Why Gold Remains Timeless
Gold as an asset class needs no introduction. However, gold is considered a non-productive asset – it doesn't generate any profits or dividends or rent.
Then why is gold loved so much? Does that mean investors are being irrational?
Certainly not.
Gold's Unique Properties
- Universal Asset: Accepted and traded across the globe with no currency risk
- High Liquidity: One of the most liquid assets available
- Low Volatility: Price movements are relatively less volatile compared to equities
- Timeless Value: Properties don't erode even if it's centuries old – can pass through generations
The Science of Gold
Humans have evolved a lot – we have been successful in synthesizing diamonds and making them in labs, but we still haven't been fully successful in synthesizing gold.
Scientists are trying to create real gold in a lab by firing neutrons at metals like platinum or mercury, changing their atomic structure into tiny amounts of genuine gold — but it's radioactive, dangerously unstable, and costs millions of rupees to produce even a speck using a nuclear reactor.
After just a few days, most of it decays back into other elements, making it completely impractical. Earth-mined gold remains the only practical treasure for now.
Limited Supply
According to World Gold Council and US Geological Survey:
Unlike silver, copper, or aluminium where every new mine reserve can lead to increased supply in the near term, the same may not be true for gold due to extraction difficulty.
Gold as Anti-Fiat Currency
Gold is the anti-fiat — when central banks print endlessly, investors flee to hard assets. Post-GFC, fear of inflation, currency collapse, and negative real yields drove institutional and retail demand.
The current run-up in gold is backed by demand from central banks and ETF flows. Global central banks bought gold exceeding 1,000 tonnes annually during 2022 to 2024 primarily led by global uncertainties.
Share of Gold vs US Treasuries in Global Reserves
US Debt Concerns
US debt has ballooned to unprecedented levels (USD 38 trillion) with no sight of meaningful course correction. The absence of a solution will sustain gold's haven appeal. In today's uncertain world about USD being the reserve currency, the possibility of gold becoming the underlying currency becomes a reality.
Equities – Asset class for the long term
Source: tijorifinance.com
The Reality Check
The period from April-2020 to Sept-2024 has made everyone believe that he/she has the potential to be a great investor and can easily generate 25% CAGR returns from the stock markets.
Well, the Nifty Small cap 250 and Nifty Midcap 150 did generate 26-27% CAGR returns but is that sustainable? Certainly not.
A Screener Exercise
How many companies in India generate post-tax 5-year average ROE of 20%+ with market cap above INR 1,000 Crores?
- ~1,518 companies with market cap above INR 1,000 Crores
- Only 300 companies generate 5-year average ROE of 20%+
- That's only 20% chance of generating 25% CAGR returns!
Recent Performance Reality
Thanks to the last 1-1.5 years – those high returns myths have been busted. There is no easy money in the stock market!
- NIFTY: ~10% in INR | ~6.5% in USD
- Nifty Midcap 150: ~11% in INR | ~7.5% in USD
- Nifty Small cap: -2% in INR | -5.5% in USD
Important: Nifty50 has not generated positive returns from Sept-24!
Mutual Fund Inflows vs Market Timing
Source: Motilal Oswal - Net Inflows in Equity MFs incl. ELSS and Index funds
Bulk of Mutual fund inflows were invested during July-2024 to Jan-25 – during the last peak. It's been more than 1 year since that high has not been breached.
Majority of investors are in minor losses / made no returns during the last 1-1.5 years.
Long-term Perspective
Over the last 20 years:
- NIFTY50: ~12% CAGR returns
- NIFTY Midcap 150: ~16% CAGR returns
- NIFTY Small cap 250: ~15% CAGR returns
Investors should invest for the long term with moderate return expectations.
Why Equities Have Gained Traction
One reason why equities have become the talk of the town is because GSECs have become relatively unattractive. Returns in Govt. securities are currently around 6.5% (pre-tax) – lower than historical average.
Investors used to get GSECs yielding 9-9.5% return in 2013 which have now come down to ~6.5%. With indexation benefits curtailed, post-tax returns fall to 4.5-5%.
India has structurally moved from a high inflation high-interest rate economy to low inflation low-interest rate economy. This means structurally more capital flow to equities and real estate.
Growth of Indian Investors
- Unique investor base: 3 crore (FY20) → 12 crore (FY25) – 4x increase!
- Unique MF folios: 2.1 crores (FY20) → 5.7 crores (Sept-25)
- Equities in household assets: 3.9% (FY19) → 6.7% (FY25)
The current indicators point towards acceptance of equity as an asset class which is remarkable in itself!
IPO Boom of 2025
IPO Performance: Issue Price vs Listing Price
Source: Chittorgarh.com
More than 35% of total issues in CY2025 listed at discount to their offer price.
This number in 2024 was only 12.5%.
It's the momentum, valuations and liquidity which drive these listings. The bankers want to make the most of the underlying momentum, the promoters want to make the most of the valuations, and the mutual fund managers want new investment options.
That's roughly 1 IPO per day with 2 months still to go!
Market Liquidity Absorption
We did a small analysis of all types of transactions happening in the stock market – secondary blocks by promoters, IPO, QIP, OFS, Preferential Issues etc.
Markets may temporarily take time to absorb such continuous liquidity, and you may see sharp corrections at some IPO counters.
The Positive Side
India was always a capital hungry country since independence. It is finally the coming of the entrepreneurship culture in India where investors are also increasing their risk appetite and providing capital to vision driven and growth driven promoters.
We will likely find many new Infosys (Infosys was the startup of the tech boom era!) from this bunch of IPO companies.
Cyclical – The Only Nature of Different Asset Classes
Investors often forget that every asset class must go through their share of ups and downs.
Assets Are Cyclical
Note: Equities - Nifty 500 Index – TRI, Debt - CRISIL Composite Bond Fund Index; Gold and Silver prices in INR; Source: Groww multi-asset NFO Product presentation
What Should Investors Do?
Multi-asset funds are one of the best options for investors!
Source: Axis Securities, Data till Sept-30, 2025
Key Observations
- Small cap stocks dominate bull markets – led in 7 of past 15 years with explosive gains (56% in 2023, 59% in 2021) but also suffer deepest crashes (-10% in 2019, -29% in 2018, -34% in 2011)
- No single asset class wins consistently – leadership rotates across gold, small cap, mid cap, S&P 500, and bonds
- Bonds act as defensive anchor – delivered best returns in low-growth years (2015, 2016)
- Gold shines during crises – topped returns in 5 out of 15 years, including 2025 YTD with an impressive 50%+ gain
Conclusion
There are multiple asset classes like Domestic & International Equities, Gold, Fixed Income securities, Real estate/REITs etc. and each asset class has its own share of positives and negatives.
The objective here is not to portray one asset as the best or superior; in fact, the objective is to highlight that each asset class goes through its own period of consolidation, correction & boom. For a normal investor it is very difficult to catch hold of the timing of such moves.
Key Takeaways:
- Different asset classes perform differently in different economic scenarios
- Multi-asset funds become one of the many ways to achieve diversification
- Diversification into different asset classes reduces overall portfolio risk
- A diversified portfolio provides better risk-adjusted returns AND peace of mind
The ride will be relatively smoother!
TEAM CVOCA