Expert view: Market valuation looks stretched; maintain a 5–10% allocation to gold, says Rishabh Nahar of Qode Advisors

Mumbai, June 4, 2025 — As Indian equity benchmarks hover near all-time highs amid robust domestic liquidity and resilient economic data, a note of caution has emerged from seasoned market observers. Rishabh Nahar, Director at Qode Advisors, has flagged concerns about overstretched market valuations and advised investors to maintain a diversified portfolio with a prudent 5–10% allocation to gold.

Valuation Risks Rise as Indices Test Highs

The Nifty 50 and Sensex have posted remarkable gains in recent months, driven by foreign institutional inflows, a stable political outlook, and robust quarterly earnings. However, Nahar cautions that current valuation metrics are veering into expensive territory.

“The Nifty is trading at a forward P/E of around 21.5x, which is significantly above its 10-year average,” Nahar told Market Insight. “While the macro backdrop is supportive, the margin of safety is diminishing.”

He added that while Indian equities remain a structural long-term story, investors need to be more selective and avoid complacency at current levels.

Why Gold Deserves a Place in Portfolios

In the face of elevated equity valuations and geopolitical uncertainties, gold continues to shine as a strategic hedge. Nahar recommends maintaining a 5–10% exposure to gold across investment portfolios.

“Gold is not just a hedge against inflation or currency risk; it also performs well in periods of risk-off sentiment,” Nahar explained. “Given the tight valuations in equity markets globally and uncertainties such as central bank rate pivots and Middle East tensions, gold acts as a useful stabilizer.”

Spot gold has risen nearly 12% year-to-date, buoyed by central bank buying, a weaker dollar, and strong retail demand, particularly in Asia.

Mixed Signals from Global and Domestic Data

The Indian economy remains robust, with Q4 FY25 GDP expanding by 6.8%, supported by manufacturing and construction. Meanwhile, US inflation remains sticky, casting doubt on the pace of Fed rate cuts. These contrasting signals are contributing to the uncertain investment climate.

“Domestic consumption is healthy, and rural demand is reviving, but global headwinds remain,” said Nahar. “Markets may be underestimating the lag effect of high interest rates.”

Additionally, recent volatility in crude oil prices and currency fluctuations has made global investors cautious, further justifying the need for defensive assets like gold.

Retail Participation and Momentum Plays Could Distort Fundamentals

One area of concern, according to Nahar, is the surge in retail participation and the speculative tone in mid- and small-cap segments.

“Retail investors have been chasing momentum in thematic and sectoral stories, sometimes ignoring fundamentals,” he said. “This could lead to sharp corrections if market sentiment turns.”

He advised investors to reassess their risk tolerance and avoid overexposure to volatile stocks that have rallied without earnings support.

Investor Outlook: Time for Portfolio Rebalancing

Given the current dynamics, Nahar advocates a cautious yet constructive investment approach. Investors should resist the urge to chase returns and instead focus on diversification and risk management.

“We’re not bearish, but we believe this is a time for prudence,” he said. “Review your asset allocation, rebalance if needed, and make sure gold is part of your portfolio.”

While not a call to exit equities, the message is clear: the easy money has been made, and navigating the next phase requires a balanced strategy.

Analyst Consensus Echoes Caution

Nahar's views align with other prominent voices in the industry. Several brokerage firms have issued notes recommending partial profit booking in overvalued segments and increasing allocation to defensive assets.

Kotak Institutional Equities, for instance, recently warned that mid-cap valuations are unsustainable unless supported by significant earnings growth. Similarly, HDFC Securities has suggested gold could outperform equities in H2 2025 if global volatility persists.

With Indian markets at elevated levels and global uncertainty looming, diversification remains a cornerstone of smart investing. As Rishabh Nahar aptly points out, investors would be wise to maintain discipline, stay diversified, and include gold as an essential buffer in their portfolios.