Soaring gold prices and a volatile stock market have created a unique setup that many are overlooking: a signal that Indian equities may be preparing for a significant move higher.
The point to ponder is the narrowing Nifty 50-gold ratio. The Nifty-to-gold ratio has declined to about 1.7, based on gold’s price in India and the Nifty’s closing price on February 10. Experts note that whenever this ratio falls below 2.5, the Nifty sees a solid upside.
Before we dive deeper, we must understand that this is just ratio analysis and a trend which has been seen several times historically. However, this must never be seen as a confirmation that the market will certainly rise from this level.
Look at the subtle hints
Many major indicators, including corporate earnings, interest rates, and foreign inflows, signal where the stock market could be headed. However, some ratios, such as the Nifty-gold ratio, may also give subtle hints about the market mood.
Historically, when the Nifty-to-gold ratio narrowed and fell below the 2.5 mark, it was followed by a healthy double-digit upside in the Nifty 50.
According to experts, this ratio was below 2.5 in October 2020, after which the Nifty 50 saw a solid bull run of over 65%. Similarly, in April 2014 and April 2009, this ratio was below 2.5, after which the Nifty saw steep gains of over 40% and 70%, respectively.
How should investors see the Nifty-gold ratio?
Generally, gold and stock market movements capture two opposite moods.
Gold prices rise amid geopolitical and geoeconomic uncertainties, sticky inflation, currency weakness, and interest rate reductions. On the other hand, equities rise when economic growth is strong, corporate earnings are rising, and liquidity is ample.
A narrowing Nifty-gold ratio usually reflects fading pessimism and the return of investors to equities.
“Historically, when the Nifty-gold ratio falls sharply, it often indicates a potential catch-up rally in equities. It may also reflect profit booking in gold, with liquidity gradually shifting back towards stocks,” said VK Vijayakumar, Chief Investment Strategist at Geojit Investments.
However, investors must remember again that this is only a ratio-based analysis, and there is no guarantee that the Nifty will move up or down.
“This is only a ratio-based analysis, and it does not guarantee that the Nifty will move up or down. It is a historical indicator. It helps us understand the relative performance of two asset classes — gold and equities — but it cannot directly predict market direction,” said Anuj Gupta, A SEBI-registered analyst.
Gupta highlighted that when the ratio becomes extreme, it may suggest that equities could eventually catch up — meaning the Nifty could rise, or gold could correct, or both.
“Since both gold and equities are strong asset classes, a sharp correction in gold may not happen. Instead, it is more likely that the Nifty’s growth rate may accelerate and outperform gold for a while,” said Gupta.
Is the stock market ripe for a rebound?
The stock market has more reliable indicators, which suggest it is ready for a healthy upside in the near future.
The biggest among them is India’s solid macro outlook. The Indian economy is projected to grow at a healthy 7% in FY27. Inflation may see a mild uptick but still remain within the Reserve Bank of India (RBI) tolerance band of 2-6%.
India-US trade deal, India-EU free trade agreement, the return of foreign institutional investors (FIIs), strong buying by domestic institutional investors (DIIs), dollar’s weakness, and expectations of healthy earnings growth signal the domestic market may see a decent upside in this calendar year.
Vijayakumar expects the Nifty 50 to rise more than 10% in 2026, as he believes FII inflows to steadily improve in India.
“Foreign investors currently have close to $30 trillion invested in US equities, US treasuries, and US corporate credit instruments. If these assets decline by just 10%, foreign investors face a loss of nearly $3 trillion. That is a significant erosion. It matters because the US market may not offer the same comfort going forward. If the AI-driven rally slows down, or the US economy weakens, foreign investors may hesitate to allocate more. capital to the US,” Vijayakumar explained.
“That is where emerging markets like India stand to benefit. A shift in global allocation away from the US could lead to stronger inflows into India,” said Vijayakumar.
At present, the only key risk for India is geopolitical uncertainties and the unpredictability of US President Donald Trump’s tariff policies. If these risks do not materialize, the domestic market may see a rally it has not seen since last year.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
