This month, in an unprecedented turn of events, BSE Sensex went beyond the 75,000 mark on April 9th. From crossing the 40,000 mark five years ago in 2019, Sensex went through the lows of the pandemic and raced to 75,000 this year. The price Return Index measured Sensex CAGR for the past 20 years and found it at 13.4 per cent while the Total Return Index was at 15.1 per cent in March 2024. Multiple factors are driving this bull rally including India's economic growth, rising industrial production, manufacturing, and government spending on infrastructure. Gold prices, on the other hand, have more than doubled since 2019. The price for 24 karat per 10 grams of gold was over Rs 35,200 in 2019. It has now reached Rs.74,520.00 per 10 gms for 24 karat at the time of writing this copy. The precious yellow metal registered a positive advance in Q1’24. Not only did it match but even surpassed gains by other asset classes. In the past, gold prices were impacted by supply and demand issues. Many believe that this uptick is mostly fuelled by geopolitical tensions and global economic uncertainties and the prices may see a cooling-off period.
Last year, speaking at the Morningstar Investment Conference 2023, iconic investment guru Mark Mobius said the BSE Sensex could rise to 100,000 in the coming five years. “I think the Sensex will go to 100,000 in the next five years easily... But there will be corrections on the way,” he said. In January 2024, Global investment bank and wealth management firm, Morgan Stanley in its research note titled titled “Is the Market Overbought?” forecasted that benchmark Sensex could hit a level of 74,000 by the end of 2024 and in the best case scenario, even reach 86,000. The note cited political stability in the Central Government and robust domestic growth as factors behind this optimism. On the flip side, Morgan Stanley also warned that benchmark Sensex can fall to the level of 51,000 by the year's end if India’s elections deliver a hung parliament and there is a regime change. Other factors for the bear outlook included oil prices surging over $110 per barrel, the RBI's tough actions to protect macro stability and the fear of a US recession.
Experts speak
Talking to Outlook Money, Ashish Shankar, MD and CEO of Motilal Oswal Private Wealth said, “Whilst earnings of Sensex companies have almost doubled in the last three years the index has not done anything close to those making valuations reasonable at close to 23 PE trailing 12 months and close to 20 times one year forward. Gold has seen a good run over the last year on account of geo-political issues and currency volatility. Any further appreciation will depend on global factors. Hence I believe Sensex will probably hit the 1 lakh mark earlier as the economic and corporate performance in India is expected to be robust.”
Aamar Deo Singh, Sr. Vice President, Research at Angel One Ltd. said that overall, gold as an asset class has always been in favour amongst investors and it has been widely accepted that gold should be part of every investor’s portfolio, anywhere between 10%-12%. Coming to stocks, he said, “Over the past decade, the benchmark index Nifty has outperformed gold in terms of returns, with a CAGR of 14% versus 10%. However, over the past 5 years, it is gold that has outperformed the Nifty by almost 3%, with returns of 18% against Nifty’s returns of 15%. So, it becomes imperative that an astute investor would diversify his portfolio to include gold as well.”
On who between gold and Sensex will reach the magical 1-lakh mark first, Aamar Singh Deo said, “Looking into the future, there appears to be a race between the Sensex and Gold, as to who hits the 100,000 mark. And it appears that both of them shall surely hit the 100,000 mark in 2-3 years, it is only a question of time and that would depend on the market conditions both domestic and global scenarios.”
Speaking about gold, Jigar Pandit, Head Commodity & Currency Business, Sharekhan by BNP Paribas said, that for medium to long term one can expect Rs 82,500 – Rs 85,000 range for gold and listed the following factors that make or break the case for gold.
Positive Factor:-
• Record gold buying by central banks in 2022, 2023.
• Strong gold buying by India and China retail sector.
• Weak Yuan: Gold as a currency and weak economy hedge
• The World Gold Council expects 2024 to be yet another year of robust buying by the central banks.
• Expected rate cuts from key central banks
• Geo-political tensions (Israel-Hamas – Iran, Russia-Ukraine, Taiwan-China )
• Elevated inflation but the US Federal Reserve leaning towards cutting rates
• High-interest payload
• A limit to a possible rate hike
Negative Factor:-
• Weak Investment demand as seen in falling ETF holdings.
• Huge geopolitical risk premium embedded in the price
• Overvalued concerning US yields, US Dollar Index: Disconnect may not last long.
• Sticky US inflation: The Fed may turn hawkish yet again.
• Rate cut probability may change.
• Currency exchange risk due to possible fluctuation in the USD INR pair
Alok Jain, Founder, Weekend investing and smallcase manager said that the likelihood of gold hitting the 1-lakh mark ahead of Sensex is very high. The reason is very simple. In the past whenever Interest rate cycles flatten and then turn down (like it may be the case now) it has been seen over the last 4 cycles that gold goes up 50-150 per cent on each occasion in USD terms. The current gold move has started from $2000 and is only 15 per cent from its starting point hence there is a huge potential ahead. On top of this, there has been huge buying by many central bankers that has never been seen in the past, I am quite sure gold is going to 1-lakh in the near future.”
Batting for gold, Religare Broking Limited’s Dr Ravi Singh, SVP - Retail Research said that when considering whether gold or the SENSEX will reach the Rs 1 lakh mark first, there are several factors to consider that seem to favour the precious metal.
“The trajectory of gold prices can be influenced by currency fluctuations, which tend to have an inverse correlation with the strength of major currencies. In addition, even though corporate earnings have been mostly positive, there is a significant risk of volatility that investors need to consider. As a result, many investors are turning to gold as a way to diversify their portfolios and protect against potential losses,” he added.
Regarding Sensex, Singh said that it is closely linked to both domestic and international factors, which means it can be influenced by market fluctuations and investor sentiment, despite being a reflection of the Indian economy's health. “Considering the current geopolitical uncertainties and the consistent strength of gold during periods of instability, it seems more and more probable that gold will exceed the ₹1 lakh mark before the SENSEX, further establishing its reputation as the go-to haven asset during times of economic and geopolitical turbulence,” he said.
For Acube Ventures’ Director Ashish Aggarwal the gold vs Sensex contest is “particularly exciting”, thanks to a mix of economic reasons, geopolitical events, and market mood. “Gold is viewed as a buffer against times filled with uncertainty along with geopolitical tensions, whereas the index known as the Sensex measures the performance of the Indian stock market, indicating how well the economy is doing and business profitability. Based on my analysis, the Sensex is going to be the quickest to cross the 1-lakh mark, owing to the nation's economic development, demographics that are favourable, along the fact that the nation is emerging as a worldwide investment destination. The government has focused on the reforms, infrastructure development, and the ease of doing business, which has been the foundation of the investor confidence that has resulted in the increase of investment in Indian equity markets both from the domestic and the foreign.” On factors that can impact Sensex’s rally, he said, “This path could be affected by situations such as inflation, interest rate changes, and the global trade regime. A long period of high inflation or the central banks' interest rate hikes could be the reason for the corporate earnings and investor sentiment to be low and that is the reason for the Sensex to go down.” Ashish Aggarwal added that gold will hit the 1-Lakh mark mostly because of the reasons that are geopolitical tensions, economic uncertainties, and the safe-haven demand.
Abhishek Khudania, Executive Director – Wealth at Client Associates said that the Sensex, which is a barometer of the economy’s health and the corporate behavior is reflecting healthier corporate balance sheets and domestic liquidity in abundance. "Ironically, gold prices have been rising too, some of which is understandable because gold is a hedge against inflation and economic uncertainty and while India has been growing at the fastest pace amongst large economies, global economies have had growth stalling, inflation shooting up and Central banks hiking interest rates at a pace not witnessed in recent times. Geo-Political concerns on many fronts of Russia-Ukraine and Israel-Hamas conflicts only added fuel to the fire," Khudania said.
"Considering that the sense of caution has increased amongst policy makers including central banks and governments amidst an increasing geopolitical noise and assuming US Central bank cutting interest rates in the near term, the outlook for Gold continues to be positive. So is the outlook for Sensex considering corporate earnings are holding up well, amidst cleaner balance sheets, a healthier banking industry and overall macros positive amidst supportive domestic liquidity flows. A mathematical approach to prediction suggests that if these assets going forward, demonstrate the price growth behavior of last 5 years, it is going to be a close finish and either could reach the 1 Lakh mark around August 2026. However, if they demonstrate the long term (past 10 year) return behavior going forward (where Sensex outpaced Gold returns), Sensex could reach the 1 Lakh mark earlier by Oct 2026 and Gold by Oct 2027," Khudania opined.
Which way should investors go?
Ashish Shankar, MD and CEO of Motilal Oswal Private Wealth suggested that one should definitely invest in Sensex but there is no harm in having a small allocation to gold as a hedge. Aamar Deo Singh, Sr. Vice President, Research at Angel One Ltd., cautioned investors that rather than getting fixated on the magical 100,000 number, investors should continue investing systematically from a long-term perspective, to reap the dividends of compounding and long-term returns.
Religare Broking Limited’s Dr. Ravi Singh, SVP - Retail Research said that in a world filled with geo-political tensions, gold has become the go-to asset for investors looking for a safe haven amidst uncertainty. "Given the unpredictable fluctuations in crude oil prices due to political unrest, it's no wonder that investors are increasingly drawn to the stability of gold as a reliable investment choice,” Singh said.
Ashish Aggarwal, Director of Acube Ventures added in the moments of global crisis and unstable markets, people usually invest in gold as a way to shield themselves from inflation and the slow but steady decrease in the value of the money. "Another point to be considered is the acquisition and supply-demand relationship in the physical gold market by the central bank which can cause the price direction to change drastically,” he said.
