Business
Gold, silver, AI and Indian stocks: Joanne Goh on where value lies now
Edited excerpts from a chat:
Do you see signs of euphoria building in the silver trade? It is much more volatile than gold and prone to wild swings. But are we at the beginning of a multi-year bull run, or do you think excessive optimism has made the upcycle shorter?
We remain constructive on gold and silver, with structural drivers for precious metals remaining intact.
Gold continues to be the safe-haven asset of choice for many investors, buoyed by the following structural tailwinds: i) US fiscal worries and monetary debasement risk; ii) macroeconomic uncertainty; and iii) continued central bank buying and reserve diversification. Together with shorter-term catalysts such as a weaker dollar, geopolitical flashpoints, and the possibility of further monetary easing, the case for gold’s continued price appreciation remains strong, with our price target of USD 5,100/oz by 2H26.
Silver has also benefited from rising investor interest in real assets to hedge against monetary debasement. Supply constraints and disruptions have added further momentum behind silver prices, according to the World Silver Institute, demand has outstripped supply for the past three years. This dynamic looks set to continue, with silver being used in a wide variety of industrial applications (e.g. solar panels, electrical switches, catalysts and medical equipment).
Asset diversification has gone for a toss for many investors, as either they are feeling FOMO due to the rally in precious metals, or their allocation in gold and silver has crossed 20-30%. In both cases, what should investors do?
While we remain positive on precious metals such as gold for their role as an effective risk diversifier, investors should avoid allowing short-term market movements or FOMO to drive their asset allocation decisions. Regular rebalancing is a crucial component of disciplined asset allocation. Hence, we recommend investors to rebalance their portfolio on a periodic basis to align with the target weights in their strategic asset allocation, which is designed to meet their long-term financial goals.
Periods of strong performance, such as the precious metal rally, can cause allocations to deviate from the target weights, causing investors to take on unintended excess risk. By adhering to these pre-determined allocations, investors will not succumb to the temptation of panic selling during market downturns or excessive risk-taking during bull markets.
You recently said that the AI boom has all the hallmarks of froth. So, do you think this froth is now becoming a bubble and will burst in the next 1-2 years?
Although the AI boom shows hallmarks of froth, AI leaders today are massively profitable with strong balance sheets funding expansion from operating cash flows. Companies like Meta demonstrate clear monetisation, with AI-driven advertising tools reaching USD 60bn by end 2025, showcasing the direct links between AI spend and revenue growth.Rather than the catastrophic 2000-style crash, we’re likely entering a consolidation phase over the next 1-2 years, where markets filter genuine AI value creators from those riding the hype. This creates a bifurcation where companies with clear ROI get rewarded by investors while those companies burning cash without results face severe corrections. We believe the underlying technology is transformative and real; investors just need to be more discerning.
One way investors can participate in the AI theme without becoming overly concentrated is to look beyond the technology sector. AI’s impact is far-reaching and extends well outside the technology space, reshaping business models across the broader economy. In our view, a better risk-adjusted way to gain exposure to this AI wave is to look for ‘adapters’ that embrace AI to drive efficiency gains and higher profitability. On this basis, we believe large-cap companies are better positioned to scale AI adoption. These companies typically have more capital and data advantage to deploy AI at scale. Hence, this will translate into a widening AI-related productivity divergence between large and small businesses.
In your last report, you said investors should seek value in Asia ex-Japan equities. How bullish have you become on Indian equities in particular, as the Nifty has been locked in a tight range for the last 15-16 months?
Indian equities experienced earnings downgrades throughout last year, with 2025 growth estimates revised from 17% in Feb to 11%. The revisions were driven by weaker-than-expected results—particularly from select IT and consumer firms—alongside delays in the US tariff deal, which weighed on export-oriented sectors. This earnings downcycle diverged from global peers, where growth expectations have been revised higher since last August amid eased US tariffs.
At the same time, valuations in India remain elevated, trading at around 1SD (or more) above the 13-year PE historical average. The combination of softer earnings momentum and rich valuations has reinforced foreign investors’ caution, contributing to significant outflows in 2025 as they rotated toward lower-valued emerging markets and AI-concentrated markets. We believe a more durable recovery in foreign investor inflows will likely depend on solid corporate earnings delivery and clarity on US tariffs.
Looking ahead into 2026, we anticipate a gradual improvement in India’s earnings outlook. This is underpinned by the full transmission of 2025 policy measures, including GST cuts, the RBI’s interest rate reductions by 125 bps, increased credit availability, and recent bank deregulations—all of which support economic growth and domestic demand-centric sectors. Government’s support for the export sector may also provide a buffer from US tariffs.
Moreover, domestic equity liquidity is likely to remain robust, providing long-term market support. The financialisation of household savings is expected to stay as a powerful structural theme in India. Equity mutual funds marking their 58th consecutive month of inflows and record high Systematic Investment Plan (SIP) contributions highlight the resilience of domestic investor participation despite India’s lagging equity performance.
Given these factors, we remain constructive on India’s consumer sector and banks. Banks, a key component of India’s equity market, offer strong structural characteristics, benefiting from an improved credit environment, with healthy asset quality, manageable credit costs, and comfortable capital adequacy. Balance sheets particularly among large private-sector banks, are well-positioned to support loan growth across retail, MSMEs, infrastructure, and manufacturing, consistent with India’s investment-led growth trajectory.
However, we keep India’s IT sector on a watchlist for tactical or quality-led exposure. A better entry point may emerge once (i) global IT spending stabilises, (ii) AI monetisation becomes clearer, and (iii) valuation expectations reset to reflect lower medium-term growth. In the near term, the sector faces dual headwinds: cyclical pressure from slower global IT spending, particularly from the US and Europe, and structural disruption from AI, which is compressing pricing for traditional application maintenance and labour-intensive services. Clients are demanding productivity gains and outcome-based pricing, which weighs on near-term margins and revenue visibility.
Do you think that pockets of the market have become cheaper in India, making a case for FII return?
Indian equities traded at an average valuation premium of around 50% to Asia ex-Japan equities on a ten-year forward PE basis, supported by favourable demographics, various reforms and fiscal impulse under PM Modi and improving macro fundamentals. Following a period of underperformance last year, this premium has compressed from 100% at its high back to its average levels, potentially reinforcing the case for renewed foreign institutional investor inflows. We believe foreign investor interest will return when investors look to diversify and search for markets with strong domestic-driven growth, where Indian equities have much to offer in the consumer and banking sectors.
Do you think that FIIs won’t start buying Indian stocks until the India-US trade deal is signed, as tariffs are putting pressure on the rupee?
The Indian rupee depreciated to a fresh low, extending its weakening streak to test past USD 91.5. The bearish handover from last year was further fuelled by a confluence of global as well as domestic cues. The global VIX showed a sharp rise, indicating broad market weakness. This was influenced by geopolitical events and higher global bond yields. In this context, recent signs of a climbdown in Greenland-related tensions will provide relief to market sentiments. Domestically, the downward pressure on the rupee comes at a time of apparent strength in economic growth, with the 1Q-2QFY26 average at 8% y/y and our forecast at above 7.5% for FY26. Inflation has also been at moderate levels.
Looking ahead, we see room for further FX depreciation, though at a more moderate pace than recent months, given expected FX intervention by authorities and some optimism resurfacing over the US trade negotiations after constructive remarks out of Davos. An India-US trade deal would be positive for market sentiments, reduce policy uncertainty, and catalyse capital flows.
India is also going to have its annual Budget presentation on February 1. Do you expect some tax sops for foreign investors?
Following notable foreign investor outflows and a weakening rupee, market participants are keenly awaiting key measures from the India Union Budget 2026-2027. There is market speculation regarding potential policy adjustments, including a possible reduction in the Long-Term Capital Gain (LTCG) tax rate, which was set at 12.5% in July 2024, and an increase in the tax-free LTCG threshold. Such measures, if implemented, could potentially encourage a resurgence of foreign investors into the Indian equity market by enhancing the attractiveness of investor returns.
