 "Should you shift more savings into gold as stock market underperforms?")
Gold’s glitter is back — and this time, it’s not just ornamental. Over the past 12 months, the precious metal has surged 51% in US dollar terms, while the Nifty 50 has managed only a modest 6% gain, according to Kotak Institutional Equities’ October 23 strategy report.
The sharp divergence between gold and equities has reignited a familiar household debate: Should investors shift more savings into gold when the stock market underperforms? Kotak’s analysts say — not so fast.
“Equities are an investment, gold is insurance,” noted the report, urging investors to remember that the two assets serve very different purposes in household balance sheets.
The strong performance of gold and the weak performance of Indian equities over the past 12 months may tempt Indian households to put a larger share of household savings into gold. "This may further derail India’s current account and trade deficits, as India does not produce any gold," noted Kotak.
Gold’s Rally: More FOMO Than Fundamentals
Kotak attributes gold’s steep rally primarily to strong investment demand, rather than the usual safe-haven arguments. Data from the World Gold Council show that investment demand — particularly through ETFs — has surged in 2025, even as jewelry fabrication remains flat.
The brokerage dismisses some of the more alarmist explanations for gold’s rise — such as fears of “currency debasement” or reckless fiscal spending — as “weak and unsupported by macro data.”
In fact, most major economies have seen tighter money supply, not expansion, over the past three years. Inflation expectations are moderating, and central bank gold purchases, while strong, haven’t accelerated recently.
That means much of the price momentum may be FOMO (fear of missing out) — investors chasing gold simply because it’s been outperforming.
Indian Households: Big Buyers, Bigger Impact
Indian investors have always had a cultural and financial love affair with gold — and Kotak’s data show just how deep it runs.
Between FY2011 and FY2025, India’s net imports of gold and precious stones ($460 billion) far exceeded total foreign portfolio inflows ($200 billion) into debt and equity combined.
In other words, Indian households buy more gold than foreign investors buy Indian stocks.
The report warns that this gold obsession has real macroeconomic costs. Gold imports now average about 20% of India’s trade deficit, and over 200% of the current account deficit in some years. Since India produces almost no gold domestically, every surge in gold buying widens the country’s external imbalance.
“The strong performance of gold and the weak performance of Indian equities may tempt households to put a larger share of savings into gold,” the report says. “This may further derail India’s current account and trade deficits.”
Equities Still the Engine of Wealth
Despite near-term underperformance, Kotak remains optimistic on Indian equities, projecting Nifty earnings growth of 10.4% in FY26, 16.2% in FY27, and 13.8% in FY28, with valuations likely to normalize from a current P/E of 23.5x to 17.7x by FY28.
That implies equities remain a superior long-term wealth creator, even if the next few quarters appear lackluster.
The report also notes that foreign portfolio investors (FPIs) have been net sellers of Indian equities — about US$16 billion in 2025 so far — while domestic institutional investors (DIIs), effectively representing Indian households via mutual funds and insurance companies, have pumped in a record US$70 billion this year.
This “home bias” has cushioned markets, but it also signals that household wealth is already heavily skewed toward domestic equities — and adding gold purely based on recent performance could tilt portfolios toward unproductive assets.
Who Owns India’s Gold?
Interestingly, Kotak’s analysis reveals that 70% of India’s household gold is held by low-income families — those earning less than ₹5 lakh a year (at 2021 prices).
For these households, gold functions less as an investment and more as insurance against emergencies or collateral for loans. The so-called “wealth effect” — higher consumption driven by rising gold values — remains negligible, as most gold holdings are idle.
In contrast, higher-income investors tend to treat gold as a small part of a diversified financial portfolio — usually 5–10% — alongside equities, fixed income, and real estate.
Portfolio Implications: Stay Balanced
For personal investors, the takeaway from Kotak’s strategy note is clear:
Avoid chasing gold purely for recent returns.
Treat it as insurance, not as your main growth asset.
Keep 5–10% of your portfolio in gold to hedge geopolitical and inflation risks.
Use financial gold instruments — ETFs or Sovereign Gold Bonds — to avoid storage costs and import dependency.
Focus the bulk of your long-term investments on equities and equity mutual funds, where earnings growth still supports wealth creation.