Gold Versus Sensex in the Long Run? Ramesh Damani Calls the Comparison ‘Nonsense’
As gold prices hover near record highs and investor chatter once again turns to safe havens, a familiar argument has resurfaced in Indian markets: does gold outperform equities over the long term? Veteran investor and BSE member Ramesh Damani has a clear and blunt answer. He calls the comparison “nonsense” and argues that it fundamentally misunderstands how equity wealth is actually created.
Speaking at Motilal Oswal’s 30th Wealth Creation Study event, Damani said the belief that gold beats the Sensex over long periods survives only because equity returns are routinely miscalculated and understated.
Why Comparing Gold and Equities on Price Alone Misses the Point
Damani’s central argument is that most comparisons between gold and equities rely solely on headline price appreciation. That approach, he says, ignores multiple return streams that equity investors benefit from over decades.
“When you buy equities, you get splits, bonuses, and dividends,” Damani said. “If you bought an ounce of gold in 1980 at $1,000 and today it is $4,000, all you have got is price appreciation.”
Gold, by its nature, offers a single source of return: changes in price. It does not generate income, undergo corporate actions, or benefit from business growth in the way equities do. Measuring equities by price charts alone strips away a large part of their true long-term performance.
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How Dividends, Splits and Bonuses Change Equity Returns
According to Damani, dividends are one of the most underestimated contributors to long-term equity returns. Over extended periods, dividends can add an additional 2–3 percentage points annually, even before considering reinvestment.
Stock splits and bonus issues further magnify gains by increasing the number of shares an investor holds, often improving liquidity and participation over time. While these actions do not change a company’s intrinsic value overnight, their compounding effect across decades can be substantial.
“Investors conveniently forget these extra wealth drivers when comparing equities with gold,” Damani noted, arguing that such omissions lead to flawed conclusions.
Why Valuation Re-Rating Is a Powerful Equity Advantage
Another factor Damani highlighted is valuation re-rating. As businesses grow, improve governance, expand market share, or move into higher-quality earnings brackets, their valuation multiples often expand.
This means equity investors benefit not just from earnings growth but also from the market assigning higher price-to-earnings ratios over time. Gold, by contrast, has no earnings, no balance sheet, and no scope for re-rating based on performance improvements.
Damani pointed out that long-term investments in quality Indian companies such as Bharat Electronics, HDFC Bank, or Dr Reddy’s Laboratories have multiplied wealth many times over through a combination of earnings growth, valuation expansion, and corporate actions.
What Long-Term Data Says About Gold and Equity Returns
To reinforce his argument, Damani referred to long-term historical data. Over roughly 150 years, gold has delivered returns of about 3 percent annually, largely preserving purchasing power but offering limited real wealth creation.
Equities, on the other hand, have delivered annual returns of around 11–12 percent even without factoring in dividends, according to Damani. When dividends are included and reinvested, the gap widens further.
The mathematics of compounding makes this difference decisive over long horizons. A few percentage points of extra annual return translate into exponential differences in wealth over 20, 30, or 40 years.
Why Gold’s Recent Rally Can Be Misleading for Investors
Damani’s comments come at a time when gold has attracted renewed attention due to geopolitical tensions, global economic uncertainty, and central bank buying. In such phases, gold often performs well as a hedge against fear and currency risk.
However, Damani cautioned against extrapolating short- or medium-term rallies into long-term investment conclusions. Gold’s role, he implied, is defensive rather than generative.
While gold can protect capital during periods of stress, it does not compound wealth in the way productive assets do. Equities represent ownership in businesses that grow, innovate, and generate cash flows over time.
Where Gold Still Fits in a Sensible Portfolio
Although critical of the “gold beats equities” narrative, Damani’s remarks do not suggest that gold has no place in a portfolio. For many investors, gold serves as insurance against extreme events, inflation shocks, or financial instability.
The key distinction is role clarity. Gold can act as a stabiliser or hedge, but equities remain the primary engine for long-term wealth creation. Confusing the two roles leads to unrealistic expectations and suboptimal asset allocation.
What Damani’s View Means for Long-Term Indian Investors
For long-term investors, especially those investing for retirement or intergenerational wealth, Damani’s message is clear. Equities should not be judged narrowly or emotionally, especially during periods when gold is in favour.
True equity returns emerge over long holding periods, where dividends, reinvestment, business growth, and valuation changes work together. Ignoring these elements creates an illusion that gold is superior, when historical evidence suggests otherwise.
The Bigger Lesson Beyond Gold Versus Sensex
At its core, Damani’s argument is less about gold and more about how investors think. Comparing assets without understanding how they generate returns leads to flawed decisions.
Gold may shine in times of uncertainty, but equities compound quietly over time. For investors focused on long-term wealth rather than short-term comfort, Damani believes the choice remains clear.
