Asset class rotation has been happening for a long time. When there is interest in an asset class, it begins to see more volumes and high investor interest, and vice versa.
But there is one asset class that is a no-brainer for Indians and has always delivered great returns over time – gold.
Indians, though, are not making the most of this asset class as it is just constituting a small portion of investor funds. As compared to equity investments, which constitutes about Rs 5.78 lakh crore, gold exchange-traded funds Rs 7949 crore. Sure enough, some investors do have family assets, but this should not be seen as a part of asset diversification.
Gold’s long-term returns have been decent. Gold returns in the past 10 years have been in excess of 10% per annum. Considering that some other asset classes have been volatile and choppy, gold’s returns have been excellent on a risk-adjusted basis. In other words, for lower volatility investors have been steadier returns.
Additionally, for Indians, gold has a dual advantage. First, Indians accumulate gold as a store of value, so that means Indians loathe to sell this asset class unless there is an emergency. So even when this asset class goes out of favour for a brief period time or falls down, investors still hold on to the asset and don’t trade in and out. This helps generate better returns over the longer run.
Second, India’s currency tends to depreciate against the US dollar. So gold prices over time continue to move up in India in keeping with the depreciation of the rupee.
Furthermore, globally gold has been seen rising whenever there is a debasement of currencies. For instance, after the global financial crisis, large countries such as the US have been giving large stimulus to bail out their economies. In fact, after the great financial crisis, gold prices almost doubled in three years.
The current covid-19 crisis is no different. Stimulus packages this time, however, are larger. That should certainly keep investor interest high in gold.
