The asset-class conundrum: Where should investors allocate money now?

Investors today face a difficult question: which asset class still offers meaningful value after years of strong returns across markets? According to the February 2026 edition of DSP’s Netra report, the answer is not straightforward — because most major asset classes have already delivered strong gains over the past five years.

 

When everything looks expensive

 

The report highlights that equities, commodities and global markets have all seen significant run-ups, leaving fewer obvious bargains for investors.

 

Even after recent corrections:

 

The Nifty 500 and mid- and small-cap indices remain in the 70th–90th percentile of historical returns and valuations, meaning they are still relatively expensive compared with long-term averages.

 

Global equities also appear stretched, with elevated valuations and strong trailing returns.

 

Gold and silver look the most extended, with five-year returns in the 99th percentile of their historical range, signalling extreme performance relative to history.

 

This creates what the report describes as an “asset class conundrum” — strong past performance has made future allocation decisions more complex.

 

Debt and large caps stand out

 

In contrast to expensive asset classes, the report suggests that debt investments and domestic large-cap equities appear relatively more attractive at current levels.

 

Debt markets, in particular, have not seen the same valuation expansion as equities or commodities, offering relatively better comfort for investors seeking stability and predictable returns.

 

Large-cap equities, while not cheap, are seen as more reasonably valued compared with mid- and small-cap segments, which experienced significant re-rating in recent years. 

Source: Bloomberg, DSP. Data as on 30 Jan 2026. Period considered for evaluation: Apr 2005 to Jan 2026. All returns in INR terms.

 

Multi-asset investing may be the solution

 

Given the lack of clear bargains across asset classes, DSP suggests that multi-asset strategies could be a sensible way to navigate the current environment.

 

These strategies allow investors to:

 

Shift allocations dynamically across asset classes

 

Reduce concentration risk

 

Manage volatility more effectively

 

Capture opportunities as valuations change

 

"The asset classes that seem to offer some comfort are the much-ignored debt (looks attractive relative to equities) and, to some extent, domestic large cap equities. So how should one navigate this environment? We believe multi-asset strategies with agility to quickly adjust across different asset classes can be a sensible option," said the report. 

A reminder about market cycles

 

Another key takeaway from the report is that markets have experienced an unusually long period of relatively low volatility and limited drawdowns, which may not last indefinitely.

 

Equity markets in India have gone nearly a decade without a prolonged bear market, and historically such periods are often followed by phases of higher volatility.

 

For investors — especially newer ones — this means preparing portfolios for fluctuations rather than assuming steady returns.

 

What about gold and silver? 

 

One of the report’s key observations is that both gold and silver have delivered exceptionally strong five-year returns, placing them at the extreme end of historical performance ranges.

 

According to the data:

 

• Gold’s five-year returns are in the 99th percentile of historical returns
• Silver’s five-year returns are also in the 99th percentile

•  

 

This suggests that the recent rally in precious metals is unusually strong compared with long-term trends.

 

Even after recent corrections, the report says precious metals remain among the most “stretched” asset classes in valuation and return terms.

 

What investors should do now

 

The report suggests that the current environment is not about abandoning gold and silver, but about using them strategically rather than tactically.

 

Precious metals continue to play an important role in portfolios as:

 

• inflation hedges
• geopolitical risk hedges
• diversification tools

 

However, given elevated returns and valuations, investors may need to:

 

• avoid aggressive new allocations
• maintain balanced exposure
• accumulate gradually rather than chasing price momentum

 

The bigger investment lesson

 

The strong performance of gold and silver highlights a broader theme in global markets: investors are preparing for uncertainty even when markets appear calm.