EGRs, gold ETFs crucial for asset protection as crude pressures weigh on economy: Axis Direct analyst
Mumbai, May 28
India's domestic economic outlook remains tightly bound to volatile global energy lines, making paper gold instruments a vital hedge for portfolio diversification over the next decade, according to Senior Research Analyst-Commodities at Axis Direct.
Talking to ANI, the senior analyst Deveya Gaglani has warned that the ongoing geopolitical impasse in West Asia continues to weigh heavily on India's macroeconomic sentiment.
With international crude benchmarks hovering around USD 100 per barrel due to the conflict between Iran, Israel, and the US, India's foreign exchange reserves are facing rapid depletion.
"Unless and until there is a clear resolution and the crude oil prices goes down, I don't see that the Indian market will, Indian economy will perform well," Gaglani stated. "So, I feel that to protect the asset and for diversifying the portfolio, gold ETF and the gold EGR will play a very crucial role in the Indian economy in the coming five to 10 years".
Gaglani highlighted that Indian households collectively hold an estimated USD 3 trillion worth of gold, a massive pool of capital that currently sits passively in lockers without generating any yields.
To curb expensive physical gold imports, which accounted for over USD 70 billion last year and represent 10% to 11% of India's total import bill, Gaglani urged the government to incentivize investors.
"If this gold is like channelized properly into the system by some good incentive schemes... then the Indian gold will be back into the system," he said, suggesting that the reintroduction of the Sovereign Gold Bond (SGB) framework would help stabilize the sharply depreciating rupee.
As the Reserve Bank of India steadily diversifies its foreign reserves away from the US dollar and into bullion as a structural inflation hedge, retail consumers are similarly shifting from jewelry toward gold coins.
Gaglani strongly endorsed digital and paper gold alternatives to drive this asset transition. "If we talk about the financial products like gold ETF and the EGR, so it will help transform gold from a passive store of wealth into a productive financial asset," Gaglani explained, noting that these instruments solve localized pricing discrepancies by offering a standard market rate.
Differentiating between the two instruments, Gaglani pointed out that the Electronic Gold Receipt (EGR) launched by the NSE offers distinct structural benefits over standard Exchange Traded Funds (ETFs).
"In gold ETF, it is managed by the fund and it is backed by gold. But in EGR, the difference is that you have a direct ownership of gold," he concluded, adding that EGRs boasts an extended trading window until 11:30 PM and eliminates the burden of expense ratios.
— ANI
Reader Comments
My grandmother always said "Gold is the only thing that never lets you down" - and she was right! I've been investing in gold ETFs for the last 3 years and it's given consistent returns even when the stock market was volatile. The idea of EGRs giving direct ownership without storage hassles is brilliant. But I hope the SEBI ensures proper transparency in these products. Indian households sitting on $3 trillion worth of gold is mind-boggling - that's more than our GDP!
This analyst is spot on about one thing: channeling idle gold into the system is the need of the hour. But I'm skeptical about EGRs - how many Indians actually understand the difference between ETF and EGR? We need better financial literacy first. Also, the government should reduce import duties on gold to curb smuggling. Right now, the duty is 15%, which is why people smuggle gold from Dubai. Fix that first, then talk about financial products.
Finally, an analyst who understands the common man's perspective! My family has been buying gold coins for years but the making charges and purity issues are a headache. EGRs with direct ownership and no expense ratio sounds like a game-changer. But will it be liquid enough? Can I sell it at 11:30 PM like they claim? If yes, then I'm all in! The RBI diversifying into gold also gives me confidence. India should have been buying gold years ago instead of piling up dollars.
Interesting perspective from an Indian context. Back in the US, we don't have this cultural affinity for gold, but I can see why it makes sense for India given the import bill pressure. The $70 billion gold import figure is staggering - that's bigger than many countries' entire exports. Digital gold instruments seem like a smart way to monetize that wealth without adding to the trade deficit. The extended trading window until 11:30 PM is also very consumer-friendly.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.