What does the dip in February’s gold ETF inflows signal about investor risk appetite?
Despite the month-on-month (M-o-M) dip, inflow remains substantial, accounting for 54 per cent of all ETF flows in February. This is 2.5 times the inflows of active large-cap funds and over 30 per cent higher than active mid- or small-cap categories. I expect this traction to continue as more investors recognise gold ETFs as both a value creator and a risk diversifier.
Is Sebi’s proposed price band for gold, silver ETFs a necessary safety net or a hurdle for liquidity and price discovery?
We believe that there should not be any intermittent circuits in gold and silver ETFs as they should reflect and track the value of the underlying physical commodity at all times. The focus instead should be on building a mechanism to reduce the divergence between the ETF price and the underlying asset movement.
Are ETFs a long-term wealth creation tool, or just a tactical trading instrument?
ETFs can serve the dual role of long-term wealth creator or that of a tactical trading instrument, as they can be bought and sold at intra-day levels just like stocks. There are more than 320 ETFs in India right now, which can form part of your core or satellite portfolio. You can invest in some of these products tactically to gain an advantage from volatility and with a view toward near-term price appreciation.
In this volatile market cycle, should an investor pick an ETF over an active Mutual Fund?
ETFs can be a preferred vehicle if an investor wants to take advantage of intra-day volatility and invest at desired intra-day levels, whereas in an active mutual fund, you can only invest at the day’s close net asset value (NAV).
What is the biggest “rookie mistake” investors make when they start buying ETFs?
-
Don’t follow the herd, invest in ETFs that suits your investment objective and risk profile. -
Similar sounding ETFs can be very different, especially exotic ETFs. Thus, always understand the index methodology and portfolio composition before investing.
Given fluctuating oil prices and global tensions, which specific ETF category should investors prioritise right now?
Currently, opportunities exist in broad market products like the Nifty50 ETF, Midcap 150 ETF, and Multi-cap ETF, from a risk-reward perspective. If one wants to go aggressive, they can also explore equal-weight ETFs.
With the recent launch of your BSE India Defence ETF, do you think valuations are still attractive for a fresh entry?
Due to geopolitical developments, the defence segment is one of the key focus areas of the government. The changing battlefield dynamics, the tactics and tech for both offense and deterrence is continuously evolving, hence the only option is to adapt, modernise, and indigenise.
Global defence outlay has increased by $1 trillion in the last 10 years, and ours has just been pegged at ₹7.85 trillion, with a focus on procurements. Globally, defence segments are trading at a significant premium because of an uptick in order book and revenue growth. In India, we expect the domestic industry to scale up significantly in the coming years, as both domestic and export potential are huge. Hence, people can use the current volatility and correction to enter into this segment from a 5 to 7-year point of view.
What’s your outlook for the markets?
The recent market corrections due to the conflict in West Asia will provide good investment opportunities. The question is how long this conflict will last, as that will define the impact on the Indian economy and corporate earnings. Usually, recoveries from external events can be swift, once the conflict subsides. Currently, based on corrections, one can pick a broad market product like a multi-cap ETF or an equal weight ETF, if one wants to go aggressive. Due to a lack of visibility on conflict resolution and its impact on the economy, I would suggest staggered deployment at dips.