Both the Sensex and gold prices witnessed a healthy competition, reaching the 20,000 mark recently. Are stocks a better investment option in 2011? Will the Sensex touch the magic figure of 25,000 next year? And will under-performers like Reliance lead the bull-run in 2011?

The global financial crisis and the ensuing slowdown have shown that one should have a balanced exposure to all asset classes in the portfolio. Hence, the question, whether equities will outperform gold or vice versa in 2011, is futile. Equities have historically outperformed gold over a long- term horizon and are the best bet to get inflation beating returns. Gold is mainly an insurance against currency devaluation. It is not an investment as it does not have any productive use and does not generate any returns like a business.
At current levels, markets seem to be trading at more than 19 times the expected FY11 EPS and more than 16 times the expected FY12 EPS. Clearly they seem to be pricing in earnings till FY12. They should allow the earnings to catch up. This can happen in two ways, either a price correction or a time correction. In either case, though the markets might scale the 21,000 mark in the near term, led by strong liquidity flows, the 25,000 mark seems a tad improbable in 2011.
Stocks such as Reliance Industries that have been under-performing till date, are likely to outperform as investor preference shifts with time. Reliance is likely to benefit particularly from an expected rise in prices of commodities such as oil and natural gas.