The Nifty 50–gold ratio, which measures the relative movement of the domestic stock market and gold, has narrowed to 1.6, hinting that the Indian equities may be oversold at the current juncture and perhaps poised for a rebound.
Domestic spot gold prices are up 13% year-to-date compared to a 6% fall in equity benchmark Nifty 50.
Based on the Nifty’s previous close of 24,584 and domestic spot gold prices of ₹1,50,208 per 10 grams on August 10, the Nifty-to-gold ratio has slipped further to 1.6. Historically, whenever the ratio has fallen below 2.5, the benchmark index has tended to witness a healthy upside.
What does the Nifty-gold ratio signal?
The current Nifty-gold ratio at 1.6 has caught experts’ attention, as they point out that historically, when this ratio falls below 2, equities have often gone on to outperform gold, while higher levels have generally favoured gold.
The current low ratio shows how strongly gold has performed compared with equities, supported by safe-haven demand and increased expectations of a low-interest-rate scenario.
On the other hand, the Nifty has remained in a relatively narrow range due to geopolitical risks, foreign capital outflows, and earnings growth-valuation mismatch.
However, experts say this ratio is better viewed as a measure of relative performance rather than a valuation signal.
“History suggests that such extreme levels may favour equities, but it is not a timing indicator,” said Vishnu Kant Upadhyay, AVP -Research and Advisory at Master Capital Services.
While it may signal that the yellow metal may see some profit booking and the equity benchmark may see an uptrend in the near future, it looks more like a rotation than a reversal.
Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities, said the Nifty-to-gold ratio has declined over the last two years primarily because of the decline witnessed in equities during the period under consideration.
Now, based on the ratio alone, Sheth believes that equities are poised for a comeback from current levels.
However, he adds that this doesn’t mean that gold will fall from the current levels; it means that equities have the chance to outperform gold from the current levels.
“Going forward, we may see the Nifty-to-gold ratio likely consolidate at the current levels as the Nifty, as well as the gold, rally upwards. So, in that case, the ratio may stay stagnant in a range for a few days and months,” said Sheth.
“The current Nifty-to-gold ratio indicates capital priced for fear, hard assets over earning assets. Readings at such extremes have historically marked the late innings of that preference, resolving through multi-year phases of equity outperformance,” said Harshal Dasani, Business Head at INVAsset PMS.
Indian stock market outlook
Risk appetite of investors is improving due to factors like healthy Q1FY27 revenue growth, fresh buying in the IT sector, strength in the broader market, easing tensions in West Asia, and FPIs turning net buyers.
For equities, Upadhyay believes strong core-sector earnings, FPI buying, comfortable large-cap valuations and wider market participation support a move towards 25,000–25,200 on the Nifty. Any weakness due to West Asia tensions could offer fresh buying opportunities from lower levels.
Dasani’s medium-term outlook for equities is constructive, with the flow inflection and earnings breadth arguing the Nifty does the heavier lifting in the ratio’s repair, and dips remaining deployment opportunities.
Dasani pointed out that the Nifty-to-gold ratio reversion does not require gold to fall; it requires the Nifty to rise faster, and that is precisely the setup now visible.
“FII selling has collapsed 95% from March, SIPs have been above ₹31,000 crore for five straight months, the smallcap index is at new highs confirming breadth, and crude’s retreat has removed the macro discount,” said Dasani.
Gold price outlook
Weakening expectations of a US interest rate hike in September, and ongoing geopolitical risks keep the medium-term outlook positive for gold.
Upadhyay believes MCX gold could move towards ₹1,60,000, with rupee weakness providing additional support.
“The current Nifty-gold ratio of 1.6 favours equities on a relative basis, but does not suggest exiting gold. Staying invested in both asset classes remains the better strategy,” said Upadhyay.
Dasani is also positive about gold, as he said that $39.9 trillion in US debt, nearly a trillion dollars in annual interest, and central banks buying at a record pace, with China on a 20-month streak, do not reverse on a ratio.
“We expect consolidation and tactical profit-booking phases in gold after its run, with the $3,900 to $4,000 zone as the accumulation band, rather than a bear turn. The Nifty-gold ratio is not telling investors to leave gold. It is telling them the next big move belongs to equities, and the correct response is rebalancing at the margin, not rotation in full,” said Dasani.
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Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
