As risks and returns shift across investment avenues, not investing may be the biggest risk of all

This time, expectations seem somewhat subdued, with creases of worry visible all around. After touching an all-time high in September 2024, the market’s benchmark indices—the 30-scrip Sensex and the 50-stock Nifty—have stayed below that peak now for 13 months.

One fundamental driver of market growth, the financial performance of India Inc, makes little space for optimism. Corporate earnings have been lacklustre and are widely predicted to remain so over the next few quarters; in the face of this dire outlook, inflated stock prices have discouraged fresh buying.

The other driver of bullish trends is liquidity. Large flows of money into shares can lead a rally with or without earnings support, but domestic suppliers of it—mutual funds and other financial institutions—have not been buying enough to outweigh the selling pressure of foreign portfolio investors pulling out.

This Diwali may therefore be a good time to not just go value hunting within the broader market, but also explore other asset classes for rewarding returns.

This is easier said than done. Almost all categories seem overpriced after bull runs in recent months.

Take bullion: global uncertainty and a surge in demand for safe-haven stores of value have sent gold and silver prices rocketing. In fact, the 2025 spike in gold so far may be its steepest in nearly half a century. In real estate too, prices have seen a sharp rise, especially for premium property and partially as a result of the post-covid equity boom that ended 13 months ago.

Another asset class is fixed income, but low interest rates and high taxation slabs have rendered net returns on government bonds or bank fixed deposits negligible (and in some cases, even negative).

All this has driven some retail investors into Bitcoin, a crypto token whose gains over the past year have been spectacular. While it could diversify a portfolio, it has no intrinsic worth, its volatility attracts punters—out to ‘buy the dips, sell the blips’—and its ascent this year looks largely panic-led, like gold’s.

This fabled crypto is off its early-October peak and can be counted upon to yo-yo wildly as usual. If we go by the claim that value lies in the beholder’s eye, then perhaps art should get a look-in too. Alas, even artworks these days seem inflated by a broad scramble for valuables.

As for the global context, notable alerts have been sounded of an AI bubble in the US that might burst and batter assorted assets. So, unless we harden our nerves for greater risk, what should we invest in?

At this juncture, household investors may be best off investing in mutual funds, especially via systematic investment plans. If their horizon is sufficiently long and holdings well diversified, even the most violent episodes of asset volatility would eventually even out in their favour.

A quibble here is the risk of fund managers trying to prop up indices in the hope of doing their bit to dispel an air of gloom about the market. On this, the vigil held by the market regulator over any crisis build-up would be key.

Of course, India’s recent GST reset could brighten India Inc’s growth prospects, lift its earnings path and revive the stock market. Expect eyes to stay peeled for signs of it.