Asset allocation should not be momentum driven: Navneet Munot on gold rush and markets

Edited excerpts from a chat:

The HDFC Flexi Cap Fund has crossed Rs 1 lakh crore AUM milestone. What is your view on this? Do you think a big size poses a challenge in managing the fund?
The true milestone for us is the three-decade-long journey across market cycles, based on time-tested investment philosophy, structured research and prudent risk management that’s deeply ingrained in the investment process. Through periods of expansion, correction and structural change, our strategy has remained anchored to the research-led investment process, with a clear aim on long-term wealth creation. This achievement truly belongs to all our investors and partners who have stayed the course over the years.It is important to view the AUM relative to the size of the market. India’s listed market capitalisation has expanded manifold over the years. With newer listings and a robust primary market pipeline, the breadth and depth of the investible universe will continue to grow meaningfully.

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Given that big triggers of US-India trade deal, Budget and Q3 earnings season are now behind us, how has your outlook towards Indian equity market changed in the last couple of weeks?
The US-India trade understanding has reduced a key layer of external uncertainty, and with the Budget behind us, the market’s focus has shifted to earnings recovery. Encouragingly, improving consumption demand, resilient macro growth and easing export pressures bode well for corporate profitability.

However, my constructive view on India is driven less by near-term triggers and more by structural factors. India is undergoing a multi-year transformation anchored in formalisation, digitisation, financialisation of savings and supply-chain realignment. Corporate balance sheets are the strongest in over a decade, banking stress has receded and this sets the stage for a sustained revival in private capex alongside continued public infrastructure push. Importantly, the depth and breadth of Indian equity markets have expanded significantly, with diversified sectoral representation and stronger domestic participation.Near-term volatility is inevitable, but structurally, India’s growth trajectory remains intact and compelling for long-term investors.

January month data shows gold ETFs are being preferred over equity mutual funds. Silver ETFs were also popular. Is the bullion boom throwing asset allocation goals out of the window?
Investors tend to gravitate toward what has recently performed well. Gold has delivered strong returns in an environment of global uncertainty, geopolitical tensions, and currency volatility. That naturally attracts investor attention. However, asset allocation should not be momentum-driven. Gold plays an important role, as a hedge against extreme macro risks and for portfolio diversification. But it is not a substitute for productive assets like equities. If allocation to gold is rising beyond strategic limits because of recent performance, that can distort long-term wealth creation.

For someone who is neither too aggressive nor too conservative and has a long-term horizon of at least 5 years, how much allocation would you recommend in gold, equity and debt?
For a balanced investor with a five-year-plus horizon, someone who seeks growth but is mindful of volatility, I would recommend a multi-asset approach rather than thinking in rigid percentage allocations.

Asset classes move in cycles. There are phases when equities deliver strong earnings-led returns, periods when debt benefits from falling interest rates and provide stability to the portfolio, and times when gold acts as a valuable hedge amid global uncertainty. Trying to tactically shift between them at the individual level can be difficult and often influenced by recency bias.

A well-structured Multi Asset Fund addresses this challenge by combining equity, debt and gold within a single framework, while dynamically adjusting exposure based on valuations, macro conditions and risk-reward assessments. This ensures participation in growth opportunities while also embedding resilience into the portfolio.

For a long-term investor, the real objective is not to maximise returns in any one year, but to compound wealth steadily across cycles with lower volatility and better downside management. Multi-asset funds may help achieve that balance.

In a scenario where earnings growth remains uneven, would you advocate a staggered allocation strategy through SIPs and diversified funds, or is there merit in holding higher cash and waiting for better entry points?
Timing markets consistently is extremely difficult, even for professionals. Holding excess cash in anticipation of perfect entry points often results in missed opportunities. For most investors, a staggered approach through SIPs or systematic transfers into diversified equity funds remains the way to go. As the oft-quoted market wisdom goes, more money is lost waiting for corrections than in the corrections themselves. The key to long-term wealth creation is not precision in timing, but investing and staying invested for the long-term.