Gold and silver seem more attractive than stocks at record highs?

NiftyTrader • July 18, 2024

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With the Indian stock market reaching previously unheard-of heights and values surging, experts advise taking a little profit in stocks and shifting focus to precious metals like gold and silver.

The Benchmark Nifty 50 touched high of 24,738 for the first time in history on thumb day; Thursday, July 18 during trading. This month alone, one can see that the index has been on a record-breaking spree, reaching a 13% YTD. Silver and gold rates have also come out as better than the benchmark index. Gold prices in India as per the current spot market prices have been risen in this year by around 17% up to the date 17th July for the ornament making industry and silver prices have been up 26%.

Nifty’s valuation is uncomfortable, and its upside may be constrained.

There are worries about a possible market drop since the Nifty 50 is trading at a premium value. The price-to-earnings ratio (PE) of the Nifty 50 is currently 24 compared to its two-year average of 21.9, per the stock research platform Trendlyne. At 4.2, the index’s price-to-book ratio (PB) is now close to its two-year average of 4.1.

Although the market’s medium- and long-term outlook is still favorable due to the likelihood of robust economic growth, the start of the rate-cut cycle in both the US and India, and the expectation of continued policy, there is a chance of a market correction if the upcoming Budget is strongly populist and India Inc.’s current Q1 earnings fall short of forecasts.

At this time the Nifty stands at 24,700. Still some analyst said that it will experience limited upside and around 25,000 for the year-end.

Time to look at precious metals?

Although precious metals have done better than the benchmark index this year, experts still have high hopes for them. They advise investors to reduce their exposure to stocks and instead make investments in gold or silver, which seem to be in a favorable place as a result of central bank purchases, rate cut hopes, and geopolitical instability.

According to Prathamesh Mallya, DVP-Research, Non-Agri Commodities and Currencies, Angel One Ltd., “it’s definitely time to shift investors’ focus towards precious metals such as gold and silver as the stock market trades at premium valuations.”

Hedonova’s CIO, Suman Banerjee, agrees that it could be wise to refocus attention on precious metals like gold and silver given the high prices of the Indian stock market.

According to Rahul Kalantri, vice president of commodities at Mehta Equities, investors typically devote between 10 and 15 percent of their portfolio to precious metals, with a preference for gold and less for silver. However, it is worthy to note that precious metals also have its pull back such as low income, security and storage cost, and price being influenced by mood swings within the market. Investing a large amount in these metals may also lock one into those particular metals as other classes of assets could produce better returns.

This, Banerjee said, is important to balance, and getting an appointment with a financial planner will assist in coming up with an investment plan that meets one’s risk tolerance as well as financial objectives.

Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not NiftyTrader. We advise investors to consult certified experts before making any investment decisions.