Prashant Jain explains why even rising inflation may not boost gold prices

NEW DELHI: Gold is considered a safe haven asset where investors rush in times of crisis. Inflation, which has been rising across the world, is also usually supportive of gold prices. Does this mean gold prices will rise now?

Prashant Jain, the chief investment officer of HDFC Mutual Fund, believes even inflation may not help the yellow metal now. “Inflation is generally supportive of gold prices. But given inflation adjusted gold prices are already very high, even if inflation persists for a while, it may not impact gold prices much,” Jain said in an address on Thursday.

Gold has done well in the recent couple of years because interest rates have been extremely low. But lately gold prices have traded in a range for almost a year now. It has largely traded in the range of Rs 46,000-50,000 per 10 gram.

“We are clearly preparing for a world which will see higher interest rates. It will not be good for gold prices as the money will now move back to debt,” Jain added.

EV disruption: Software key
As per an estimate, the share of electric vehicles will rise to 18 per cent by 2025 and Jain suggested the segment is going to be a big opportunity for investors in tech and software companies that serve the auto industry.

Quoting Volkswagen CEO who said software will be the key to how successful his company will be in the new auto world, Jain said he feels software and gadgets will be the real differentiator in the EV space.

Shares of Tata Elxsi and KPIT Tech, two of the tech firms that cater to such needs of original equipment makers, have grabbed attention in the recent months. Both stocks are trading near their all-time high levels.

“EVs in India will happen faster than we think,” Jain said, outlining that the government has been supportive with incentives bringing price parity and high taxes on fossil fuel, which makes EVs more attractive.

He also said if EV arrives big time and dependence on crude oil decreases, it will also lead India to become a current account surplus economy.

The celebrity money manager said the Indian economy’s recovery from Covid-led crash has been very swift, and robust growth lies ahead. “There are very few worrying signs as far as economic outlook is concerned,” said Jain.

Earlier in the month, the National Statistical Office said India’s economy is expected to grow 9.2 per cent in the current financial year, aided by the base effect of 7.3 per cent contraction last year. This, if it turns out to be correct, will make India the fastest growing major economy in the world.

Equities
Where is the market headed after two years of volatility?

“Unlike some people who think the market is very expensive, that is not true. In the market cap-to-GDP chart, we are somewhere in the middle of the past range. India is a rapidly growing economy. Our nominal GDP growth should be 12-14 per cent year-on-year. What looks expensive now, will be fairly/under-valued six months down the line as you roll over to the next year,” Jain said.

He believes long-term market returns will likely be in line with nominal GDP growth rate of India.