Investors would like to get bang for the buck. This gives rise to ‘behavioural finance’ issues e.g. chasing an asset class giving the highest return. Till sometime earlier, equity was recovering and gold rallying. Now, equity is correcting and gold lost some lustre. Investors are wondering, what to do. Stay calm and do not be hasty. Let’s look at three asset classes before coming to action.
Equity
Equity is growth asset and the preferred asset class to grow wealth over a long period of time. However returns are less stable than debt. As equity prices rise, valuations get stretched leading to corrections in equity market. People tend to think of 10% fall in equity prices as correction. Equity guru Warren Buffet said if you cannot tolerate a 30% price fall don’t invest in equity.
Indian equities started correcting from October 2024 on multiple issues. Valuations as measured by the price-to-earnings (P/E) multiple, were expensive. Firms’ growth rate, measured by earnings per share (EPS), slowed Foreign Portfolio Investors (FPIs) started selling. The U.S.-Iran war is the latest event to hit equity prices. Net-net, from October 2024 till date, equity market has disappointed.
Globally, India is the fastest growing major economy and is likely to stay so in the near, medium and long term. EPS growth rate, like any other metric, goes in cycles. The growth rate, which has been moderate for some time, will pick up going forward. P/E multiples, after price correction, are much better compared with September 2024. FPIs sold hugely over the last one year. In FPIs’ perspective, they have the choice of many emerging economies. However, India being the growth centre, they will return in future. However, the now available discounted prices are a better level to enter than in September 2024.
Debt
The debt component is the ‘Rahul Dravid’ of portfolio. Not much of fireworks expected; it will keep portfolio steady, when other assets are volatile to the extent of your exposure. If exposure is say 30% of the portfolio, in the wealth accumulation phase of life, it is decent. In retirement phase, it should move up to say 70%. Assuming debt investments are via debt mutual funds (MFs), then returns expectation is somewhere around the portfolio yield-to-maturity (YTM) of the fund invested in. The YTM is a data point available in the fund factsheet published on the website of MFs. If debt exposure is via bank or corporate deposits, then it is a defined return. Currently, portfolio YTMs of debt funds are moderate, a reason for sagging investor interest.
Gold
Recent comparisons of gold with equity over the last one or five years will show how gold outperformed equity. However, this happened over the last one year or so. The usual positioning of gold is, you should have an allocation of say 10% of the portfolio. Gold is known as portfolio diversifier i.e. over a long period of time, it leads to a higher Sharpe Ratio for the portfolio. The implication is, the risk-adjusted return of the portfolio, or the volatility-adjusted returns, turns better with an allocation of say 10% to gold.
Multiple experts are giving multiple views on gold. One view is, since central banks all over the world, apart from the U.S. are buying gold to diversify away from U.S. assets, gold prices would boom. The other view is, since gold prices have risen so much, there will be a correction or at least time correction. It is better to take a more balanced view given the geopolitical tensions and global investors and central banks buying supporting gold prices.
What should you do?
The allocation to equity, debt, gold, or any other asset e.g. silver/real estate is a function of your situation and not of the market. It is about risk appetite, investment objectives and investment horizon. The conventional approach is 60:30:10 between equity, debt and gold. It can be different as per your needs.
Review and rebalancing
Portfolio review is relevant irrespective of market level. To be noted, portfolio review and rebalancing are distinct. A review need not lead to rebalancing. If you have deviated from intended allocation, then rebalancing would be required. For example, if due to the correction in the equity market, allocation to equity is lower than intended, then there is reason to sell some other asset and buy equity. This would give you the benefit of buying some equity relatively cheap. If rebalancing is not needed, sail through difficult waters in time-tested boat of appropriate asset allocation.
(Joydeep Sen is a corporate trainer (financial markets) and author)
Published – April 06, 2026 06:04 am IST
