In this exclusive ETMarkets Smart Talk, Gupta cautions investors against falling for hype-fueled recommendations from WhatsApp or Telegram groups, and instead advocates for his ‘Scientific Investing Framework’ — a disciplined method that filters out capital destroyers, overvalued stocks, and low-growth companies.
He stresses that real wealth creation lies not in chasing trends but in applying sound financial principles consistently. Edited Excerpts –
Q) 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) The Trump Tariffs definitely started a new wave of volatility in the global markets. Interestingly, the Indian markets which were consistently seeing FII exits until Trump took over, started getting the FIIs back after that.
Now the potential India-Pakistan war could initiate a fresh round of FII exits in the short term when the war actually starts. However, the recovery should be pretty quick.We think the tariffs are an opportunity for India given the relative tariff advantage between China and India. An early indicator supporting this is the 100% shift to India from China (by 2026) for US-destined iPhones announced recently.Since Apple is a leader known for its meticulousness and focus on quality, this move should be followed by a lot more companies taking the plunge.
On any potential dip due to a potential war between India and Pakistan is likely to provide a short-lived opportunity in our opinion.
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) Yes, India has entered a low-interest rate environment and a fixed-income oriented allocation could end up being risky for someone who has a “low risk” profile at the age of 30-40.
For a 30-40 year old, with no near-term (<5 years) liabilities, no-debt, full insurance coverage, and stable income, the “ideal” allocation is nearly 100% equity after creating a contingency fund of 3 year of living expenses.
If someone is not able to have the risk tolerance to tolerate 30%-50% drops in portfolio values and markets or portfolio values remaining down for 3-5 years, then they have to start with whatever maximum equity allocation they can tolerate and educate themselves and train themselves to develop higher tolerance over the years.
Because, given the likely future of low interest rates, long life cycles (close to 100) and escalating health care costs, even post-retirement allocations would need significant equity allocations so that people don’t run out of money in their old ages.
Ironically, a low or no equity allocation strategy, which seems low risk, might turn out to be very risky in the long run.
A health-related analogy would be like diabetes or smoking cigarettes which both seem to have no immediate negative impacts in the near-term but show their ugly heads in the 20+ year period.
Of course, none of the above can be taken as financial advice, for that one should consult their financial advisors. But this is more for the advisors to think about.
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) We would say, as expected so far, although a lot more to come. As expected Banks and Housing Finance are doing reasonably well in terms of revenue and profit growth.
IT is struggling for growth and is likely to continue for a few more quarters until US economic environment stabilizes. Industrials, logistics and commercial services are likely to do well in terms of revenues over next several quarters.
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) Whenever the economic environment turns uncertain, gold rallies. This is not surprising since if you are selling equities then what do you buy? Either fixed income or gold.
Sometimes when the economic fundamentals are weak, or even hard currencies like the USD are weak, or interest rates could rise, you are left only with gold. Due to this gold rallies.
After a significant rally, the goldbugs start comparing equity index returns (without dividends of course) to gold returns over a specific long-term period which is favorable and “prove” how gold is superior to equities. This is a playbook seen many times earlier.
Of course, “it is different” this time, like every time there is something different. This time, the US is creating a global economic rearchitecting through tariffs etc.
This has created a situation where the US economy seems to be heading for near-term uncertainty even if it might benefit in the far future. Further to become an export powerhouse, the USD would have to be devalued eventually. Trump has been favoring a weak USD for decades, probably as early as 1980s as a young businessman.
In that sense, if the USD weakens and is no longer THE reserve currency, gold is likely to be a safer investment during uncertainty. Even a weak USD would still make US equities quite attractive since they would be exporters with innovation and now an additional low USD as a driver.
However, gold doesn’t produce anything and definitely the world cannot go back to a gold-backed currency regime since there isn’t enough gold in the world for that.
So we would not think of gold as a long-term primary investment asset to grow wealth. It is a good portfolio stabilizer and tactical bet during times of uncertainty.
Q) How should one be looking at the small- and mid-cap space in FY26?
A) By definition, the majority of Indian market, except the top 250, is smallcaps. There are nearly 1250 smallcaps which are actually larger than INR 1000 crores marketcap, so they are actually quite large in size.
This is where one will have to focus attention to build a wealth creating portfolio. We would caution against companies below INR 1000 crore market cap and penny stocks etc.
Also, even now a lot of mid and smallcaps are quite overvalued. So one has to be careful to sift through all the stocks to discover the hidden gems. It is surely not going to you from a WhatsApp or telegram forward; rather, think of that as a trap.
What you have to discover has to be using a good stock screener and a framework such as our Scientific Investing Framework.
Very briefly, avoid Capital Destroyers, i.e. high debt companies, avoid Capital Eroders, i.e. low RoE companies, avoid, Capital Imploders, i.e. high PE (>40) companies, and avoid no-or low- growth companies. Of course, one can make each step more sophisticated but the one I gave is good enough to begin with.
Q) Where is the value in the market after the recent fall we have seen?
A) Banks, Power, Housing Finance, Construction EPC, Logistics, Manufacturing, Commercial services etc. is where we see the value in the current markets.
Even in these sectors one should be very careful and selective, applying the Scientific Investing Framework.
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) We think FIIs should be classified into two factions at least. One faction is short-term “hot traders” who move in and out responding to short-term trading events. Another faction is the long-term investors.
We think the hot traders would continue reacting to events and creating volatility. The long-term investors have no option but to allocate more for the long-term.
If FDI like iPhone production is coming and likely to allocate more and more over the next decade, how can long-term FPI not do that?
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) Our portfolio is overweight on what we can “strong domestic companies”. These are companies with not too much dependent on export revenues nor have too much expenses which are dependent on imports or global prices.
Our second preference is for “strong global companies” but these are not present to much extent in either our Indian or US portfolios.
So our portfolio is fundamentally quite insulated from geopolitical concerns. However, it will and does fluctuate with the markets.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
