Stock market returns over 3-times more than gold, says Sebi chief UK Sinha

New Delhi: Pitching for a greater share of household savings in equity market, regulator Sebi’s chief UK Sinha has said stocks have consistently given annual returns of more than 15% on a long-term basis.

In contrast, the returns on gold have not been more than 5-6% over a longer time horizon of 15-20 years, Sinha said.

At the same time, the equity market also helps in the growth of the Indian economy as the money invested in equities is utilised for infrastructure-building and for the economic prosperity of the country, Sinha told PTI in an interview.

The Securities and Exchange Board of India (Sebi) Chairman also said a greater share of household savings has begun coming into the equity market and the ongoing rout in gold prices and a long-continuing weakness in the real estate market will make equities much more attractive.

“It will happen for sure,” Sinha said when asked whether the falling gold prices and the weakness in the realty market would lead to an imminent re-balancing of household savings with greater allocation for financial market products.

“People with surplus funds do look for alternative investment channels, and gold has been an important one for years. But gold can be only a small portion and the entire amount should not go there.

“Especially now, when gold prices are not that optimistic, there are all the chances that people would look for other avenues, and equity market has consistently given very good returns on a long-term basis. That is the beauty of this market,” Sinha said.

Explaining the trends in gold and equity market, Sinha said, “If you look at gold, on a long-term basis, the returns would not be more than 5-6% over a 15-20 years time period.

“Yes, in a short period, it can be very volatile and it can also give un-imaginable returns. But Indian equity market, on a long-term basis, has given returns of more than 15% compounded rate year after year.”

Gold prices have fallen sharply in recent months and recently touched their lowest level in about four years in India. The fall in global prices has been even sharper and the yellow metal has touched its lowest level in six years.

The latest data from the World Gold Council also show that gold demand was down 25% in the second quarter of 2015. The decline in the investment demand for gold has been even sharper at 30%.

In comparison, the stock market benchmark Sensex has risen by nearly 2,000 points in the past one year although the markets have been volatile for past couple of quarters on weak corporate earnings and negative global cues. The Sensex had rallied as much as 30 per cent during 2014.