Nifty-Gold Ratio at 1.70 Reveals Indian Equities Undervalued
India's Nifty 50-gold ratio has fallen to 1.70, suggesting Indian equities may trade at attractive valuations compared to gold. This metric often gauges relative value between financial assets and safe-haven investments.
The Ratio's Current State and Meaning
India's Nifty 50-gold ratio now stands at 1.70, demonstrating Indian equities could be undervalued against gold. This ratio, calculated by dividing the Nifty 50 index by one gram of gold in India, serves as a long-term valuation gauge. Historically, a ratio below 2 shows gold's material outperformance of stocks. Choice Broking's Commodity & Currency Analyst Aamir Makda noted the ratio recovered from a recent low of 1.55. This recovery shows a shift in investor sentiment, with equities outperforming gold and a "risk-on" mindset prevailing.
Historical Precedent and Analyst Views
Historically, significant declines in this ratio to the 1.5-2 range have often preceded multi-year equity bull runs. Makda suggests equities remain inexpensive relative to gold based on this historical pattern. Geojit Investments Senior Research Analyst Antu Eapen Thomas observed the Nifty 500-to-gold ratio at approximately 1.9x. This is well below its long-term median of about 2.6x, further demonstrating equities' relative attractiveness compared to gold. Such levels have historically coincided with favourable long-term equity returns.
What to Watch Next
For investors evaluating portfolio allocation, a rebound in the Nifty-Gold ratio from below 2.0 provides an important signal. However, Makda advised waiting for confirmation of a new equity bull market. This would require a sustained move above the 2.2-2.5 range, accompanied by broad market participation and meaningful institutional inflows. Jigar S Patel, Senior Manager – Technical Research Analyst at Anand Rathi Share and Stock Brokers Limited, sees a "Gold vs Nifty Ratio" near 0.15 as a major long-term support zone. A sustained move above 0.20 would favour equities, while a break below 0.15 would suggest renewed gold outperformance.
The So-What
This ratio offers a crucial guide for investors assessing capital deployment in Indian markets. A confirmed upward trend in the Nifty-Gold ratio could drive increased capital flows into Indian equities. This would affect portfolio construction for Asia-focused investors, potentially leading to greater equity exposure. Conversely, a sustained decline would suggest a more defensive market environment, favouring safe-haven assets. The indicator's movement helps investors determine whether to increase or reduce equity and gold allocations.
Get The Brief.
Asia’s economy in five minutes, every weekday morning. Free.
By subscribing you consent to receive this newsletter from Asianomist (Asia Press Centre Pte. Ltd.); unsubscribe at any time.
