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Business News/ Markets / Stock Markets/  Nifty 50 to Sensex: Why Indian stock market outshined gold returns in FY24? Explained with 5 crucial factors

Nifty 50 to Sensex: Why Indian stock market outshined gold returns in FY24? Explained with 5 crucial factors

In FY24, MCX gold rate ascended to the tune of 13.50% whereas Nifty 50 and Sensex surged 30% and 27% respectively

Indian stock market: The small-cap index surged 62% in FY24 whereas the mid-cap index shot up to the tune of 65% in this time horizon. (Photo: Mint)Premium
Indian stock market: The small-cap index surged 62% in FY24 whereas the mid-cap index shot up to the tune of 65% in this time horizon. (Photo: Mint)

The Indian stock market has delivered stellar returns to investors in FY24, which is about to end. After the end of the last trade session on Thursday, the Nifty 50 index logged to the tune of 30 percent rise whereas the BSE Sensex shot up 27 percent this time. The Bank Nifty index surged nearly 18 percent in FY24. So, all three frontline indices of the Indian stock market registered robust growth in the financial year 2023-24. In the broad market, the small-cap index registered a nearly 62 percent rally whereas the mid-cap index skyrocketed around 65 percent in FY24. Comparing this return with the MCX gold rate in FY24, gold prices ascended nearly 13.50 percent. So, it is clear that the Indian stock market outshined gold returns in FY24 even though for most of the financial years, both equity and bullion assets were dictated by almost the same factors like the US Fed rate and US economic data. According to experts, the rise in gold prices was contained by the retail market because the retail bullion market adjusts with the future market whenever there is a sharp rise in gold prices. This is helpful for the Indian equity market as investors shift money from bullions to equities after a big rise in equity assets.

Stock market vs gold

Pointing towards the difference in nature of gold and equity as an asset, Anuj Gupta, Head of Commodity & Currency at HDFC Securities said, "Gold future prices are linked with the retail bullion market premium. Generally, retail gold prices are available at a premium of 1500 to 1800 per 10 gm against the MCX gold rates. However, when there is a sharp rise in MCX gold rate, as we witnessed last week, the retail market adjusts with the sharp rise by decreasing the premium in the retail market against the income they earn on their physical buffer stock."

"As retail gold market participants invest in future gold as well, they switch their money from gold to equities after a big rise in the future gold prices. That is why, despite having the same directional movement and the same factors dominating both equity and bullion assets' movement, stock returns outshined gold returns in FY24. However, a return of over 13 percent in a financial year speaks volumes about the importance of a diversified portfolio. One should have 10-20 percent exposure in gold and silver as it rises alarmingly in the case of any geopolitical or economic uncertainty," said Anuj Gupta of HDFC Securities.

Triggers that outshined gold against equities

The HDFC Securities said that gold remained driven by global triggers like the US Fed rate, geopolitical tension, and US economic data which had a big impact on the equities also. But, some domestic triggers help equities and these factors play a little role in the yellow metal price movement.

Speaking on the domestic triggers that helped the Indian stock market to outshine gold returns in FY24, Narinder Wadhwa, National President at CPAI said, "In FY24, several factors contributed to the Indian stock market's outperformance compared to gold returns. Economic growth prospects, GDP growth, corporate earnings growth, etc. are some of them."

Top 5 local factors

The CPAI expert listed out the following 10 domestic triggers that helped the Indian stock market outperform gold in FY24:

1] Economic growth prospects: India's economy showed signs of robust growth, driven by various sectors such as technology, consumer goods, and infrastructure. Positive economic indicators like robust GDP figures often translate to higher stock market performance.

2] Gross domestic product (GDP): India's GDP growth rate for FY24 could have been robust, potentially exceeding earlier forecasts. For instance, if the GDP growth rate reached 7% or higher, it would signal a strong economic expansion and likely bolster investor confidence in equities.

On the back of strong economic and GDP growth in India, many companies in India reported strong earnings growth, reflecting improved business performance and market sentiment. This boosted investor confidence in equities as a lucrative investment avenue.

3] Government policies: The Indian government's initiatives and policy measures aimed at promoting business growth and investment likely boosted investor sentiment in the stock market. Reforms such as tax cuts, infrastructure spending, and ease of doing business have positively impacted corporate profitability and stock market performance. Anticipation of continuity of leadership and power at the center.

4] Rise in investors' confidence: As global uncertainties persisted, investors sought higher returns, leading to a preference for equities over traditional safe-haven assets like gold. Moreover, investors are realising the need for balancing asset allocation, the relative volatility of gold compared to the potential returns offered by the stock market may have incentivized investors to allocate more capital to stocks.

5] Hedge against inflation: While gold is traditionally seen as a hedge against inflation, equities can also serve as an effective inflation hedge over the long term. In an environment of rising inflation expectations, investors may have favored stocks over gold due to their potential for capital appreciation and dividend income.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Asit Manohar
Chief Content Producer at Live Mint Digital Team
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Published: 29 Mar 2024, 02:08 PM IST
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