The fact that the government’s cost to raise money by issuing these bonds has been upwards of 13% is significant. If the government could raise funds at a 7% interest rate, it would be almost like shooting themselves in the foot to opt for raising money at 13%. When the Sovereign Gold Bonds (SGB) were initially issued, they served an essential purpose. At that time, India’s current account was in dire straits, and there were concerns about the depletion of dollar reserves due to gold purchases. However, that situation has now been addressed. India currently has robust reserves, and the duties on gold have also decreased from 15% to 6%.
Given this context, it doesn’t seem to be in the best interest of the RBI or the government to issue more SGBs. Of course, from an investor’s perspective, it was a fantastic product and continues to be so. It’s an incredible investment opportunity where you get the returns of gold plus interest on it, along with tax-free benefits.
Today, we will compare the different types of gold, their tax implications, the returns from these recent SGB series, and discuss which type of gold one should consider buying in general. I’ll do a small session
Market Overview
As for where the market is headed, it’s not exactly taking off, but it’s still ending at the upper edge of the last four sessions with a very small price range. The high and low of the day were extremely tight, which usually is a good sign that volatility is decreasing. We seem to be on the cusp of a decisive move that could get the market rolling again. Although it’s not quite there yet, it does appear that we’re edging towards that point. Importantly, we’re not slipping down, which is a positive sign.
If we look at the damage done in August, we’re now back to where we were in mid-July. From a loss perspective, the last four or five sessions of downswing have erased about three weeks’ worth of gains. However, we’re now trying to make up for that. Nifty’s 1% gain today is more than welcome.
Nifty Next 50
The Nifty Next 50 also had a doji pattern today, opening high and closing near the same level at 72,700, gradually inching up into the gap with a 1.24% increase. Though still a bit edgy, it seems that many of the worries are behind us for now.
Nifty Mid and Small Cap
Mid caps, same story. Small candle, slightly up from yesterday, 0.76%. Gradually into the gap, but not really shining there. Small caps, much lesser than mid caps—0.64%—staying well below this average and well below yesterday’s high also. So it is tentative, yet it is optimistic at this point of time.
Nifty Bank Overview
Bank Nifty had a nice gap up, stayed up, closed much higher than yesterday, 0.65% gain. But again, this is all within the realm of the last four or five sessions’ range. All of these indices—nothing has really gone out beyond the range of the first two days. So from that perspective, still tentative to some extent.
Nifty Heatmap
Today’s heat map was nicely green. Infosys recovering after yesterday’s drubbing. State Bank of India nicely up 2%. Reliance, up almost 2%. Tata Motors, Mahindra & Mahindra, nicely up two and a half percent. And you also had some good gains in Asian Paints, Nestle, and Bajaj Finserv. Sriram Transport also gained 3% right here. And I think Hero Motors also moved up a percent. TVS Motors moved up 5%.
The Nifty Next 50 heat map had some fantastic gainers. So Trent, post its result—the results were blockbuster results—moved up 11%. And Trent has been a phenomenal multibagger in the last few years. And on top of that huge base, it continues to churn up. Naukri up 4.3%. Zydus Life also good results, up 1.6%. Canara Bank, Bank of Baroda—all the PSU banks doing well, along with some public sector enterprise stocks—HAL, BEL, PFC, REC, etc. Mother Sumi, Siemens also moved up gradually today.
Sectoral Overview
Sectorally, all sectors were in the green, with FMCG, pharma, and banking being the least gainers, while PSU banks led the pack. Autos and real estate followed closely behind. This consistent move in higher-risk sectors suggests a hopeful recovery, though it’s still tentative.Looking at PSU banks, they were up by 1.92%, but still stuck in a range that began in February.
Sectors of the Day
Nifty Auto Index
Autos tried to move into this gap, and see, gap movements normally should be strong enough so that the gap gets closed very quickly. It didn’t seem like that today, so there is still more strength needed for either this gap to cover. Or maybe we are fooling ourselves by thinking that the market has started to go up and it will just plonk down. I don’t know the answer to that, but the next few sessions should clear this picture.
Stocks of the Day
Ola Electric
Ola Electric Mobility Limited running and racing from the very start. Rs76 open closing at Rs91 hits 20% circuit. The listing was poor, but you know, the punters really decided to have a good go at it today.
KFintech was another stock which was crazily up—18.3% up today, and for the week also. It has gone up quite remarkably from Rs840 to Rs1000 here. So a very nice chart. Virtually no drops in this chart since 2023 beginning for this stock.
Story of the Day : Should the RBI have cut rates?
Coming back to Sovereign Gold Bonds, I believe that SGBs might not see further tranches. It seems impractical for the government to raise money at such high costs when cheaper options are available. However, SGBs remain an incredible investment for individuals, offering returns on gold plus interest with tax benefits. Series one of the sovereign gold bonds, issued in July 2016, was just redeemed, providing an 11.96% annual return, including the coupon, and no tax on the capital value at maturity. Compared to other gold investments, such as gold ETFs, which returned 9.35% annually, or physical gold with 10.1%, SGBs outperformed due to the added coupon.
Physical gold remains at the top of the hierarchy for those who prioritize ownership without counterparty risk. Despite the lower returns due to storage charges and GST, it is the safest form of holding gold. However, for purely investment purposes, gold jewelry is the least efficient due to making charges and other associated costs.
In summary, while different forms of gold investments offer varying benefits, SGBs stand out for their overall returns and safety. However, physical gold remains the best option for those concerned about counterparty risk.
