It’s been a rather volatile week for some asset classes, especially the precious metals – gold and silver. Indian markets too saw some strong price action, hitting fresh highs. But beyond the levels, what does it all mean for the average investor? Morgan Stanley pointed out that Sensex, when measured in gold terms, is “as inexpensive as it gets.”
In this recent report, while making a case for re-rating for India, the international brokerage house also highlighted that, backed by “improved macro stability,” India is seeing “structural shifts in household balance sheets toward equities,” veering away from physical assets like gold and real estate.
Indian equity market undervalued Vs gold
A little probe into the data offered by Morgan Stanley highlighted that when we track the Sensex movement and gold’s price action between 1991 and 2025, Sensex measured in gold ounces, is close to earlier troughs in the market.
This essentially indicates that the Indian equities are significantly undervalued compared to gold. The graph shows that the current levels coincide with the relative valuations seen in 2008-2009 and 2003-2004.
Interestingly, the Indian equity markets had hit the lower circuit in 2008, and in 2009 there were two instances when the markets hit the upper circuit in 2009. Meanwhile for gold, the 2008-2009 period marked the beginning of a major multi-year bull run for gold. Gold prices averaged around Rs 12,500/10 gm in 2008, and in 2009, it was around Rs 14,500/10 gm. In 2009, gold surged 23% in 1 year, as per goldprice.org. Historically, we have seen that economic crises have always favoured safe haven buying and gold prices. The great subprime crisis in the US in 2008 shook global equities significantly.
How are equities performing compared to gold
This immediately brings the focus on the relative performance of both these asset classes – equities and the safe haven buys like gold. Morgan Stanley tracks the 5-year compounded annual growth rate of the MSCI India Index and highlighted the trend between 1998 to 2025.
The 5-year CAGR of MSCI India index relative to Earnings, Book, Gold and CPI gauges average performance of equities compared to gold. The graph is pointing significantly lower, closer to the baseline. It reiterates the point made in the previous graph that shows Sensex relatively inexpensive in gold terms. It is a gauge of both sentiment and price action.
Gold wealth over 3 times equity wealth across Indian household
In Indian houses, gold has always occupied a special position, and the Morgan Stanley data gives you a realistic analysis of how various investment instruments stack up in an Indian household and the slow change that is underway.
Morgan Stanley assessment shows that Gold wealth is valued at $3,682 billion. In comparison, the equity wealth is valued at $1,185 billion. That clearly showcases that as of March 2025 data, gold continues to be a significantly larger component of household wealth, almost 3 times that of equities.
Gold holds higher share in annual savings allocation
Not just that, even in terms of allocation for gold in annual savings is significantly higher than equities. In a period ending March 2025, gold savings were at $574 billion compared to $292 billion accounted for by equities. This essential makes the yellow metal account for 6% of the annual savings allocation by households in India.
‘Secular Shift’ towards equities from gold
However, that said, the Morgan Stanley report clearly highlights the structural change that is being seen across Indian households towards equities. As Morgan Stanley calls it, ‘a secular shift to equity savings’ is underway. As Morgan Stanley notes, the ‘Great Indian Wealth Boom,’ is increasing their allocation to Sensex compared to physical assets like gold, real estate.
With equities relatively undervalued compared to gold, the report highlighted the changing trends, comparing a host of parameters like the. macro-economic triggers, valuation and long-term savings trends.
Conclusion
According to Morgan Stanley, “high growth with low volatility and falling interest rates and low beta = higher P/E. This also supports the shift in household balance sheets toward equity,” on the back of improved macro stability and the structural shifts in household balance sheets.