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Indians have become heavy investors in gold after a downturn in local equities, with a boom in exchange traded funds driving purchases as the commodity’s price hits record highs.
Net inflows to gold ETFs in India reached a record Rs37.5bn ($437mn) in January and Rs19.8bn in February as the metal touched all-time highs, according to the Association of Mutual Funds in India.
Falling share prices have pushed Indians to an asset they have long been fond of, said analysts, with ETFs making it easier for retail traders to invest.
“Historically Indians have had an affinity for gold,” said Vishal Jain, chief executive of Zerodha Asset Management in Bengaluru, which offers a gold ETF. “A lot of people are now moving towards gold ETFs for investment purposes.”
Although India’s gold ETF holdings are just 2 per cent of the global total, the country is the world’s second-largest investor of the commodity after China, according to the World Gold Council.
“There has been a shift from gold jewellery into pure investments,” said Kavita Chacko, the WGC’s India research head.
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Investors have been “redirecting free cash flow towards gold ETFs” amid “ongoing global and domestic economic and policy uncertainty”, the WGC wrote in its latest India report.
The demand contrasts with flows in the local stock market, where the Nifty 50 index is down 0.5 per cent year to date, while gold has been one of the best-performing asset classes, with year-to-date gains of 16 per cent.
“The weakness in Indian equities” has been “the big reason for investors rotating into ETFs”, said Harshal Barot, a senior research consultant at Metals Focus in Mumbai.
Gold prices soared to record highs this month, breaching $3,000 a troy ounce as global investors increased holdings over fears that a trade war by US President Donald Trump might slow global growth and stoke inflation.
In India, cumulative assets under management of gold ETFs have nearly doubled year on year and accounted for nearly 1 per cent of mutual funds’ AUM at the end of February, up from 0.5 per cent a year ago, said the WGC. In Mumbai, freeways are plastered with advertisements for gold ETFs.
Indian households, especially in semiurban and rural areas, already hold a significant part of their savings in the form of gold jewellery and last year increased their investment in bars and coins.
Indians now own about 25,000 tonnes of gold and have been cashing in on the rally by taking out loans from banks, using their holdings as collateral while prices remain elevated.
Gold-backed loans grew 74.4 per cent between April 2024 and February this year, up from 14 per cent for the same period last year, according to Reserve Bank of India data.
“When there is economic distress, you see gold lending going up,” said Chirag Sheth, a consultant at Metals Focus.
Analysts said the relatively simple process of applying for a gold-backed loan was spurring borrowing for consumption amid an economic slowdown. The phenomenon has caught the attention of regulators, who are concerned that a fall in gold prices could lead to margin calls.
The sky-high prices have eased some demand for physical gold, especially jewellery, which accounts for nearly 70 per cent of consumer demand for the commodity in India.
Imports of the metal fell 63 per cent year on year in February to $2.3bn, their lowest level since March 2024, according to the WGC. It marked a third consecutive month of decline and a steep drop from November’s highs, suggesting demand has dropped.
Analysts said the surge in gold ETFs, despite imports falling, could be explained by investors rotating out of stocks, the lack of new sovereign gold bond issuance by the Indian government and increased demand for multi-asset funds that include gold ETFs.
“The price momentum and the bullish sentiments on gold have been supporting investment interest and demand for ETFs,” said Chacko.
Additional reporting by Veena Venugopal in New Delhi and data visualisation by Haohsiang Ko