Nifty-Gold Ratio Hits Depressed Levels as Gold Outperforms Equities by Wide Margin
The Nifty-gold ratio has reached depressed levels as gold surged 70% over the past year versus the Nifty 50's 10.5% return, reflecting defensive investor positioning. Technical analysis suggests the ratio could decline further to 5.50-4.85 range before potential reversal, with analysts maintaining bullish equity outlook supported by strong demand zones around 25,000-25,500 levels and expecting continued volatility through January earnings and budget season.
*this image is generated using AI for illustrative purposes only.
The Indian equity market has witnessed a stark divergence in performance over the past year, with gold significantly outpacing the benchmark Nifty 50 index. This performance gap has pushed the Nifty-gold ratio to notably depressed levels, prompting market analysts to examine potential implications for equity investors.
Performance Divergence Creates Technical Imbalance
The precious metal has delivered exceptional returns over the past year, rising over 70% compared to the Nifty 50's more modest 10.5% gain. This substantial performance gap reflects what analysts describe as a phase of heightened defensive positioning among investors.
| Asset Class | Performance | Relative Strength |
|---|---|---|
| Gold | +70% | Strong outperformance |
| Nifty 50 | +10.5% | Underperformance |
| Performance Gap | 59.5 percentage points | Defensive positioning |
According to Rahul Sharma, Director and Head of Technical & Derivative Research at JM Financial Services, gold's roughly 52% rally against relatively muted equity returns demonstrates the current defensive market sentiment.
Technical Analysis Points to Further Ratio Decline
Market analysts anticipate potential further adjustment in the Nifty-gold ratio. Emkya Global's technical analysis suggests the ratio could deteriorate toward the 5.50–4.85 range, which represents a key technical support zone for equity investors.
A stabilization or reversal from this technical band could signal a significant shift in relative strength back toward equities, potentially indicating that the defensive trade phase may be approaching its end. Historical analysis shows that reversals have often occurred near extreme zones, particularly around the 2.6–2.7 gold-to-Nifty band, coinciding with equity mean reversion patterns.
Factors Supporting Potential Trend Reversal
Sharma identifies several catalysts that could drive a trend reversal beyond technical levels alone:
- Improved growth visibility supported by tangible Q3 earnings recovery
- Transmission effects from previous year's economic reforms
- Cumulative impact of rate cuts beginning to enhance risk appetite toward equities
These fundamental factors could work in conjunction with technical support levels to create conditions favorable for equity market recovery.
Nifty 50 Outlook Remains Constructive
Despite the current ratio imbalance, market analysts maintain a bullish outlook for Indian equities. Emkay Global's historical analysis reveals that since 1991, the Nifty 50 has experienced seven major bullish cycles, with most rallies lasting 40–55 months followed by corrective phases.
| Historical Pattern | Duration | Current Status |
|---|---|---|
| Bullish Cycles | 40-55 months typically | Recent completion |
| Correction Phase | 1-1.5 years | Recently completed |
| Upside Target | 28,500 potential | Technical projection |
| Support Band | 25,500-25,300 | Positional support |
Post-2009 market behavior shows corrections have shifted from sharp price declines to time-wise consolidations, indicating improved structural strength in Indian markets.
Technical Support and Market Strategy
From a technical perspective, the Nifty has established a strong demand zone around the 25,000–25,500 level. The January spike in India VIX reflects near-term event risk rather than structural market weakness, according to Sharma's analysis.
Analysts recommend a buy-on-dips approach, acknowledging that elevated volatility is likely to persist through January due to multiple market catalysts including earnings season, Union Budget announcements, and evolving geopolitical developments.
16
