Agrawal says he prefers equity to gold and does not find stocks valuations frothy.
Investors the world over have taken note of a regulatory disclosure on Friday, which revealed that the Warren Buffett-led Berkshire has sold bank shares and invested in a gold miner.
“There is ample liquidity globally and there is no place to park it,” Agrawal said. “Gold is not a yielding asset, and there is no visible logic for investing in it, especially in a zero interest rate environment.”
The seasoned investor said Buffett in his wisdom tried to embrace market scenarios in the changing times. “In last 20-25 years, he denounced aviation stocks, only to buy into the four big US aviation stocks later. He then sold them at losses. I hope gold does not become a similar trade for him,” Agrawal told ETNOW on Monday.
He argues that gold is not a yielding asset. “Maybe, there are fears of inflation coming back, but that fear has been here with us for last 10 years,” he said.
The Co-Founder & Non-Executive Chairman of the Motilal Oswal Group said he has learnt one thing from Buffett: ‘If you don’t understand something, don’t do it.” He said as he does not understand gold much, he would stay away from investing in the yellow metal.
On why both gold and equities are seeing a simultaneous rise of late, Agrawal said they are being driven by difference forces.
Gold, he said, is being driven by massive inflation concerns, even if there is no evidence of that on the ground. “You cannot fight fears,” he said.
“Equities are rising as there is no yield on the bond side, with 10-yield US bond yields trading at 10-year low at 60 basis points. It suggests a bond’s P/E of 150 times, raising questions as to what harm would you have in buying the basket of equities, say index, at 20-25 P/E. It offers growth and also 2-2.5 per cent dividend. That is the argument for stocks against bonds. Liquidity, too, is helping,” he said.
Agrawal said India’s broader market valuation (m-cap to GDP) at Rs 153 lakh crore is at 65 per cent of GDP currently.
“Stock valuations as an aggregate are not frothy in valuations. There would always be spaces where valuations are at diamond level, but also pockets where valuations are of brass level. The market is always a mixup of valuations. I do not see exuberance of any sort, like we had seen in 1992, in 2000 for tech companies and 2008. The market cap-to-GDP for India was 180 per cent in 2008, where the US market is today,” he said.
Last month, the seasoned Dalal Street investor told Motilal Oswal AMC’s First Global Partner Summit that he just can’t think of going bearish on India.
“When I started my career, Sensex was at 300-350-odd levels. Today, it is at 35,000. Neither did I have courage or imagination to think of such levels. It happened right in front of me, and this experience does not allow me to go bearish on India at any point,” he said.
Agrawal admitted predicting the market is fraught with danger. “But since the stock market buys the future, the vision to see, the courage to buy and the patience to hold stocks are key to success,” he said.