While gold may have some sentimental value, as an investment it has not been a great asset class since many years.
Traditionally in India gold has been considered an auspicious metal. It is believed that buying gold on Akshaya Tritya or Dhanteras brings prosperity. Not just this, most of us believe that gold gives us an overnight liquidity in difficult times. Over the last few years, gold has emerged as an investment asset class as well.
In the economic sense, gold has been considered as an inflation hedge. Historically, gold prices have been driven by international gold rates, rupee dollar equation, duties & taxes and primarily global instability. The main reason in the past for sharper gold rally was global recession. During those times, because investors across the world did not a find safe haven for their money, they preferred gold as an investment, which led to a rise in gold prices.
While gold may have some sentimental value, as an investment it has not been a great asset class since many years. Current situation does not indicate that gold can deliver as great as it did in the past. Performance in gold investments today is comparable to the rate of inflation or debt investments.
On the other hand, equity as an asset class looks very promising at the current market level. The key attraction is that current level is available at a discount of at least 12%-15% from its highest level in a very short period of time. The SENSEX reached its highest level of 38,896 on 28th August, 2018. It was 35,011 on 2nd November, 2018 which is at 10% discount in just 2 months’ time. Similarly, Nifty Midcap reached a highest level of 19,920 on 31st August, 2018. It was 17,430 as on 2nd November, 2018 which was available at 14% discount in just 2 months’ time. These numbers clearly demonstrate to anyone who thought 2-6 months ago that it was a good time to invest, that the current market scenario presents an even better opportunity.
During Diwali times, we see a lot of “Blockbuster Deals & Sales” where attractive discounts are available on any products we buy. This obviously tempt us to shop. On the same lines, current equity market is also offering a Blockbuster discount deal to invest.
We understand that current ongoing events have created a negative sentiment in the market. This is what is driving the equity markets right now. We have encountered many such events earlier also. In the past year, events like rising crude oil prices, weakening rupee, rising US interest rates, global trade war, corporate defaults (like IL&FS) etc. have built into the negative sentiments. Such macro factors affect equity markets. Yes, in the short run, it has an impact on GDP, Current Account Deficit, etc. and thus on the equity market as well. However, such macro factors are dynamic & are ever changing and in turn the markets keep reacting to them.
Thus, investors just need to ignore such short-term price volatility & avoid the urge to react negatively or drastically. Sticking to their investment strategy & keeping a long-term outlook has always paid off well in spite of market volatility.
(By Milin Shah, Head Product Development & Financial Planning at HappynessFactory.in)