And now as investors seek safety against global financial instability and hedge against inflation, gold is likely to outperform equities as an asset class at least in the short term.
“The unprecedented aggressive policy stance by major central banks across the globe has risked causing a sharp slowdown in global economic growth which should be supportive for gold. Additionally, aggressive buying of the safe haven asset by central banks across countries is helping sentiment in gold,” said Manish Chowdhury, head of research at Stoxbox.
Equity bulls are, however, clear that headline index Sensex, which is struggling around the 57,000-58,000 mark will hit the 1 lakh mark before gold touches the magic number.
Narendra Solanki, who heads the fundamental research team at Anand Rathi, said Sensex is certainly going to touch the 1 lakh mark in future although the time period depends on the overall growth in the economy.
Rohan Mehta of Turtle Wealth PMS points out that gold has always been a 7-8% return asset class vs Sensex at 12-15%. “And the way India is growing, Sensex hitting a new high is much more probable than gold doing the same. Also, If gold hits that level, it would be only if the world goes into an extreme panic zone, backed by some financial crisis or a Covid-type of scenario,” he said.
After foreign institutional investors dumped Indian stocks worth around $3.5 billion this quarter, Sensex is now trading below its 10-year average PE levelConsidering the turmoil in global markets, gold remains an attractive asset at this point. “We feel that it would be prudent to start with a higher exposure to debt and gold in 2023 and move towards equities in a calibrated manner through superior stock selection. Till there is clarity on the global macroeconomic front, it would be advisable to avoid high beta stocks and stick to cash rich and secular stories to generate superior risk-adjusted returns,” Stoxbox’s Chowdhury said.
So what is the ideal asset allocation strategy at this stage? The standard 60-30-10 portfolio allocation rule has been that of 60% equity, 30% debt and 10% in alternatives like gold.
Currently, the odds are clearly in favour of equity allocation if you are looking for a minimum 2 years allocation, opines Divam Sharma, who runs Green Portfolio PMS. “We would suggest a 70% equity, 15% debt and 15% gold allocation at this moment for a moderate risk profile,” he said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)