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At $1200 an ounce, is gold a safe bet compared to Indian equities?

22 Jan 2015 |By: Team Finalaya

gold investments

Gold is always considered a safe haven for hedging against other investment vehicles. But, when we consider Indian equities versus gold for the year 2015, the equity markets look more promising in comparison to the bullion markets. Let us examine why the Indian equities should be preferred over gold, at least for the year 2015.

Indian equities on a strong wicket

The Indian equity markets are robust even without taking into account the drop in oil prices. The Nifty as well as the Sensex have touched all time highs during 2014 and barring some temporary jerks, the upward thrust is maintainable.

Add to this, the bonanza from oil now trading below the $50 mark, the Indian stock markets are all set to test new highs. The upcoming budget in February 2015 will set the overall tone for the markets for the rest of the year. Given that lower subsidies, lower current account deficit and even a lower fiscal deficit would strengthen the hands of the Finance Minister to announce more market friendly measures in the forthcoming budget, about 30% annualized returns from Indian equities for the year 2015 looks very conservative.

Read more - Gold futures decline as oil prices slump

Turnaround for Indian economy

There are also strong indicators pointing to turnaround for the Indian economy and the GDP for 2015-16 is now projected to grow by 6 to 7%. Profitability of several companies headed by the oil sector will get a short in the arm because nearly all of them are now making a profit in the absence of under recoveries, and a plethora of downstream companies in plastics and other petroleum related industries are likely to benefit.

Rupee likely to strengthen

On the other hand gold is unlikely to reverse its current static trend and is expected to move within a $1100-1200 band for most part of the year ahead.  Indian investors would also want to consider the rupee that is more likely to strengthen across the year. Once the current account deficit and the fiscal deficit are brought within acceptable levels, the rupee can harden further against the US dollar. However, a silver lining around this possibility is the fact that the RBI would rather support the rupee around $60 than allow it to harden.

Check out- Premium Capital Market Widget from Finalaya

The Oil Story

The oil story today is deeper than what most people would want to believe. The U.S is now expected to become a net exporter of petroleum products by 2020 or even earlier. The OPEC and particularly Saudi Arabia is therefore targeting the profitability of US Shale. Many reports point out that if oil dips below $50 a barrel, it could start hurting US Shale. Iran and Russia are the other targets that Saudi Arabia has on the present trajectory of oil.  Russia is already on a significant loss of revenue and the Ruble has lost considerable ground in the past months. But, America is unlikely to give in to the OPEC or its allies, particularly because Saudi Arabia has, in the past used oil prices as an arm twisting means by regulating outputs by OPEC.

Thus, for the year 2015, the Indian equity markets appear to be a clear winner, particularly in comparison to gold.

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