The markets, as you very well know, reacted yesterday to the tech stock beating on Nasdaq, led by Nvidia, and today the markets opened with a gap up. However, the market sustenance at higher levels is uncertain as there is no follow-through. Unless there is a trigger, the market is not really moving forward.

Today, we will discuss the massive demand for SGB gold bonds in the market. All sovereign gold bonds (SGBs) are now trading at a premium. We’ll show you the premiums, whether you should buy them, the advantages, and more, at the end of this video.

Market Overview

Returning to the markets, Nifty closed the gap created yesterday but gradually came down, ending at -0.2%. This small movement indicates that the market is waiting for a trigger. Possible triggers include the US jobs data on Friday night and rate cuts expected around 18 September. However, feelers in the market suggest that the RBI may not cut rates this year, disappointing those hoping for cuts, especially as rural demand picks up.

Nifty Next 50

Nifty Junior followed the same pattern, with a morning pop but a flat close, reflecting a lack of big risks or trends since mid-July.

Nifty Mid and Small Cap

Mid-caps showed a slight upward trend, hitting an all-time high but without clear movement, while small caps rose nearly 1%, driven by buying or FII money coming in.

Nifty Bank Overview

Bank Nifty was relatively quiet

Advanced Declined Ratio Trends

the Advance-Decline ratio showed an even spread, highlighting a flat market. FII buying persisted for the fifth day, while DII buying reduced, with sessions of 439, 356, and 97 crore negatives.

Nifty Heatmap

Heat maps offered little to discuss, with Reliance down -1.42% following disappointment from the bonus announcement, signaling market maturity, as people realized a bonus is just an accounting entry.

Titan was a bright spot, likely due to rising gold prices ahead of the festive season. ITC was also up, but other stocks were flat. Nifty Next 50 had more gainers, including Zomato, IOC, Dmart, Bosch, Vedanta, and Chola. On the downside, Adani stocks, Bharat Electronics, HAL, and public sector enterprises saw losses.

Sectoral Overview

Sector trends were similarly lackluster, with real estate down 1%, energy down 0.8%, infra down 0.6%, and public sector down 0.5%.

Sectors of the Day

Nifty IT Index

The IT sector performed slightly better, up 0.5% and showing strength over the last three months. Stocks like Coforge, LTI, Mindtree, Wipro, Infosys, and HCL Tech were leading the charge.

Stocks of the Day

Gujarat FluroChemicals

Gujarat FluoroChemicals surged 11.2%, forming a potential flag breakout, signaling that it could see a significant move upward soon.

Story of the Day: Sovereign Wealth Bonds

Since 2016, I’ve been a massive advocate of buying gold, particularly through SGBs. Launched around 2015-16, SGBs have seen substantial growth in value, with gold prices rising from Rs 2,500-2,700 per gram to nearly Rs 7,200 per gram today. The government’s rationale behind launching SGBs was to reduce forex outflows as India imports around 800-1,000 tons of gold yearly, depleting reserves.

By offering SGBs, the government sought to satisfy gold demand without physical imports. The bonds offered 2.5% interest per year, and the redemption is tax-free. However, the government may have underestimated gold’s price growth, as it now faces a 13-15% effective cost on these bonds, compared to borrowing at lower rates elsewhere.

In 2023, no new SGBs have been issued, and there may be a rethinking within the government about continuing them due to the cost. The existing bonds still trade, but new issuances may be discontinued.

Today, all SGB series are trading at a premium, with some fetching 5-10% above their fair value. This premium reflects the scarcity and appeal of SGBs as a risk-free, tax-free investment.

So, what’s happening with gold prices? Despite a 9% cut in import duties, gold continues its upward trend, currently at $2,500 per ounce, translating to about Rs 72,000 per 10 grams. Interest rates are also expected to fall, which could further boost gold prices, as lower interest rates often lead to higher gold demand. For instance, during past rate-cutting cycles, gold saw massive gains, such as a 66% rise from 2002-04 and 189% from 2007-12.

Geopolitical tensions also contribute to rising gold demand, with Russia increasing its gold buying target by six times.

If you don’t already have exposure to gold, consider adding some to your portfolio. A general rule of thumb is to allocate half of your age as a percentage of your net worth to gold. However, consult your financial advisor for personalized advice.

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