EQUITY vs GOLD

A year ago, Gold, at Rs 27,385 per 10 grams was not only expensive but a lucrative investment bet given the kind of run-up seen in its prices ever since the financial meltdown of 2008. Taking cue from its historic run-up, many investors had thronged to buy gold then that eventually crossed Rs 32,000 per grams in September '12, prompting investors to buy even more of the yellow metal anticipating even better returns. Today, a year down the line, these investors have nothing much to cheer about. The consistent correction in the prices of the yellow metal over the past six months has resulted in mediocre 6% returns for those who invested in the yellow metal a year ago. BSE Sensex, on the other hand, has risen by over 9.2% during this period while mutual funds investing in large and mid cap stocks, generated 8.36% on an average, during this period. To put it simply, after having emerged as a strong hedge against inflation and a contra investment option to equity markets over past five years, gold has begun to mellow down sending strong signal to those obsessed with the yellow metal that is probably is the time to look beyond. It probably is time, once again, to consider equities for a larger part of one's investment portfolio after providing for risk-free investment options like bank fixed deposits, PPF and other similar products. While many investors may be perturbed by the recent crash in the mid-cap stocks, market analysts suggest that the crash was more peculiar for stocks with relatively weaker balance sheets or where pledged shares were getting sold in bulk. Stocks of companies with fairly strong balance sheets and visible growth models continued to do well even during the market crash. Thus, even as the S&P BSE Small Cap and Midcap indices fell by 15% and 8% respectively in the past three months, the average decline in the net asset value of the midcap mutual fund schemes was lower at 5.4%. Gold too declined by close to 5.4% during this period. However, S&P BSE Sensex generated over 1% gains in the past three months, outperforming the gold returns by healthy margins.