Gold vs stock market: Why Nifty 50 outshined yellow metal in 2023 — explained with 10 reasons
Gold vs stock market: As we welcome the dawn of 2024, it is important to scrutinize how different risky assets delivered in 2023. After end of last trade session of 2023 on Friday, Nifty 50 index has given 19.42% return in YTD, BSE Sensex surged 18.10% in 2023 whereas Nifty Bank index gained around 11.80 per cent in 2023. In year-to-date (YTD) time, small-cap index skyrocketed 46.30% while mid-cap index shot up 44.70 per cent in this time.
Comparing these returns with gold, only Nifty Bank index failed to outshine the precious yellow metal as gold price on MCX has delivered around 13.55% YTD return in 2023.
According to stock market experts, Indian stock market outshined gold in 2023 as investors’ congidence went up due to improving economic conditions in India in post-Covid scenario. They said that FIIs pumped moeny even in the month of December,, which was quite exceptional. They said that investors prefered to equities over traditional safe haven asset because they anticipated higher return in a recovering economy.
Why Nifty 50 outshined gold?
On why gold failed against Indian stock market in 2023, Amit Goel, Co-Founder & Chief Global Strategist at Pace 360 said, “The Indian stock market indices, particularly the Nifty, outpaced gold in 2023 due to a confluence of pivotal triggers. Firstly, India’s sturdy GDP amid global challenges and effective inflation control measures fortified investor confidence, enhancing the market’s appeal. Secondly, sectors like pharmaceuticals, FMCG, and realty displayed robust earnings, elevating trust in Indian equities. Additionally, Foreign Institutional Investors (FIIs) turning net buyers injected crucial liquidity, boosting stock momentum.”
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Speaking on the reasons that enabled Indian stock market to outperform gold in 2023, they listed out following five triggers:
1] Robust economic recovery: “In 2023, several key triggers enabled Nifty and other Indian stock market indices to outperform gold, a traditional safe-haven asset. Firstly, the robust economic recovery post-pandemic played a crucial role. As businesses and consumer activities normalized, corporate earnings rebounded strongly, boosting investor confidence in equities,” said Sonam Srivastava, Founder & Fund Manager at Wright Research PMS.
2] FII inflow: “Another significant factor was the inflow of foreign institutional investments (FIIs) into the Indian market. Improved global liquidity conditions and the attractiveness of the Indian market, with its strong fundamentals and growth prospects, drew substantial foreign investments, particularly into equities,” Sonam Srivastava said.
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3] Strong DII inflow: “Over the last few years, India has witnessed a significant change in its capital market flows with DIIs being strong buyers which not only absorbed record FII selling but also helped market indices to reach life-time high levels. ~USD 2 Bn of SIP flows with strong retail participation had stage the stage for Indian markets to attain new heights which outshine other asset classes, specially gold,” said Vaibhav Shah, Fund Manager at Torus Oro PMS.
4] Lack-lustre growth in China: “Contrary to expectation of post-covid pullback, China’s growth remained weak leading to flight of capital to other markets, with India being one of the beneficiaries. Also with growth issues with one of the largest gold buyer, gold prices remained depressed on account of growth slowdown expectation,” said Shah.
5] India’s Amrit Kal moment: Vaibhav Shah of Torus Oro PMS went on to add that India is expected to be one of the fastest growing economy at a time when other developed economies are struggling with growth. Focus on Atmanirbhar bharat with an impetus from China+1 story, earning expectations from Indian companies are expected to grow leading to increased participation and better performance of the market.
6] Pro-active RBI: “The Reserve Bank of India’s pause on interest rate hikes in late 2023 signaled confidence, making equities more attractive than gold. Moreover, RBI’s accommodative policies and liquidity injections alleviated credit concerns, bolstering market sentiment,” said Amit Goel of Pace 360.
7] Pro-active government: “Government policies and reforms, aimed at stimulating growth and enhancing ease of doing business, positively impacted various sectors, driving market growth. The government’s focus on infrastructure development, digitalization, and manufacturing also contributed to this positive sentiment,” said Sonam Srivastava of Wright Research PMS.
8] Recovery in Indian economy: “The relative underperformance of gold, often seen as a hedge against inflation and economic uncertainties, can be attributed to the growing investor appetite for riskier assets like equities, driven by the anticipation of higher returns in a recovering economy,” said Sonam Srivastava.
Also Read: Outlook 2024: Can gold maintain its shine next year? Here’s what experts say
9] Dalal Street’s adaptability: Sonam went on to add that the Indian stock market’s resilience to global economic challenges and its ability to adapt to changing market conditions played a key role in attracting investors, further contributing to its outperformance compared to gold in 2023.
10] Strong quarterly earnings: “Sectors like pharmaceuticals, FMCG, and realty displayed robust earnings, elevating trust in Indian equities,” said Amit Goel of Pace 360.
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 taking any investment decision.
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