Where is the market headed?
The government has recently announced an increase in duties on gold and silver, raising them to 15% from the previous rate of 6%. This move represents a significant policy reversal, as the finance minister had reduced these duties from 15% to 6% in 2024.
Looking further back to 2022, the rate had also been increased to 15% at that time. This frequent “policy flip-flop” every couple of years serves as a short-term measure intended to reduce the outflow of foreign exchange, but it often fails to provide a long-term solution. For the jewelry and bullion industry, these 9% to 10% shifts create substantial instability, hitting those with existing inventory or those in the middle of active transactions.
Despite these adjustments, the underlying demand for gold remains high regardless of whether duties are increased or decreased. A major side effect of high duties, specifically when they exceed 6% or 7%, is the incentive it creates for smuggling. While the official import bill may appear lower on paper—allowing the government to claim success in its objectives—gold continues to enter the country through unaccounted channels. This means wealth is still leaving the country to pay for these unofficial imports, leaving the core issue of demand unaddressed while creating a false sense of achievement in official statistics.
To truly fix this cycle, a focus on long-term structural changes is required rather than constant tinkering with duty rates. India currently lacks a proper spot exchange for gold, making domestic price discovery difficult. Furthermore, there is no thriving market for gold monetization or high-liquidity electronic gold receipts. Although these concepts have been introduced, they lack the necessary liquidity to be effective. India holds approximately 30,000 tons of gold worth 5 trillion dollars, yet this remains locked up because there is no established mechanism or public confidence that gold deposited with banks will be returned.
While current gold holders may see their wealth increase by 9% or 10% today due to the duty hike, those buying for weddings and events will simply have to bear the higher costs without any fundamental problem being solved.
Market Overview
As of May 13th, the broader market showed signs of hesitation. While the Nifty held its ground near 23,582, it eventually gave up most of its gains, closing flat at 0.14%. This suggests that the current downtrend remains intact, and today’s movement was likely a “dead cat bounce” following four days of losses.
Broader Market Indices
Other indices performed slightly better, with the Nifty Next 50 rising 0.85%, mid-caps up 0.6%, and small-caps up 0.29%. Conversely, the Nifty Bank continued to struggle, dropping 0.18%.
GOLD
In the commodities space, crude oil remained flat with a minor dip of 0.4%, as global attention shifts from conflict toward diplomatic and trade meetings between the US and China.
Crude Oil
Heat Maps
The Nifty heat map revealed a mixed bag of results. Metals and some pharma stocks saw gains, while the auto and IT sectors continued to face pressure.
Within the Nifty Next 50, the Adani Group, commodities, oil marketing companies, and capital goods showed positive movement.
Movers Of The Day
A notable performer was the Steel Authority of India Limited (SAIL), which surged 14% to approach its 18-year high last seen in 2008. This serves as a reminder of the long cycles in equity markets, as it has taken nearly two decades for the stock to return to those levels. Meanwhile, Idea rose 8% following new fundraising news, though it remains within a long-standing price range.
Sectoral Overview
In terms of sectoral trends, metals led the way with a 3% move, followed by defense stocks at 2%. Over the last month, the market has seen significant damage, with PSU banks and real estate sectors falling by 7% to 7.5%, and IT dropping 9%.
However, capital markets, pharma, and defense have remained resilient, posting gains between 8% and 9%. The metal sector was particularly strong today, with stocks like SAIL, Vedanta, Hindustan Copper, NMDC, and Hindustan Zinc performing well, making metals the only sector to hit a new all-time high.
Sector of the Day
Nifty Metal Index
U.S. Market
In the US markets, several high-performing tech and semiconductor stocks faced a sharp correction. Qualcomm fell 11%, Intel dropped 6.8%, and companies like Oracle, Salesforce, and ServiceNow saw declines of over 3%. The Nasdaq and Russell indices both fell by nearly 1%, while the S&P and Dow Jones remained flat.
It is important to view these falls in context: the Nasdaq is still up 12.4% for the month and 36% over the last year, suggesting these are small corrections within a larger rally. Some of these stocks are featured in the company’s US stock strategies, which track the semiconductor and AI spaces.
Tweet Of The Day
Regarding gold investment, a unique arbitrage opportunity has emerged in Sovereign Gold Bonds (SGBs). While the calculated price for 10 grams stands at 1.66 lakhs and MCX futures trade at 1.63 lakhs, many SGBs are trading at 1.59 lakhs. This discount exists because the sudden 9% duty hike has not yet been fully absorbed by the market.
Short-term traders and high liquidity in the delivery market are preventing prices from rising immediately. Over time, as the festive and marriage seasons approach, this gap is expected to close, and premiums may return. For long-term investors, SGBs currently offer a notable discount compared to the calculated market price.
