Steep correction across various asset classes in the early part of the year due to coronavirus has given sleepless nights to investors. Stock markets, in particular, have been extremely volatile. However, gold being a safe haven has seen a remarkable surge in value.
But, what'll be the trend in the months ahead, and are there lessons to learn from the past for middle class retail investors?
"When we consider gold and equity, many of us feel gold as safe and equity as a volatile asset. However, if we look back at history, we noticed that both gold and equity are almost equally volatile. Considering the current uptrend in gold price, many may be attracted to gold. Instead of investing just because of a few days of an uptrend in gold and downtrend in equity, I suggest a goal-based investing strategy where one has to do the asset allocation in debt, equity or gold to protect himself from any trend. The idea is to make sure that money is available when we need it," said Sebi-registered independent financial adviser Basavaraj Tonagatti.
Sensex plunged as much as 29 per cent from early February through the end of March. However, the index recovered 20 per cent of its value between late March and June-end. Overall, massive volatility has mainly defined the movement of the share market, even as equities have lately seen a rebound. Debt investors also are an apprehensive lot due to various defaults and ratings downgrades in the recent past.
Conversely, the gold hit a record high of Rs 48,982 in the Indian futures markets last week. However, rising prices have impacted demand for physical gold just as the lockdowns, job losses and weak economic growth limited discretionary spending. India's gold imports declined 86 per cent year-on-year in June amid coronavirus lockdown. But the demand for exchange traded funds (ETFs) has increased, according to a Bloomberg research, as economic concerns and negative inflation-adjusted returns have driven investors into safe havens such as yellow metal. People are currently paying more attention to gold as an investment, experts said.
"Considering the dovish forward guidance of the Fed, global gold prices can remain elevated as it reduces the cost of holding gold. Also global central banks are increasing gold in their Forex Reserves. Also considering that the RBI has intervened to prevent Rupee appreciation in order to bolster its Forex Kitty, gold in INR terms can remain supported. The possibility of a second wave is still existent and therefore gold is a better bet compared to equities in case we see a major risk off globally," said Abhishek Goenka, Founder & CEO, IFA Global.
Jitendra Solanki, a SEBI registered tax and investment expert, however, advised investors to diversify their investments during uncertain times. While gold may be a good hedge against inflation, equities deliver in the long term, Solanki said.
"Stocks are a better investment for long term wealth accumulation. Gold is good for hedge against inflation and should be in a portfolio but upto 10-15%. Gold higher returns have been during certain events like now. If you look at long term returns then they are below equities. This is because gold is considered a safe avenue during tough conditions. So it appreciates in a short period but returns get average out when you hold it for a long term. On the contrary equities deliver higher returns in the long term and compounding effect is much higher in this asset class. So good to keep gold to diversify your investment but make equity as a core asset class in your wealth and accumulation," said Solanki.
A sensible investment strategy is the one with a favourable exposure towards different asset classes, said Pranjal Kamra, CEO, Finology. "As we know that equity investments are associated with high volatility, having investments in negatively correlated assets such as gold act as a hedge against big swings in the equity portfolio. So, an investor should plan a sensible investment strategy having optimal exposure towards different asset classes considering their investment horizon and risk appetite. This holds true in all investment scenarios and therefore should be diligently followed not just by the middle class, but all the investors," added Kamra.