Both gold and equities are shining bright in fiscal 2025 (FY25), with each asset class enjoying a strong performance this year. Nifty 50 has gained about 16 per cent, while spot gold prices in India have climbed over 12 per cent in FY25 so far.
Durable economic growth, easing inflation, increased retail participation, and political stability have been the major factors boosting equities. On the other hand, gold has benefited from global growth uncertainty, geopolitical tensions, hopes of rate cuts, and central banks’ buying.
Despite facing major headwinds—ranging from geopolitical tensions and stretched valuations to persistent inflation and uncertainty around rate cuts—domestic equities have shown resilience. A combination of factors has propelled Indian markets to perform strongly in the first half of this financial year.
Vaibhav Shah, Fund Manager atTorusOroPMS, underscored that the first half of 2025 was filled with geopolitical events.
"We had the much-anticipated Fed cut, the reversal of Japan carry trade, Middle East tension, fresh rounds of volatility on account of the Russia—Ukraine faceoff, disappointing data from China, etc. However, despite all the negative developments, Indian indices consistently achieved new lifetime highs backed by strong fundamentals," Shah observed.
According to Manish Chowdhury, the head of research at StoxBox, robust corporate earnings, well-calibrated fiscal and monetary policies, strong domestic liquidity, return of the NDA government to power and government measures to boost various sectors in the economy have driven Indian equities.
The continuity in the political landscape in India is a key positive factor for the Indian stock market. Experts underscore that the current government, which has come to power again, has kept investors confident of policy continuity. The government has made few policy changes so far and focuses on economic development.
Growing retail participation in India, evident from inflows into equity mutual funds, reflects investors' confidence in the Indian market.
Gold's appeal as a safe-haven asset solidified this year as central banks globally accumulated gold amid increasing geopolitical tensions and declining interest rates. The yellow metal is traditionally considered a safe-haven asset, especially in times of economic uncertainty, high inflation and geopolitical tensions.
According to Chintan Mehta, the CEO of Abans Holdings, declining interest rates, increasing geopolitical tensions, and central bank purchases boosted gold this year.
"The US Federal Reserve's recent decision to reduce interest rates by 50 basis points during their September meeting has increased demand for gold, a non-yielding asset. Regional conflicts in the Middle East contribute to a volatile international landscape. Further, geopolitical uncertainty remains elevated, particularly as the US heads into a presidential election, making the asset class even more attractive," said Mehta.
"From January to July of this year, central banks globally have been actively accumulating gold. India has notably purchased 42.6 metric tons of gold, while China has also acquired gold, buying 28.9 metric tons before temporarily pausing its purchases. This trend is primarily driven by rising geopolitical risks and central banks' efforts to diversify their holdings from the US dollar towards more stable assets," Mehta said.
The outlook for the Indian stock market remains bright due to strong economic growth prospects. Experts highlight that top global agencies have revised India's growth estimates upwards, while most developed economies fear a significant slowdown and recession-like situations.
The dominance of foreign investors is also waning. Shah ofTorusOroPMS highlighted that Indian markets have transformed from an FII-powered momentum to a domestic flow capable of absorbing the excess volatility.
According to Narinder Wadhwa, the managing director and CEO of SKI Capital, while there could be short-term volatility due to external factors like potential US Fed rate cuts or geopolitical tensions, the long-term outlook remains positive, particularly for sectors like banking, infrastructure, and technology.
"Investors should stay invested in fundamentally strong stocks but may consider booking partial profits after such a rally. Sector rotation could provide opportunities as well. Focus on long-term investment in high-growth sectors while taking selective positions in defensive sectors. Diversifying into international equities could also provide a cushion against domestic market volatility," said Wadhwa.
"The outlook for Indian equities looks even brighter on the back of an expected dovish stance from the RBI, good monsoon, anticipated revival in private capex and expected return of FII inflows into the markets," said Chowdhury of StoxBox.
The domestic market's overstretched valuation has been a concern, but experts believe the improved macro situation and growth prospects will support the current valuation.
"The benign global inflation trend and the consequent ease in global central bank policy attract more liquidity to emerging markets like India. Though the valuation is far from cheap, we expect the second half of FY25 economic data will navigate the market direction. A pickup in government spending is inevitable for the next leg of the rally," said Antu Thomas, a senior research analyst at Geojit Financial Services.
However, recent stimulus measures in China and its cheap valuation compared to other emerging markets may open a consolidation phase in the domestic market.
Thomas of Geojit Financial expects the focus to be on value stocks.
"An above-normal monsoon and upcoming festival season may add light to sectors like consumer, auto, and banks. Meanwhile, improved global sentiment may attract the IT and pharma sectors. The stimulus measures in China may have some ripple effect on metal stocks, which may continue to outperform in the near term. Capital goods and infrastructure will be in the limelight on account of higher spending in the second half of FY25," said Thomas.
Gold's movement will depend on the magnitude of the interest rate reduction cycle and the dollar's movement.
According to Wadhwa, with global recession fears looming and the possibility of continued monetary easing by central banks, gold’s safe-haven appeal remains intact. However, any significant correction in the equity market or dollar strength could cause bullion to fluctuate.
"Investors may continue to hold gold as a hedge, targeting gradual accumulation rather than aggressive buying at current high levels. A systematic investment approach with a modest allocation to gold is prudent. The yellow metal acts as a hedge against global uncertainties, and corrections should be used as buying opportunities," said Wadhwa.
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