Gold returns to remain subdued

It's better to dilute the holding and start looking at equity

Despite the rise in the equity market, brokers are finding it tough to convince investors to liquidate their gold holdings and look at stocks. Rahul Rege, business head (retail) at Emkay Global Financial Services, is planning to start workshops at company centres to convince clients to dilute their gold and property investments and look at equities.

“Until two-three years ago, investors were making easy returns in gold as well as property. Though Sensex touched the 30,000-mark and then corrected around 10-12 per cent, many investors are sitting on the sidelines holding on to their investments made in other asset classes over five years back,” Rege says. Active trading accounts, as a result, are on a decline. Brokers have seen a fall of three to five per cent in the past three years.

Mutual fund data echoes Rege’s views. The number of retail investors in gold exchange traded funds (ETFs) has seen just a marginal dip in the past three quarters. Between July and September last year, gold ETFs had 468,000 retail folios. In the quarter ending March 2015, these stood at 455,000, according to Value Research. Even the asset under management (AUM) of these funds has remained stagnant. In December last year, it stood at Rs 9,425.82 crore. At present, the AUM of gold ETFs is Rs 9,240.69 crore.

 

With gold outlook remaining negative for this financial year, investment advisors suggest investors should look at other asset classes, like equities, that have the potential to give better returns. In its recent report, India Ratings and Research has maintained a negative outlook on gold prices for FY16. The agency believes movements in gold prices will largely depend on the US’ interest rate decision and expects a higher rate hike to cause gold price to fall by 10-25 per cent.

“In the event of a US rate hike, global gold prices could drop and range between $900 and $1,050 an ounce... As such, the domestic price of gold may decline and range between Rs 20,500 and Rs 24,000 per 10 gm from the current levels of Rs 27,000 per 10 gm,” says the report. This will be further aided by the single digit demand for the metal.

There are very few chances of upside for gold, according to commodity analysts. And even if it happens, the gains will be 10-12 per cent and the opportunity will be limited, says Hitesh Jain, senior analyst with India Infoline. For example, if the US delays the rate hike, while economies such as Japan and the Eurozone continue with their unconventional monetary policy, the price of gold could creep up to and trade in the range of Rs 29,500-30,500 per 10 gm.

A V Srikanth, founder and CEO of Citadelle Asset Advisors, says although investors should look at equities right now, investing in gold can be a better option than coupon bearing debt investments or fixed deposits. According to him, the metal has historically given better returns than debt. Even today, risk-averse investors can hold up to 10 per cent of their portfolio in gold, while aggressive ones can keep five per cent. But if you are holding anything above that, it’s better to dilute the holding and look at resurging equities.