Kotak Securities Rejects ‘Equities Vs Gold’ Debate: Why You Should Consider Both
The traditional ‘Equities vs. Gold’ debate is largely irrelevant, according to Kotak Securities, as the assets serve fundamentally different functions in household savings.
Equities for Investment, Gold for Insurance
Kotak Securities, in a recent note, said that equities are for investment and while gold acts as insurance. The near-term gold price drivers, like fear of missing out or FOMO and currency debasement arguments, appear weak to the analyst.
The primary concern is that the true macro issue for India is the continued high volume of gold imports. This has a detrimental impact on the nation’s current account and trade deficits. To learn more about the impact of gold imports on India’s economy, visit our article on gold imports in India.
The Core Point: Complementary Roles
The market fixation on pitting equities against gold misses the core point, according to Kotak. The point being that these assets play complementary, not competing, roles in a savings portfolio.
With equities acting as an investment and gold taking the place of an insurance hedge. The ongoing debate has been fueled by gold’s strong performance relative to the lacklustre returns seen in Indian equities recently. For more information on the performance of Indian equities, check out our article on Indian equities performance.
Distinct Purposes, Not Interchangeable Substitutes
Kotak Securities views the comparison as ‘somewhat pointless’ because equities are held for wealth creation and growth, while gold is primarily held as a safety net against geopolitical or economic uncertainty.
Treating them as interchangeable substitutes ignores their distinct purposes. The high-volume gold buying seems less driven by fundamental economic arguments like currency debasement and more by speculative FOMO, which the brokerage considers weak justification.
The Critical Issue: Gold Imports and Trade Deficits
The critical issue, according to the analyst, remains largely unaddressed. This is the national economic burden imposed by consistently high gold imports. Since India does not produce gold, this massive outflow of capital significantly strains the nation’s trade and current account deficits.
Interestingly, this surge in gold holdings, often in physical form, may not translate into a significant ‘wealth effect’ on domestic consumption, given the nature of the physical asset holding. To understand more about the impact of gold holdings on domestic consumption, read our article on gold holdings and domestic consumption.
Foreign Institutional Investors: Selling Both Equities and Gold
Further, while domestic buyers or Indians, are purchasing Indian equities and gold, foreign institutional investors have recently been observed selling both Indian equities and gold holdings.
Conclusion: A Balanced Portfolio
In conclusion, the ‘Equities vs Gold’ debate is largely irrelevant, as both assets serve different purposes in household savings. A balanced portfolio should consider both equities for investment and gold for insurance, rather than treating them as interchangeable substitutes.
To learn more about creating a balanced portfolio, visit our article on creating a balanced portfolio. For more information on the Indian stock market and gold investment, check out our website and follow us for the latest updates.
