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Gold Vs Stocks In India: Which To Bet On?

Sunil Fernandes
·3-min read

Gold prices in India have seen a significant traction of nearly 30 per cent in the last 1 year. In fact, investors are increasing their bets on Gold ETFs, which track gold prices more than ever before. Most gold ETFs tend to give similar returns. Let's therefore take a look at the returns from SBI Gold ETF.

SBI Gold ETF Returns

1-year returns

3-year returns

5-year returns

30.45%

18.07%

13.18%

What about stocks?

In the last 1-year, stocks have given poor returns and are nowhere comparable to the returns from gold. However, even the three year returns would not match that of gold. Having said that one needs to look into the future, which is highly uncertain and unpredictable. Who would have thought that schools and religious institutions across the globe would be completely shut down for six months and more.

So, should it be on gold or stocks....

In India stock markets are overvalued, given the sharp run of nearly 40 per cent, since hitting March lows and the fact that earnings growth is unlikely to pick-up anytime soon.

"At 21x 1-year forward earnings, Nifty valuations do not look as lucrative as they were a few months back. While demand recovery dominates the news-flow and high frequency indicators, we expect incremental upside now to be a function of earnings delivery)," Motilal Oswal has said in its latest report titled "Bulls and Bears".

Most analysts are of the opinion that markets are overvalued by a good 10 per cent, at least the indices. Unless, earnings recovery takes place the risk to reward is unfavorable.

Gold on the other hand has jumped almost 30 per cent in the last 1 year and from here on, unless there is economic or political or geo-political chaos, the precious metal is unlikely to rally significantly. At best, we may see some sideways movement. Remember, gold tends to rally when there is an economic problem or geo-political tensions and things seem relatively quite now.

At the moment, gold as well as equities are not attractively poised. On the other hand, debt instruments like fixed deposits are yielding returns of just 5 to 5.5 per cent. Overall, no asset class at the moment seems to be attractive from an investment point of view. In particular, with the road to economic recovery extremely hard and long, equities may not soar anytime soon.

Investors who have invested may continue to stay invested in both gold and equities. For those wanting to take fresh positions at such high levels, it may not be warranted for both equities as well as gold.

Even real estate as an asset class has gone for a toss. There's little doubt that Covid-19 infections have created a short to medium term damage and recovery is sometime away.

About the author:

Sunil Fernandes has spent 26 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal and Oman Economic Review. His forte remains stocks, mutual funds and tax planning.

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