With Diwali knocking on the door, investors are looking at new avenues for investing their money. While gold has been the traditional choice, the definition of ‘investments’ has largely changed. Many people have moved on to buying stocks for potentially better returns than gold.
A comparison of returns from equity and gold emphasizes how gold acts as a perfect hedge against inflation, especially, when the market is reeling under inflation or a stronger dollar. Meanwhile, equities have also shown a lot of resilience in the past. While they have crashed on many occasions and bottomed out, they have bounced back with more vigour.
The debate between equity and gold investments remains an age-old one with one set of investors vouching for the safety in the yellow metal while the other prefers the high returns of equity markets, although with some risk.
In the last 10 years, the price of 10 gm of 24 karat gold has surged from ₹29,600 in 2013 it ₹62,480 currently, witnessing a massive 111 percent return. Meanwhile, the benchmark Nifty has given over 200 percent returns in the last 10 years from 6,299 levels in October 2013 to 19,406.70 currently.
However, it is important to note that equities have a higher risk involved than gold.
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While both equities and gold have earned strong returns in the past, what should you buy this Diwali? Here’s what experts suggest:
Sunil Nyati, Managing Director of Swastika Investmart, likes equities better.
With the Indian elections looming and an impending peak in the interest rate environment in the US, the outlook for the Indian equity markets is positive. It is expected that gold and equities will both perform well in the coming months, with gold that might further benefit from the anticipated economic slowdown in the US in 2024. My preferred choice for investment leans heavily towards Indian equities as the favored asset class. The Indian equity markets are poised to outshine not only gold but also other global markets.
SP Toshniwal, Founder and CEO of ProStocks, also prefers equity over gold.
Gold prices have gone up recently due to geo-political disturbances. Generally, whenever the gold price goes up fast, it takes a pause or may correct. Equity is likely to give a better return on a one-year outlook.
On the contrary, Naveen Mathur, Director – Commodities & Currencies, Anand Rathi Shares and Stock Brokers, believes gold is the way to go.
Diversifying into gold from equities always serves as a hedge against a falling stock market. Overall gold tends to earn moderate, steady compounded returns on a multi-year basis. Meanwhile the stock market tends to provide higher returns in a shorter time frame, but also remains volatile in times of uncertain economic environment leading to higher losses. With a CAGR return of 7–8 percent in the last 10 years seen in gold, it can always diversify your risk of investing in equities.
Gold had already risen more than 9 percent YTD in international markets as the global economy entered a period of multi-decade high interest rates. The US Fed had reached a critical point in its battle against inflation, and the next couple of months would be crucial in determining the state of the economy entering a period of soft landing or tipping into recession. We anticipate gold to witness all-time high levels in the coming 1–2 year perspective as the US economy shows signs of slowing down while global equities remain impacted.
Deepak Jasani, Head of Retail Research, has also picked gold.
Assuming that the general elections are held in April 2024, Indian markets may have an upside till then in line with the past. Although the global geo-political situation is not conducive and the inflation/interest rate situation also does not seem to be under control, our markets may still attract flows from FPIs and locals due to the TINA factor. Having said that the state elections in the interim may bring volatility to the markets, but on an overall basis, we may still see the markets rise. Gold has done well since early October after the latest conflagration in the Middle East. Once the international prices go past $2090 an ounce, we may see an even bigger upside in gold. In the first half of 2024, equity may do well, but later gold may overtake in terms of returns.
Ajit Mishra – SVP, Technical Research, Religare Broking, says the investment depends on the risk appetite of the investors.
Both investment instruments have different roles in an investor’s portfolio and one should invest according to their risk profile. For instance, if you are okay with high risk, your equity portion should be higher in the range of 70-90 percent, and the rest in gold as it provides hedged during uncertain times.
Manoj Dalmia of Proficient Group of Companies stated that investors should have a balanced profile.
Investors seeking short-term capital growth may find equities an attractive option, while those looking for a defensive long-term investment can consider gold. The choice depends on the investment amount. In the short term, gold prices can rise due to changing global sentiments, especially as investor attention turns towards the potential US stimulus package, making gold an appealing hedge against inflation. A balanced portfolio approach could include a mix of gold and equities, as broader markets currently have stretched valuations following the recent rally.
Anuj Bajpai, Co-Founder and CEO, Liquide, advises a healthy mix of gold and equity.
Apart from being an auspicious purchase, gold offers a great hedge against inflation and acts as a war chest for rainy days. It is a stable investment and is insulated from shakeups in the economy and currency rates. However, for an economy like India which is on the brink of exponential growth, equity offers a higher potential for return – especially if you plan to hold it for longer periods. It can also act as a great passive income in the form of dividends, that you can reinvest in more stocks or buy gold.
The bottom line is that your portfolio should be a healthy mix of gold and equity and given the positive trajectory of Indian markets, it will make a lot of sense to divert some of your gold purchases into well-researched equity investments. Consulting a registered advisor can of course make this decision way easier and your festivities way sweeter.
The choice between equity and gold depends on your risk appetite. While equity can offer a higher CAGR of 12-15 percent, it also has a higher risk. Gold, on the other hand, typically yields around 9-10 percent but is a safer choice.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before making any investment decisions.
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