ICICI Prudential AMC’s Naren warns gold and silver should not be standalone investment bets
Sankaran Naren from ICICI Prudential Mutual Fund suggests investors consider equity schemes and asset allocation with a focus on equities, while exercising caution in precious metals. He emphasizes the potential for moderate market returns due to high valuations and ongoing equity supply.
When elevated valuations and fresh supply of equity could moderate market returns, investors could consider putting their money in equity schemes – with the flexibility to manoeuvre across sectors and market capitalizations – and in asset allocation schemes with a greater tilt towards equity, Sankaran Naren, executive director and chief investment officer at ICICI Prudential Mutual Fund, said in an interview with Mint.
Naren advises restraint while making standalone investments in precious metals like gold and silver at current prices, adding that exposure to them could at best be taken through multi-asset strategies or via asset allocation. The markets are closely tracking the impending Indo-US trade deal, he added. Excerpts:
Corporate revenue and profitability improved in Q2FY26, with the Nifty 500 (ex-Nifty 50) PAT rising 30.7%. What's your view on earnings, going forward?
Over the next year, considering the benefit of lower interest rates, GST rationalization and income tax cuts announced in last year’s budget, the overall outlook for earnings is superior for FY26 compared to FY25.
Your focus has been on value investing, pro-dividend yield and preference for large caps. Now, given that the fiscal and monetary measures last year have put more money into the hands of households, will your focus expand to other themes or areas of interest?
We continue to believe that opportunities exist across sectors and market capitalizations. Our approach has never been about restricting ourselves to a narrow set of stocks or themes. What matters to us is the risk-reward equation. Wherever that looks favourable, we are willing to invest. That said, we do not believe the market is broadly undervalued today.
So, given the rationalization we referred to earlier, what's the expectation from the Union Budget from the markets point of view?
The government has already done what is needed to support growth. The government has consistently focused on macroeconomic stability and low interest rates, which have been an important anchor for markets. If the Indo-US trade treaty gets concluded over the course of the year, that would be a positive trigger.
From a valuation perspective, trading above 20x forward (FY27) earnings, we are costlier than China and S Korea. Does that mean FPI outflows are likely to continue this year too and, alongside robust paper supply, cap market upside?
Returns are likely to be moderate at this point and that is not due to weak fundamentals or any problem with the Indian economy. The challenge comes from elevated valuations and substantial equity supply. There can be periods when supply is muted, and during those phases, markets can see stronger rallies. However, overall, high valuations and continued supply are likely to cap returns.
What is the biggest risk and biggest opportunity facing our markets in 2026?
Global stocks are trading at their highest valuation as a percentage of GDP, the highest we have seen in the last decade. Any meaningful correction there would have spillover effects across markets, including India.
The opportunity comes from an attractive tariff regime and continued low oil prices. India continues to be one of the highest-growth stories globally and is expected to deliver stronger earnings growth compared to other countries.
So, the impending trade deal with the US and the falling rupee are big concerns?
The impending trade deal with the US is being closely tracked by the market and remains a major trigger for it. We believe the rupee is undervalued at current levels. Once the trade treaty with the US is signed, the rupee is likely to see a meaningful appreciation.
From a retail investor perspective, what should be the ideal allocation to equity, debt and assets like gold and silver?
Asset allocation should depend on an individual’s risk profile, time horizon and financial goals. So, it is difficult to answer for any specific individual. We are incrementally constructive on equities. Investors can consider investing in equity schemes with flexibility to manoeuvre across sectors and market capitalization. Also, investors can consider asset allocation schemes with higher equity allocation.
Precious metals like gold and silver are difficult to value because they do not have earnings, book value, or dividend yield. At best, we can look at them through ratios such as Nifty-to-Gold or Nifty-to-Silver, which are imperfect measures. On those ratios today, precious metals do not appear attractive outside of investing through asset allocation or multi-asset strategies. Hence, investors need to be careful while making standalone investments in precious metals.
Do you think Indian companies should be doing more in AI-related fields or are we being prudent in becoming providers of AI-related services?
Historically, India has participated in technology cycles as a late-cycle provider, whether in IT services or the cloud boom. We believe India will also find a way to capture a part of the late-cycle AI opportunity.
Are you hopeful that India will see the largest strategic investments made by foreign investors after what we saw in the financial space last year?
We continue to believe that India is one of the best structural stories in the world. Given the long-term growth potential, we believe foreign investors will continue to consider investing in India for strategic reasons.
Competition in the asset management business is set to increase, with more players entering the space. What does this mean for incumbents like yourself?
Our focus is on looking after investors across all the schemes that we manage. It is difficult to comment on what competitors may do. Our objective is to maintain a strong product range and manage every scheme in line with its stated objectives and the scheme information document. If we do that consistently, we believe investors will continue to place their trust in us.
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