For all those expatriate Indians who thought that given the seemingly unending equity market boom in India, stocks are where the action is - think again.
Gold too is a contender. And notwithstanding the recent corrective knocks it has taken, there is no dearth of those who bet on its being the asset class likeliest to outperform over the longer term.
The value of gold held by Indian households is more than double the market value of the equity stocks they own. At the beginning of this financial year, gold holdings in India exceeded $200 billion, which is almost a third of the country's gross domestic product (GDP).
Notably, this is two-andhalf times the current estimated equity holding of $80 billion. While the share of gold in household savings declined between 2000 and 2002 to 5 per cent, it has been on the rise once again during the past three years and stood at around 10 per cent during the quarter ended March 2006.
So, is all well? Not if one were to consider that instead of investing the annual savings predominantly in gold, if Indians were to invest this in productive business assets, the country's annual GDP growth would be higher by about 0.3-0.4 per cent.
Traditionally, gold has been a good safety net for Indian households. However, the sharp rise in gold imports over the past three years in a scenario when the rupee has started appreciating, inflation is relatively low, banking facilities are improving and economic confidence has picked up is surprising.
India's share of global gold demand is about one-and-half times that of the US, though its GDP is only 1/20th that of the US. With its high rate of gold consumption, India accounts for 18 per cent of the annual global gold demand, while its share of global GDP on the nominal dollar GDP is only 1.6 per cent.
According to the World Gold Council (WGC) estimates, Indian households own about 15,000 tonnes of gold, accounting for about 10 per cent of the worldwide stock. At current market values, gold accounts for 10-15 per cent of the Indian household balance sheet.
The real question is why isn't the average Indian household impressed by other financial assets? There is a school of thought that points towards gaps in broader policy framework, including the government's expenditure mix.
The writer heads Lotus Knowlwealth.