New Delhi: With a record-breaking rally for most part of the year, the stock markets have outshined the gold, as also silver, for the third year in a row with much better returns for the investors in 2014. Riding high on robust investor sentiments, impressive foreign fund inflow and formation of a new majority government at the Centre, the stock market benchmark Sensex garnered a positive return of about 30 per cent for investors in 2014.
In contrast, gold prices fell by about 9 per cent and its poorer cousin silver plummeted 15.43 per cent. The Sensex also scaled its record high of 28,822.37 on November 28 this year. "Indian equities have bottomed from last 4 years of bearish to sideways movement primarily because of change in the government regime," said Vikas Vaid, Product Head , Commodity & Currency, Prabhudas Lilladher.
"The NDA government which won elections with a huge margin over UPA has showcased a mandate, which is that of development and market expected that now decisions and actions would be taken to spur economic growth of India," he added. Gold has been on back foot for three consecutive years now vis-a-vis equities after outperforming stock market for more than a decade, an analysis of price movements shows.
Vaid highlighted the factors that led investors to park their money in stocks rather than safe heavens like gold, cheap valuations, strong government with majority in the House for taking decisions and bringing in reforms, US economy and world economies bottoming and coming out of recession and ease of tensions in Iraq and Syria.
"Precious metals have been losing their shine this year, more so during the last six to seven months. The weakness has largely been due to the robust performance in domestic equities, prompting investors to move away from safe havens and into riskier assets. Besides strong equity performance, gold has been affected by the government's decision to scrap the 80-20 gold-import norm," said Priti Gupta, Executive Director, Anand Rathi Commodities.
"Last but not the least, developments in international markets have weighed on local gold and silver prices. Expectations that the Federal Reserve, the US central bank, would start normalising its policy in 2015 have triggered a massive rally in dollar. This has dimmed the appetite for gold," Gupta added.
Experts said that gold prices rose in rupee terms in last few years on the back of high inflation that was close to double digit levels and concerns over economic instability and falling growth.
However, over the last one year, these worries have eased with inflation at comfortable levels and outlook for economic growth positive amidst stable political situation in the country. "With equities positively correlated to economic growth, a positive outlook for economy revival reflected in the equity performance. Further, foreign fund flows which have a major impact on equity market trends continued to be strong possibly in anticipation of major reforms that could take place under the new government, " Gupta said.
