Sensex generated a return of about 9% while gold prices fell by 3% and its poorer cousin silver plummeted close to 24%
Measured by benchmark index Sensex, stock market has generated a positive return of about 9% for investors in 2013, while gold prices fell by about three % and its poorer cousin silver plummeted close to 24 %.
Historical data show that gold has given positive returns over the last 12 out of last 15 years. Also, gold prices have appreciated by an average of 20 % over the last 10 years, against about 18 % for equities.
Gold has come down to Rs 30,160 per ten grams from Rs 30,990 per 10 gm, while silver fell from Rs 57,000 per kg to Rs 43,500 per kg.
Gold’s under-performance was mainly due to prices falling in dollar terms amid anticipated tapering over last several months combined with FII investment in Indian stocks.
Improvement in the world economy has brought the risk appetite back amongst retail investors and this has drenched the liquidity from safe havens such as gold leading to its under-performance, an expert said.
In 2012, the Sensex had gained over 25 %, which was nearly double the gain of about 12.95 % in gold. The appreciation in silver was at about 12.84 per last year.
According to Hiren Dhakan, Associate Fund Manager, Bonanza Portfolio, “Markets have particularly shown great strength post July-August 2013 when RBI took some strong measures to control the steeply depreciating rupee.”
“When the US Fed gave indications that it might taper its stimulus programme given the economy shows improvement, a knee-jerk correction was seen in most risky assets, including stocks in Indian markets. However, assurance by the Fed about planned and staggered tapering in stimulus once again proved to be a catalyst for the markets.” Dhakan further added, “This complemented by RBI’s strong measures to control rupee depreciation supported the equity markets. Improvement in political scenario and concrete measures to bring down the current account deficit by the government also helped markets.”
Equities segments- mid-cap and small-cap indices have fallen by about 10 % and 16%, respectively, in 2013.
Analysts say gold prices also fell due to hike in customs duty to 10 % and import restrictions imposed by the government to contain increasing precious metal demand.
According to Dhakan: “Optimism about the US economy gaining momentum was the prime reason behind the world markets rallying as it is considered the growth engine of world economy.
“When fear trims, its greed that takes over and that’s exactly what has happened. So, investors are redeeming from safe havens such as gold, US treasuries and are investing into risky assets,” he said.
The yellow metal is normally preferred as a hedge against inflation, and investors tend to park their money in gold as they consider it a safe bet in times of market uncertainties.
Foreign Institutional Investors have bought shares worth over Rs 1.1 lakh crore (nearly USD 20 billion) till December 19. In 2012, they had pumped in Rs 1.28 lakh crore (USD 24.37 billion).
For the year ahead, Religare’s Manglik said, “Markets like stability and elections due next year will play a major role in deciding the trajectory.”
“A clear majority by any political party will set the stage for a long-term boom as it will boost sentiment and allow long-term decisions. This will also lead to more FII inflows and the
return of retail investors.”