Gold’s 13% uptick beats Nifty’s H1CY24 gains. Who could hold the edge in second half?

Gold has outperformed Nifty over the first half of 2024, delivering 13.37% returns compared to the 50-stock index which has yielded 10.5% in the first six months. In rupee terms, the MCX gold contract has gained nearly Rs 8,400 per 10 grams while Sensex surged 2,279 points at the end of June 30, 2024.

Summing up the performance of Nifty in the first six months, Aamar Deo Singh, Senior Vice President-Equity, Commodity & Currency at Angel One said that it was a very eventful period, with bouts of heightened volatility, though rewarding investors who displayed patience and the discipline to capitalise on the opportunities.

Lok Sabha election results not meeting the market expectations along with mixed global cues, positive domestic macroeconomic indicators, simmering tensions in the Middle East, and receding hopes of multi-rate cuts by the US Federal Bank in 2024, impacted the markets positively and negatively, Deo said.

“Major heavyweights such as Reliance Industrie (RIL), Axis Bank, ICICI Bank, Bharti Airtel, M&M, Maruti Suzuki & SBI, added to the rally while at the same time, across sectors, the momentum was witnessed. The participation by domestic market participants including the mutual funds and the retail, has been nothing short of spectacular, with their positive impact being largely felt despite the gyrations of the FPIs, with the Indian stock market adding almost $1 trillion in market cap over the past 6 months,” this analyst said.

Expert Ajit Mishra, Senior Vice President-Research at Religare Broking called the performance of Nifty as “remarkably strong and exceeding expectations”. The stage is now set for a positive run over the second half, he opined. “This growth reflects broad-based economic resilience and investor optimism in the Indian markets. And, it was largely driven by positive economic indicators, strong corporate earnings expectations, and favorable global market conditions,” he added.With regards to the performance of gold, Prithviraj Kothari, Managing Director of RiddiSiddhi Bullions Limited (RSBL) and IBJA National Chief said that bullion is showing consolidation around Rs 71,000-72,000 having rallied 18% to hit record highs between February and April. It appreciated by Rs 12,000 per 10 grams in the said period. The July gold futures hit a lifetime high of Rs 74,777 and are now hovering near Rs 71,800 crore. Gold’s gains were on the back of Middle East tensions, Chinese gold rush and hopes of Fed rate cuts.

A historical comparison of H1 performance of gold and Nifty over the previous five years gives an edge to the yellow metal. Between 2019 and 2023, gold’s returns have been positive on four occasions with highest returns in 2020 (13.71%) and lowest in 2022 (0.59%). It has given negative returns of 3.63% in 2021.

In contrast, Nifty has delivered positive returns on three occasions viz. H1 of 2019, 2021 and 2023 with over 12% returns in 2022, highest in the 5-year period between 2019 and 2023. In 2020, Nifty saw its levels erode by 15% on the back of Covid 19 lockdowns in March. In H1CY2022, Nifty lost 9%.

Outlook for gold, Nifty in H2CY2024

Kothari attributes the price stability to lack of enough triggers now emphasising that all positives are discounted. “In fact, few negative triggers have emerged as the Fed stance has changed to hawkish from dovish. Rate cuts have been postponed from March to June to September now and that too will depend upon the inflation situation,” this analyst said.

From six rate cuts expected at the start of the year, we are now staring at a lone 25 bps rate cut with a section in FOMC hinting at a possibility of another rate hike if inflation goes up or even stalls for extended periods. Moreover, the Dollar Index (DXY) whose movement is inversely related to the gold price movement, is lingering above 105 against a basket of six top currencies.

Kothari sees gold hitting Rs 70,000 over the next 1-2 months on weak fundamentals and technicals. The medium to long-term view is still positive and the yellow metal could hit new record highs in the last quarter of 2024, he opined.

The strategy is to buy on the dips around Rs 70,000 for the target of Rs 75,000 and Rs 77,000 by the end of the year., RiddiSiddhi Bullions analyst said.

As for Nifty, Mishra, of Religare Broking remains positive and eyes 25,600 level by the end of the year. His focus remains on the technology sector and FMCG. In the former case, the preference will be on companies with specialisation in AI and cloud computing and in the latter case, consumer spending and economic recovery is expected to drive growth. Autos, banks and NBFCs could also present solid investment opportunities, he added.

Deo’s confidence on equities rests on Nifty’s 14% CAGR returns over the last two decades, better than any other asset class. Going ahead, major global trends are expected to call the shots including inflation, US economy and Fed’s action, he concurred as he sees volatility to stay in the second half.

His advice to investors is to have a 3-5 year investment horizon and adoption of SIP mode. For him, the growth story lies in defense, railways, renewable energy, infrastructure, FMCG, real estate, automobiles, IT and financials.

His short-term bets include HDFC Bank, Infosys, Reliance and SBI along with Hindustan Aeronautics (HAL) and Bharat Dynamics.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)