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Use shares as an inflation hedge and reduce allocation to gold, which does not generate any economic value, advised A. Balasubramanian, CEO, Birla Sun Life Mutual Fund.
Speaking at the Business Line Investment Opportunities Fair in Chennai, he said stocks were the best investment avenue to beat inflation over the long term.
“Not all of us can become entrepreneurs. Equity allows investors to participate in the growth of a company which we otherwise would not dream of,” he said. “As prices rise, consumers may be hurt, but producers see a rise in sales (due to pricing power). Consider how well consumer goods companies have done in the last three years,” he added.
Price risk
Although gold has outperformed other asset classes in the last decade or so, prices are at risk today because of concerns that European central banks could reduce gold holdings, as their priorities shift from safety to growth. On gold, his advice was that investors should hold only just enough of it to take care of their actual usage.
For Indian investors, “other financial assets will start performing better than gold once the global economy picks up, fiscal deficit reduces and interest rates come down.”
But, when does one put money in equity? “Well, you can never time the market or know when it is bottoming out or picking up. The equity market may be volatile in the short-term, but it always generates steady returns in the long-term,” said Balasubramanian.
Maximum Returns
He presented data to show that when held for 10 years, the Sensex has given a maximum return of 18.5 per cent (per annum) and a minimum return of 0.5 per cent since 1991. Returns, for investors holding stocks for long periods, have never been negative.
What is more, “Markets have always given excellent three and five-year returns when invested at price-earnings (PE) levels below 12.5. Whenever optimism is low and the market is dull, it is the best time to invest.”
On the debt markets, he was of the view that gilt and long-term income funds would continue to do well. The debt market has lower risk compared to equity; it is a tax efficient option and a good alternative to fixed deposits and corporate deposits, he said.
> swetha.kannan@thehindu.co.in
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