With no signs of slowing down of the coronavirus epidemic at the moment, investors have begun to worry about diminishing investment options in such a period of market volatility. Acquiring gold as property still retains a distinct attraction in India. Sophisticated complex the dynamics equation of the modern market, as it includes many factors. The perennial question of safe options has once again forced comparison between the equity market and gold. The growth trajectory of both markets over the last 10 years can tell us what is the better option in the current time of uncertainty.
Decade: Trends inequity and gold markets
In the last 10 years, Indian indices such as SENSEX (BSE 30) and BSE-500 have registered a CAGR of 9.05% and 8.5% respectively. However, the period between 2010 and 2015 saw a gradual increase despite the 2012 economic downturn – the latter has seen growth from February 2016 to January 2020. The Sensex’s growth surged from around 17,500 points to around 40,000 points by December-2019, reflecting the wealth coming from equities across the sector, although global trends have also fluctuated in the meantime.
Global markets collapsed after the spread of Kovid-19, as it effectively halted all economic activity and money-making prospects. As a result, by the beginning of April-2020, the Indian markets also collapsed and fell by more than 23%, to 27,400 basis points. The maximum fall was around 40%. However, recovery has been significant since April, due to investors’ stance on emerging trends in emerging markets.
On the other hand, gold markets have seen sharp growth. People use gold to diversify their portfolios, especially when there were signs of a crisis emerging. In 2008, gold had gone from ₹ 8,000 to 25,000, while after 2016, gold prices had gone up from Rs. 31,000 per 10 grams of gold. As a result of slowing economic growth in India, prices have increased from 35,000 to 50,900 within the last year itself. However, investment in gold delivered 11% returns in April, with returns expected to increase manifold in subsequent months. In times of turmoil, gold and related asset classes have long been safe options and the current crisis is no different. Increasing Kovid-19 cases have affected global growth. Many global financial institutions and consulting firms forecast a decline in equity markets.
Influential Factors and Investment Options
The US Fed and other central banks brought recovery in the global financial system from large stimulus packages after major banks and world markets were on the verge of collapse in 2008. In later years his influence on many markets continued. Small European countries such as Greece were plunged into debt and the European Central Bank had to be encouraged to strengthen the EU single market. Global banks and the Reserve Bank of India are showing keenness to reduce interest rates in relation to post-epidemic measures.
Since there is a negative correlation between interest rates and gold prices. Equity markets can be severely affected in the event of the economic downturn mentioned above. The International Monetary Fund (IMF) ranked Global Growth in the 4.9% range for 2020 in the June -2020 Growth Forecast, down 1.9% from the April Forecast. In addition, the IMF’s April-2020 World Economic Outlook report projected a 3% decline, which is worse than the situation created during the 2008 financial crisis.
Along the same lines, consulting firm Deloitte’s outlook points to major technical disruptions, which could have serious consequences for markets and banks and change the nature of work. It mentions bond yields, crude prices, and the possibility of further reduction in interest rates. These factors have been done to increase liquidity which may harm the markets. Along with this, banking institutions and short-term financial risks and regulatory compliance issues due to the Kovid-19 epidemic are also warning the markets. The long-term risks of Kovid-19, however, are unexpectedly unexpected to assess. The crisis is still not seen to end.
The Government of India has recently announced an incentive package of Rs 20 lakh crore to revive the economy. This will greatly hurt the financial markets and bond asset class. With higher levels of liquidity and limited activity, the investment trend in gold is likely to continue for the foreseeable future. However, it is necessary to pay attention to the many investment possibilities of gold, which can counter the trend of inflation.
Since physical assets of gold are rapidly increasing in Kovid’s time, gold-backed options such as gold exchange-traded funds (ETFs) are a dependable option. The positive flow of gold in India has surpassed the average of 35 tonnes per month earlier this year, which is 39.8 tonnes since March 2020. Globally, central banks have long held record gold purchases. This indicates that the markets may continue to gain momentum going forward. By default, it will have an impact on equity and will contribute to market volatility. So, at the moment, gold and gold-backed instruments seem to be a better investment option.