Gold
or equities: Which investment could benefit you more, this festive season?
Mon
Sep 30 2024
The
festive season in India combines cultural celebration and economic activity,
significantly driving growth, especially between August and December.
Historically, indices like Nifty have shown
positive momentum during this period. This trend continues this year too,
supported by strong financial inflows and strategic government policies,
including increased capital expenditure of Rs. 11.11 trillion (3.4% of GDP) for
FY2025.
As investors seek to maximise returns in this favourable climate, a key
question arises: Is it more advantageous to invest in equity markets or gold
during the festive season?
When
choosing between equity markets and gold during the festive season, several
factors should be taken into account:
- Investment
Horizon: If you have a long-term outlook, stock markets offer
higher growth potential compared to gold. Historical data consistently
shows that stock markets outperform gold in terms of capital appreciation,
especially when the economy is growing. In 2024, India's economy is
projected to grow at around 6-7%, which bodes well for corporate earnings
and stock market returns. This provides an attractive opportunity to
capture growth.
- Inflation
Hedge: Equities are usually better at outperforming inflation
over the long run. While gold is often viewed as a hedge against
inflation, it is the equity markets that have consistently provided real
growth after adjusting for inflation.
- Risk
Appetite and Volatility
Management: While equities come with higher volatility,
long-term investors with a moderate to high risk tolerance can ride out
short-term market fluctuations for potentially larger gains. Gold, though
stable, generally does not offer the same level of appreciation and may
underperform during periods of strong economic growth and rising interest
rates, such as the current environment.
- Market Outlook: As the Indian economy is on an upward
trajectory, and corporate earnings are expected to improve further, it is
expected that the market would keep moving toward new highs.
- Diversification: A balanced approach including both
equities and gold can mitigate risk.. Depending on Investor’s risk
appetite, maintaining 5-10% of its portfolio in gold can help diversify
and safeguard against downturns in stock markets.
Both
equities and gold are significant components of a well-diversified portfolio.
Equities tend to outperform inflation over the long run, while gold serves as a
hedge during periods of uncertainty. There's no one-size-fits-all approach to
investments. So, the choice between the two depends on your financial goals,
risk tolerance, and the current market environment.
If the portfolio has a long-term horizon and can tolerate volatility, equities
would be the preferred choice due to their superior growth prospects and
ability to compound returns over time. Gold, while useful for diversification,
should play a secondary, stabilizing role in a balanced portfolio.
Source:
https://economictimes.indiatimes.com