a blend of copper and gold. Silver looks like a bubble. There is huge speculation, led by easy money. Our views on silver have been wrong and the prices relative to gold have gone to crazy levels since August 2010. Both metals have different dynamics and fundamentals, which are not comparable. Gold is insurance for you if the world goes wrong and is a portfolio hedge. Whereas silver is a function of economic activity and somewhat of a precious metal.
We do not like silver. Silver is half precious metal, half industrial metal. So, it is like buying a blend of copper and gold. Silver looks like a bubble. There is huge speculation, led by easy money. Our views on silver have been wrong and the prices relative to gold have gone to crazy levels since August 2010. Both metals have different dynamics and fundamentals, which are not comparable. Gold is insurance for you if the world goes wrong and is a portfolio hedge. Whereas silver is a function of economic activity and somewhat of a precious metal.
How do you perceive the recovery in the US industrial economy and the job market?
The new American economy is much more oriented towards financial recovery than towards industrial recovery. Then, within this narrow industrial recovery, there are companies which still make profits but are sitting on huge cash and are not investing in new capacity, as they are not sure about the future, leading to the lack of new job creation. On the one hand, they have Wall Street and surviving large companies, while on the other hand, many more people have seen huge destruction in wealth. The rich have recovered for sure but not the middle or the lower class, which is why we cannot call it a recovery.
The new American economy is much more oriented towards financial recovery than towards industrial recovery. Then, within this narrow industrial recovery, there are companies which still make profits but are sitting on huge cash and are not investing in new capacity, as they are not sure about the future, leading to the lack of new job creation. On the one hand, they have Wall Street and surviving large companies, while on the other hand, many more people have seen huge destruction in wealth. The rich have recovered for sure but not the middle or the lower class, which is why we cannot call it a recovery.
Does the euro zone worry you?
I do not think the euro zone will collapse. Maybe some countries will leave the euro zone, which will enable them to pursue their own policies. I think after the Lehman crisis, Europe did more things correct than America. Yet, people criticise Europe more. I do not see the euro as a bigger problem as compared to the US – I think the US is the bigger problem.
I do not think the euro zone will collapse. Maybe some countries will leave the euro zone, which will enable them to pursue their own policies. I think after the Lehman crisis, Europe did more things correct than America. Yet, people criticise Europe more. I do not see the euro as a bigger problem as compared to the US – I think the US is the bigger problem.
Given the problems in the US and euro zone, what will be the impact on Indian markets?
Indian share prices are a function of two things. They are dependent on India’s GDP growth rate, which I think is quite delinked or decoupled from the rest of the world. There could be some companies – an Infosys, TCS or some exporter who could get hit. But those are a relatively small part of the Indian economy.
Indian share prices are a function of two things. They are dependent on India’s GDP growth rate, which I think is quite delinked or decoupled from the rest of the world. There could be some companies – an Infosys, TCS or some exporter who could get hit. But those are a relatively small part of the Indian economy.
Yet, share prices could also, depending on the views of the world and the views on India, change dramatically. Global capital flows outnumber Indian mutual fund flows by about eight to one. So, yes, like in the Lehman crisis days, the Indian markets could take a hard knock due to selling by FIIs (foreign institutional investors), but the intrinsic value or the inherent value of most Indian companies will not be affected in the long run.
What are the themes in India for the next decade?
Domestic consumption and infrastructure are two themes likely to do well. But getting themes right is not enough. An investor needs to put the money in the right management or companies with good governance and a desire to be fair to all investors. Sometimes, the sector might do well but the company in which you invested might not do that well.
Domestic consumption and infrastructure are two themes likely to do well. But getting themes right is not enough. An investor needs to put the money in the right management or companies with good governance and a desire to be fair to all investors. Sometimes, the sector might do well but the company in which you invested might not do that well.
Comments
thanks sir