Gold underperforms flagship Sensex, Nifty in FY24

In the last three months, FIIs invested $1.1 billion in the Indian market, while DIIs invested $13.1 billion during the same period. Additionally, SIP flow for Feb’24 surpassed Rs 19,000 crore for the first time.

India's flagship Sensex and Nifty indices outperformed gold in the fiscal year 2024, driven by a sustained rally in local equities amidst improved macroeconomic conditions. The rally was broad-based and supported by consistent buying from both foreign and domestic investors.

In FY24, Sensex and Nifty surged around 25 percent and 29 percent respectively, while MCX Gold and international gold saw gains of 12.5 percent and 13.2 percent, respectively. This marks the seventh consecutive year of positive returns for MCX gold and the fourth consecutive year for international gold.

According to Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, gold has been lagging equities due to India's robust economic growth and growing interest in financial products. Investors are shifting from physical assets such as gold and real estate to financial assets such as shares because of the massive rally in the stock market.

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Shares are more volatile compared to gold, but the higher returns offered by equities are prompting investors to allocate more towards them.

Investors, both domestic and foreign, have displayed strong confidence in India's long-term growth story. In FY24, both FIIs and DIIs invested $25 billion each in the Indian equity market, marking a significant turnaround from previous years. FIIs, after being net sellers in FY22 and FY23, regained confidence in FY24, bolstered by the ruling Bharatiya Janata Party's electoral success in key states.

However, in the last three months, FIIs invested $1.1 billion in the Indian market, while DIIs invested $13.1 billion during the same period. Additionally, SIP flow for Feb’24 surpassed Rs 19,000 crore for the first time.

International gold and MCX Gold reached record high due to expectations of a Federal Reserve interest rate cut and steady demand from central banks. International gold peaked at $2,304.96 per ounce before stabilizing following Fed Chair Jerome Powell's indication of potential rate cuts later this year. Silver also rose to its highest level in almost three years before retracing slightly. Lower interest rates generally benefit non-yielding precious metals.

Gold has surged since mid-February, hitting record highs each day this week, as investors anticipate gains from the Fed's policy shift. Geopolitical tensions in the Middle East and Ukraine, along with central bank purchases, have further supported gold prices. Despite this upward trend, some analysts are puzzled by gold's rise, especially as real US interest rates remain high, typically acting as a deterrent for gold.

Indian markets and gold are both at record highs, indicating abundant liquidity in the economy. With current liquidity conditions, analysts foresee gold will edge over other asset classes in the second half of 2024, serving as a safe haven amidst potential US market slowdowns. Gold prices are closely tied to bond yields, and any decrease in yields is expected to bolster gold prices. With ongoing macroeconomic shifts, gold will remain a favored asset and attract investments as a reliable hedge against other classes, analysts added. Axis Securities in its latest note said it continues its Neutral stance on Gold and recommends a ‘Buy-on-Dips’ strategy.

"Gold is globally preferred by investors during crises due to its safe-haven appeal. In 2023, gold delivered a return of nearly 14 percent, but Nifty outperformed gold by six percent due to a strong economy, higher GDP, contained inflation despite high interest rates, record GST collections, pro-business policies, earnings growth, and political stability. Gold prices surged to a lifetime high of $2300, driven by expectations of multiple rate cuts in 2024 after Powell's speech and geopolitical tensions," said Rajesh Palviya, SVP - Technical and Derivatives Research.

With major elections due in the US and India in 2024 leading to higher volatility and currency risks, gold has become a preferred investment asset for global investors, including major central banks and RBI. Expectations are for gold prices to rise further to $2450 this year and potentially outperform Nifty, depending on the outcome of the Lok Sabha elections, Palviya added.

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