Investment Or Insurance? Kotak Rejects ‘Equities Vs Gold’ Debate — Here's Why
The near-term gold price drivers, like fear of missing out or FOMO and currency debasement arguments, appears weak to the analyst.
The traditional 'Equities vs. Gold' debate is largely irrelevant, according to Kotak Securities as the assets serve fundamentally different functions in household savings.
Kotak Securities in a recent note, said that equities are for investment and while gold acts as insurance. The near-term gold price drivers, like fear of missing out or FOMO and currency debasement arguments, appears weak to the analyst.
The primary concern is that the true macro issue for India is the continued high volume of gold imports. This has a detrimental impact on the nation's current account and trade deficits.
The market fixation on pitting equities against gold misses the core point, according to Kotak. The point being that these assets play complementary, not competing, roles in a savings portfolio.
With equities acting as an investment and gold taking that place of an insurance hedge. The ongoing debate has been fueled by gold’s strong performance relative to the lacklustre returns seen in Indian equities recently.
The Misplaced Debate: Investment Vs Insurance
Kotak Securities views the comparison as "somewhat pointless" because equities are held for wealth creation and growth, while gold is primarily held as a safety net against geopolitical or economic uncertainty.
Treating them as interchangeable substitutes ignores their distinct purposes. The high-volume gold buying seems less driven by fundamental economic arguments like currency debasement and more by speculative FOMO, which the brokerage considers weak justification.
India’s Macro Problem: Ignored Gold Imports
The critical issue accordng to the analyst remains largely unaddressed. This is the national economic burden imposed by consistently high gold imports. Since India does not produce gold, this massive outflow of capital significantly strains the nation's trade and current account deficits.
Interestingly, this surge in gold holdings, often in physical form, may not translate into a significant 'wealth effect' on domestic consumption, given the nature of the physical asset holding.
Further, while domestic buyers or Indians, are purchasing Indian equities and gold, foreign institutional investors have recently been observed selling both Indian equities and gold holdings.
