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How do the historical returns on gold compare to equity markets?

By Finserv MARKETS - Aug 27,2019
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How do the historical returns on gold compare to equity markets

The year 2018 for the market was quite eventful as several classes of assets generated below-average returns due to the various domestic and global developments. The Indian equity market recorded low growth in its earnings in 2018. In the third quarter of 2018, the increase in earnings wasn’t quite noticeable as there was a fall in commodity prices due to a loss in inventory.

Things were expected to improve in 2019 with large corporate banks leading the charge. Gaurav Dua, head of research at Sharekhan said to ET that finance as a sector has around 41% weightage in the Sensex and just the earnings’ normalization’ of three large corporate lending banks (ICICI Bank, Axis Bank and SBI) can generate sufficient push to grow earnings at close to 20% plus rate in 2019-20.

Sectors to keep an eye at

One of the best performers of 2017 has been the IT sector, and experts believe that it might continue to keep on performing. Deepak Jasani, head of research at HDFC Securities said that the Indian IT sector is a medium-term story and won’t be much impacted by changes in rupee since it has already seen a rally in 2018. He said that investors, on the other hand, “need to stagger their purchases in 2019”.

The loan waivers following the election season have also led to increased rural demand — an area where investors could foresee an entry.

The debt market, much like the equity market, saw a roller coaster in 2018, as the ten-year government bond churned out a high of 8.18 percent. Such a possibility might have been foreseen as there has been a steady fall in the price of crude prices which has taken some pressure off rupee and inflation at large. Now, only a potential trade war could perhaps spoil the already-established sentiment in the market.

How did gold perform?

With online gold gaining popularity, it is certain of people to think of investing in it; besides, online gold is much more accessible than physical gold. Compared to equity markets, the prices for domestic gold saw a positive return after the rupee fell, and investors can expect returns along the same lines this year. Gold could inevitably form just a small portion of one’s investment portfolio. It has been recommended that investors can have gold as 10 percent of their investment portfolio. With the promising prices that gold has been offering, one can also buy gold ETFs or go on to invest in a gold bond. Gold bonds have been trading at a discount where their value gives a fixed interest rate of anything between 2.5 and 2.75 percent.

How do the historical returns on gold compare to equity markets

Market experts state that one could look at gold as a sort of consumption, and not quite as an investment. Foreseeing an unfortunate economic circumstances — inflation, political uncertainty, monsoon, GDP numbers, war — could be another reason to stray away from buying gold and having them, as the prices of it tend to be volatile — another reason against piling up gold in your investment portfolio.

Vikas Gupta CEO & Chief Investment Strategist at OmniScience Capital, an investment management firm, said to ET that someone with a stable and regular income should not put more than 2-5 percent of their portfolios in the precious metal. And for those who do not have a steady income, he suggests that they put in not more than 10 percent.


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