The festive season in India combines cultural celebration and economic activity, significantly driving growth, especially between August and December. Historically, indices like Nifty have shown positive momentum during this period. This trend continues this year too, supported by strong financial inflows and strategic government policies, including increased capital expenditure of Rs. 11.11 trillion (3.4% of GDP) for FY2025.
As investors seek to maximise returns in this favourable climate, a key question arises: Is it more advantageous to invest in equity markets or gold during the festive season?
When choosing between equity markets and gold during the festive season, several factors should be taken into account:
- Investment Horizon: If you have a long-term outlook, stock markets offer higher growth potential compared to gold. Historical data consistently shows that stock markets outperform gold in terms of capital appreciation, especially when the economy is growing. In 2024, India’s economy is projected to grow at around 6-7%, which bodes well for corporate earnings and stock market returns. This provides an attractive opportunity to capture growth.
- Inflation Hedge: Equities are usually better at outperforming inflation over the long run. While gold is often viewed as a hedge against inflation, it is the equity markets that have consistently provided real growth after adjusting for inflation.
- Risk Appetite and Volatility Management: While equities come with higher volatility, long-term investors with a moderate to high risk tolerance can ride out short-term market fluctuations for potentially larger gains. Gold, though stable, generally does not offer the same level of appreciation and may underperform during periods of strong economic growth and rising interest rates, such as the current environment.
- Market Outlook: As the Indian economy is on an upward trajectory, and corporate earnings are expected to improve further, it is expected that the market would keep moving toward new highs.
- Diversification: A balanced approach including both equities and gold can mitigate risk.. Depending on Investor’s risk appetite, maintaining 5-10% of its portfolio in gold can help diversify and safeguard against downturns in stock markets.
Both equities and gold are significant components of a well-diversified portfolio. Equities tend to outperform inflation over the long run, while gold serves as a hedge during periods of uncertainty. There’s no one-size-fits-all approach to investments. So, the choice between the two depends on your financial goals, risk tolerance, and the current market environment.
If the portfolio has a long-term horizon and can tolerate volatility, equities would be the preferred choice due to their superior growth prospects and ability to compound returns over time. Gold, while useful for diversification, should play a secondary, stabilizing role in a balanced portfolio.
(The author is Chief Investment Officer, SMC Private Wealth, Director at SMC Group)(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)