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Views differ on gold's investment use after its low returns in past 5 years

With inflation now coming under control, this is likely to keep gold import low

Rajesh Bhayani  |  Mumbai 


Is losing its age-old status as a store of value? Sanjeev Prasad, head of Kotak Institutional Equities, believes so. He points to the less than satisfactory return it has shown as an over the past five years.

India, he says, imported and 'consumed' over $300 billion worth of between 2007-08 and 2016-17, financing the resultant trade deficit through large capital flows. Some of which has gone into increased foreign ownership of Indian companies, now at almost 25 per cent of the top-200 stocks. Foreign Portfolio Investors bought $124 bn of Indian equity over FY08-17, the value of their holding going to $368 bn (BSE-200 Index basis) as of end-March 2017, versus $132 bn at end-March 2007. prices, he says, rose three-fold in rupee terms over this period.

He says the bulk of the and of import happened during years of high With now coming under control, he says, and the Reserve Bank targeting lower than in the past, this is likely to keep import low. And, gold's status as a store of value or hedge against will fade.

He notes that the price of standard was Rs 28,835 per 10 grams in May 2012 and is presently around the same level. In three of the past five years, the price has fallen on a yearly basis. So, has also been falling.

'The policy on management has achieved remarkable success," says Prasad, "which should reduce gold's function as a store of value. And, India's financial inclusion programme has attained undeniable success. This should reduce the compulsion of citizens to own gold, as they have access to bank accounts."

A Mumbai-based scrap dealer says it is increasingly difficult to buy from consumers and pay immediate cash. "Neither do they have bills to show purchases and nor do we have that kind of cash. The (coming) goods and services tax will make it more difficult for us to deal in unaccounted old "

Buying physical for will attract a three per cent GST. While sovereign bonds will not attract GST and give an annual 2.5 per cent return. Sanjeev Agarwal, who heads business chamber Ficci's bullion committee, says "will stabilise at lower levels".

Surendra Mehta, secretary, Indian Bullion and Jewellers Association, disagrees. "is not losing its shine," he says. "Post demonetisation, business has not been good due to its effect. But, the price is still favouring people to buy Within 45 days of GST taking effect, when the festival season starts, we feel it will be be good for the industry."

First Published: Thu, June 22 2017. 17:52 IST