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.

Marketmen said that improvement in domestic fundamentals and positive sentiments across business, consumers and investors on hopes that economic activity would kick-off after a government with decisive mandate was elected led to equity markets touching new highs in 2014.

Also with the US economy showing signs of recovery leading to dollar strengthening against most of its counterparts, likelihood of US interest rates higher in 2015, inflationary pressures remaining subdued in most countries and crude oil prices slumping made gold unattractive and impacted the need to hold the yellow metal, they said.

On the outlook for the Indian stock market in 2015, Pradeep Gupta, Co-Founder & Vice-Chairman, Anand Rathi Financial Services said, "India today is in a sweet spot compared to other emerging countries with it in being in a midst of revival cycle and we believe growth would be more domestic driven this time.

"Factors like deflation which is a worry globally is actually a requirement for India," he added.

Also, since India is a consumer of crude, falling crude and commodity prices is actually favorable for India. There is a high probability of a start of rate cut cycle by RBI in the 1st quarter of 2015 which would boost a number of sectors and improve corporate earnings from a medium to long term perspective, he said.

According to Raghu Kumar, Cofounder, RKSV, "For years, gold has been a safe haven for investors in India. Due to its durability, lure, and the fact that it is a rare precious metal, it has lasted the test of time.

"However, investors will always look for the best investment opportunities, and 2014 was the year for investors to invest in India's stock markets.

He said: "The amount of consumer confidence generated with Modi's win was badly needed for the Indian economy, and investors seized upon the opportunities presented. The markets rallied in tandem, and since then the RBI and the central government have made all the right moves."

Historical data show that gold has given positive returns over the last 12 out of last 15 years. Also, gold prices have appreciated by an average of 20 per cent over the last 10 years, against about 18 per cent for equities.

Gold prices have come down to Rs 27,000 per 10 grams from Rs 29,800 per ten grams, while silver fell from Rs 43,755 per kg to Rs 37,000 per kg.

The fall in prices of gold and silver came amid import curbs on gold for a significant part of the year, even as RBI has now eased some of these curbs.

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