Expect equities to outperform gold in 2013: Nirmal Jain

Expect equities to outperform gold in 2013: Nirmal Jain

Nirmal Jain, chairman of IIFL expects equities to outperform gold in 2013. He suggested investors to reduce allocation of gold in their portfolios next year. “2013 is looking very optimistic; particularly midcaps and small caps should do well ,” he said in an interview to CNBC-TV18.

More action on the policy front, diesel price hike and interest rate cut by the central bank will the key triggers for the market going ahead.

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However, the key driver for Indian equity market will remain foreign funds. Foreign investors pumped Rs 1.2 lakh crore (USD 23 billion) in 2012 taking their total cumulative investment in Indian equity market to an all-time high of USD 125 billion.

Below is the edited transcript of Nirmal Jain’s interview with CNBC-TV18

Q: How much damage do you think this global situation could do to our market? How nervous are people about the outcome or the lack of an outcome by the first?

A: Most investors would tend to wait and watch in this kind of a market because although there has been no outcome, but one cannot rule out a possibility of a sudden deal being reached in the US by the Democrats and Republicans. Unless there is definitive news, people will wait and watch.

They will lie low and it is any case year-end so most people, most investors are on holidays. It is more of a vacation kind of a mood, but in the next two-three days, things will become clear on fiscal cliff front and that will basically give market a direction.

Q: If the Congress manages to cobble together some type of shorter term deal, do you think it will not appease the markets and will this nervousness sort of continue as we head into January?

A: Nervousness in global market is for multiple reasons. Even if they come on a final deal is not something that has solved the problem for say the rest of the year in 2013. If it is a temporary solution then also market will react to other variables.

From India’s point of view, this event will get over in a few days time. The China Manufacturing Index has been positive and China market is up today, so there are number of factors that play on the market. This will definitely have an impact, but it is an event, which we need to see how it pans out.

Q: What is the feeling that you are getting about the Indian markets as we head into 2013 and what are the big triggers that you would watch for that would perhaps catapult the market to its highs?

A: On the whole, the feeling is positive, but these are times when markets will remain volatile for number of reasons back home as well as internationally. There are always factors which are positive and negative, but on balance I would say that 2013 is looking very optimistic, particularly midcaps and small caps should do well.

In terms of triggers, the government has been able to do quite a few things on the policy and reform front. They are now talking about a gradual price rise in diesel, which will help fiscal deficit a lot. If we are fortunate then crude oil prices may come down and that can be big game changer.

Due to US fiscal cliff worry, crude oil prices have been correcting or at least showing signs that going forward in 2013 prices may go down and that is one factor which impacts our current account deficit, fiscal deficit and therefore the entire economy. Other than that, what happens in parliament – is government able to get through all these policy reforms or there is a political accident, we need to watch out for all these things.

Interest rate cut in the month of January, which is widely expected will be a key to revive the sentiment in Indian markets because in last three-four years we have seen that private sector capex in particular has collapsed and that is something which is required for growth.

Over a longer term, medium-term they will tend to converge and the markets will rise and sustain the rally only if there is economic growth and underlying macro fundamentals are strong. So from that perspective interest rate cut, government policy – all these factors are very important. What happens in US, Europe also will impact because FII money is one of the key drivers of liquidity and stock markets today.
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