The past year has been marked by a sharp outperformance of gold relative to the Nifty 50, with the precious metal rising over 70%, far outpacing the 10.5% return delivered by India’s benchmark equity index.
This divergence has pushed the Nifty-gold ratio to depressed levels. Gold’s roughly 52% rally against relatively muted equity returns reflects a phase of heightened defensive positioning, said Rahul Sharma, Director and Head of Technical & Derivative Research at JM Financial Services, in an interaction with Mint.
However, market watchers see room for further adjustment in the ratio. According to Emkya Global, the Nifty-gold ratio could deteriorate further toward the 5.50–4.85 range, which represents a key technical support zone.
Importantly for equity investors, a stabilisation or reversal from this band could signal a shift in relative strength back in favour of equities, suggesting that the worst of the defensive trade may be nearing an end.
Sharma said that reversals have often occurred near extreme zones such as the 2.6–2.7 gold-to-Nifty band, coinciding with equity mean reversion. But that itself won’t be the only trigger behind a possible U-turn.
The trend is more likely to flip as growth visibility improves, supported by a tangible recovery in Q3 earnings, the transmission of last year’s reforms, and cumulative rate cuts beginning to lift risk appetite back toward equities, Sharma said.
Nifty 50 Outlook
The broader market outlook otherwise remains bullish, with certain past trends also signalling a possible trend reversal.
Emkay Global stated that since 1991, the Nifty 50 has experienced seven major bullish cycles, with most rallies lasting 40–55 months, followed by corrective phases. Post 2009, these corrections have shifted from sharp price declines to time-wise consolidations, a sign of improved structural strength.
“Consistent with this behaviour, the index has recently completed a ~1-1.5-year time correction, which historically has been followed by the resumption of a bullish trend,” said the brokerage. It sees upside potential of up to 28,500, with positional support band at 25,500-25,300.
Sharma, too, believes that from a technical lens, Nifty has established a strong demand zone around 25,000–25,500, while the January spike in India VIX reflects near-term event risk rather than structural weakness. He finds the broader trend bullish, supported by higher-timeframe structure and domestic liquidity resilience.
“We continue to favour a buy-on-dips approach, with elevated volatility persisting through January due to earnings season, the Union Budget, and evolving geopolitical cues,” opined the analyst.
Disclaimer: This story is for educational purposes only. 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.
