A 20% rise in gold prices in a month is a statistical rarity, which happened in 1971, after which prices fell. Now gold and silver have become such large economies in themselves that they might not move this fast, Gandhi said.
Edited excerpts:
With the US-India trade deal, there were expectations that uncertainty would go away from the market. So, can we expect foreign flows to reverse?
Foreign flows are most likely to reverse now. This may be considered the time to buy the India story. Foreign investors will be looking to buy India, as the US, South Korea, and China have become more expensive relative to it. And these markets are already at the peak, so how much more growth from here on will it lead to?
Ideally, the money should be returned to the books, as India is now potentially attractive. India is a structurally strong story, but the rally we had from covid till October 2024 made India comparatively expensive. India had a premium compared to other markets, which is why FIIs (Foreign Institutional Investors) needed to sell India and buy something else.
But FII flows usually will be a gradual reversal. Domestic investors are doing well. And once FPI (foreign portfolio investment) flows resume, the market will resume its upward move.
Gold and silver recently saw some correction. What kind of movement are you expecting in these asset classes?
Over the next two yearswe believe the equity market may make money, while gold and silver may not make much. That doesn’t mean it can’t rally. But assuming gold and silver rise by 20%, the equity market may rise by more than 20%. Now gold and silver will come into a range. Investors should consider consulting a financial advisor before investing due to market volatility.
The last time gold moved by 20% in a single month was in 1971. It is actually a six sigma event. And then we saw a similar kind of fall. Gold and silver have become such large economies in their own right that they might not move this fast. Silver, in particular, if it is being used in industries, if the raw material price goes up five or seven times a year, will the manufacturers produce the same quantity that they are producing today? They may find an alternative to silver. We may say that silver simply won’t be used at that scale anymore.
Forward earnings growth for India is lower than the rest of the emerging markets, even over a 2-year forward basis. Even if earnings growth comes back, would that be enough?
The earnings per share (EPS) of Indian companies are likely to pick up pace, with growth rates assumed to be in the higher double digits. On a relative valuation and growth basis, Indian markets are becoming more attractive for long-term investment, and earnings growth is likely to pick up in the coming period.
On budget day, the markets fell 2%, but on Tuesday, they were up almost 5% due to the trade deal announcement. How do you capture such volatile moves?
In line with the investment strategy, we started hedging on budget day, as markets began to fall, with the aim of protecting downside. But two days after the budget, we have cut all our hedges. To put it simply, on 29 January, two days before the budget, we were 100% in equity. Then markets started showing some volatility, so we hedged 20% of our portfolio—buying a stock and selling its future. On budget day, the hedge was more due to the downward direction. Then, on the day of the trade deal, when markets started bouncing, we moved to a higher equity allocation.
All your funds use the momentum factor. What does your strategy look like?
Momentum needs a direction: either the markets move upward or downwards. It underperforms in a sideways or flat market. Over the last 12 months, the market has traded within a range and been volatile. After the India-US trade deal, the clouds of uncertainty have mostly lifted, and we could see FII flows returning to India. Now, when the money chases the stock, momentum usually starts having a direction.
Markets have remained range-bound for more than a year now. How did momentum perform?
We also didn’t perform well. In the bull market from July 2023 to October 2024, the Nifty rose by 27%, while our active momentum fund rose by 64%. From November 2024 to March 2025, Nifty corrected by 17-18%, and our fund fell by 10%. We fell lower because we seek to protect our downside by hedging. From April 2025 to January 2026, when markets were sideways, momentum underperformed because it was unable to find direction amid high hedging costs.
Your fund, Active Momentum Fund, has also underperformed in the same period.
The reason for our underperformance, as explained earlier, was due to hedging. If you look at a 20-year history across factors like value, growth, low volatility, and momentum, there isn’t a single factor that has outperformed across all time frames. Between 2010 and 2020, value underperformed, and growth underperformed between 2020 and 2025. Every investment style has its phases of performance and underperformance.
In momentum, a stock starts from level A and reaches a higher level B. How do you catch the stock at A?
We look at momentum scores. It is based on the previous 6-month and 12-month average returns, divided by their respective standard deviations, and is termed the Z score (momentum score). We consider the companies to invest in based on this Z score. The one at the top is listed in the portfolio as the most investable stock. And we usually run it every hour, and based on the rebalance frequency and other factors, we either buy or sell the stock. If the drops are significant, we sell. Furthermore, there will be a universe of around 750 companies, so who will track them all at the same time? So algorithms make it easier and quicker. But we can quickly get out of the stock if its momentum falls sharply.
Churn will be high in this case. Do costs go up?
The cost is high, and it becomes even more evident when we are underperforming. If we exited the stock quickly, it would fall further, no one would question it, and vice versa. It’s like a car insurance premium: you pay it every year, and until you actually bang the car, it feels like an unnecessary cost, but it comes to the rescue when needed the most.
How much should investors allocate to the momentum strategy?
The allocation may be up to 10-15%. Momentum should not be a major portion of your portfolio if risk-taking capacity is low. It’s more like a nitro engine—it gives you speed and acceleration, but can’t run the entire car on its own.
