Where is the market headed?
Prime Minister Modi has recently requested that citizens refrain from purchasing gold for one year. This is not the first time a leader has made such an appeal; history shows several instances where the government has tried to curb gold consumption. Over the last 50 years, leaders like Indira Gandhi and former Finance Minister P. Chidambaram in 2012-13 have made similar requests.
Despite these efforts over the decades, the fundamental behavior of the public remains unchanged. People continue to see gold jewelry and investments as a primary source of security for their personal finances.
This creates a tricky balancing act between individual financial security and the broader economic health of the country. Beyond simple requests, the past many decades have seen a series of legislative actions aimed at controlling gold.
The Gold Control rules of 1963 barred the purchase of gold bars and biscuits, allowing only jewelry. This was followed by the Gold Control Act of 1968, which placed a legal ceiling on how much gold an individual could hold in a bank locker, even if it was purchased legally.
Later, schemes like the 1999 Gold Deposit Scheme through the State Bank of India and the 1993 Gold Bonds Immunities and Exemption Act attempted to bring gold into the formal economy by offering interest or immunity from questions regarding the source of the asset.
More recently, the 2015 Gold Monetization Scheme and the 2016 Sovereign Gold Bonds were introduced to persuade people to move away from physical imports. Currently, no new issuances of Sovereign Gold Bonds are coming through. The government’s goal is to utilize the estimated 25,000 to 30,000 tons of gold already held within the country rather than importing more from overseas. However, these schemes have largely failed to convince the public to treat their gold as a liquid deposit.
To truly succeed, the government needs to develop a more attractive investment scheme and a long-term domestic gold exploration program. While there is plenty of gold underground, a robust mining program is needed to extract value from old mines over the next 10 to 15 years. Additionally, building a gold spot exchange and implementing electronic gold receipts could help achieve transparent pricing. While the Prime Minister’s call is beneficial for the national exchequer, history suggests its success remains uncertain.
Market Overview
Turning to the financial markets, the mood on May 12th was notably somber. Investors are encouraged to read the disclaimer before proceeding with the data. The Nifty was hit hard, dropping 1.83% and breaking a support gap that had held since the beginning of April.
This technical break suggests a period of consolidation may be required before any upward movement resumes. The last four sessions have effectively erased recent gains. This downturn isn’t solely due to domestic speeches; it is precipitated by an escalating war, rising crude oil prices, and a lack of progress in ceasefire talks.
Broader Market Indices
The broader market saw even steeper declines. Small caps fell by 3%, while the Nifty Next 50 and mid-cap indices dropped nearly 2.5%. The Nifty Bank lost 1.6%, and while gold remained relatively flat at -0.41%, crude oil spiked by 2.52%.
GOLD
Crude Oil
Heat Maps
The Nifty heat map was almost entirely red, with only Hindalco and ONGC showing gains. IT stocks were hammered significantly, and major banks like ICICI and HDFC were down. Consumer goods and retail also suffered, with Titan falling another 3.5% as jewelry-related companies felt the pressure.
In the Nifty Next 50, minor gains were seen in Hindustan Zinc, Vedanta, Godrej CP, Pidlite, and Canara Bank, but the Adani Group and capital goods sectors faced heavy selling.
Movers Of The Day
On a positive note, Oil India rose 7.66% after the government cut royalty burdens on oil and gas exploration. Conversely, Sonata Software dropped 9% after management declined to provide guidance for FY27.
Sectoral Overview
Sectoral themes were universally negative, with real estate, defense, IT, and tourism seeing cuts between 2.5% and 4%. Over the last month, the IT sector has declined nearly 9%, and PSU banks have lost 8%. The real estate index, which had been performing well, was spooked by the USD INR exchange rate reaching a new all-time high of 95.7.
Sector of the Day
Nifty Realty Index
Nifty Defence Index
U.S. Market
In contrast to the domestic market, the U.S. markets showed resilience in their previous session. Qualcomm rose 8%, while companies like Tesla, Intel, and Exxon gained between 3% and 6%. The S&P 500, Dow Jones, and Nasdaq all saw modest gains, continuing a bull run driven by semiconductor and AI stocks.
The Nasdaq 100 heat map highlighted strong performances from Intel, Cisco, and Qualcomm, though Amazon, Google, and Walmart faced some selling pressure.
Tweet Of The Day
Looking at the long-term history of global indices provides some perspective on market recoveries. While many discuss the 35 years it took the Japanese market to reach a new high, other markets have faced similar struggles. After the 1929 crash, the U.S. market took 25 years to recover. Hong Kong has gone 18 years without a new high since 2008, and the UK took nearly 20 years to surpass its dot-com peak. The Indian market, by comparison, has been remarkably consistent. Aside from a six-year flat period following the 2008 crash, the market has rarely waited more than three years for a new all-time high. Our system seems to correct itself before bubbles become too extreme.
