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I think investors have to understand we are in the 11th year of a bull market, which started March 6, 2009. The markets, by any standards, even in India, are very expensive. Not all stocks; oil stocks are very depressed. But in general, the so-called blue chips or growth stocks are very expensive based on price-to-earnings ratio, especially, on a price-to-sales ratio. The market capitalisation of world’s stock markets as a percentage of the global economy are all very high. So this is not just a correction. The coronavirus is just the catalyst to a decline. The deeper reason for this decline is that by early February markets around the world were 1) overbought 2) expensive and 3) disregarded a global economy that had begun to slow down in 2019.
We have many indicators that show that many countries were in recession already in 2019, but investors driven by media — such as CNBC and Bloomberg — were still buying stocks, thinking they will always go up. This is not a picnic, this is something big. I would advise your investors not to panic, but to think rationally and wait for a rebound and sell on a rebound and reduce their positions. I am not saying sell everything, if someone has 100% of his wealth in stocks, I would reduce it to much less.
One side of the story is that equity markets have come down, but on the other side, because of this entire risk-off trade, crude is down and bond yields have come off. So for a market like India, do you think indirectly this is good news, because India’s macros are dependent on crude and cost of liquidity. Do you think once when the selling subsides, India will start outperforming very-very smartly?
No, not at all, Indian investors and the media in India. I have always pointed India is a special case, and that if crude oil prices go down and so forth, it will be beneficial for India. Yes, to some extent. But if Indian stocks, the blue chips I am talking about, are selling at 40-50 price-to-earnings ratios, I think the market has a significant downside risk, given that the coronavirus is destroying the entire conference industry, the entire travel industry, business travel, the hospitality industry. For a while, nobody is going to travel. So I am telling you India is as vulnerable, if not more, than other markets.
Over the years that I have interacted with you — it is almost 20 years now — you always like to talk about one trade or one asset allocation or that one exciting theme as a megatrend. If you have to, let us say, trade or invest only once for the next three to five years, where would you put your money, long or short asset class, anything you can. It is open?
Well, this is a very good question. This Christmas, I wrote a report for the next 10 years, I would invest in platinum. And it performed well for a while but now it has also been weak. I think for now, if you ask me, I would increase my cash allocations and wait. Patience is very important in the world of investment. I would be diversified across stocks, bonds, cash and real estate and precious metals, but for now, as of today, I would say all assets are vulnerable, all of them.
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