Rally in gold and silver signals risk-off sentiment but highlights opportunities in related ETFs, stocks: Divam Sharma

Divam Sharma, Chief Executive Officer and Co-founder of Green Portfolio, in an interview with Upstox News, said India is well-positioned to outperform other emerging markets over the next 12–18 months. He believes investors should tilt towards mid- and large-cap funds at the moment. Meanwhile, small caps are also presenting a compelling opportunity at current valuations.

Sharma also expects gold, silver, and MCX-listed stocks to see heightened interest during Muhurat trading, given the current euphoria around the precious metals.

India is well-positioned to outperform other emerging markets over the next 12–18 months. While global uncertainties persist, mainly around US recession fears and trade policy volatility, India's structural advantages remain intact.

Our domestic manufacturing ecosystem is robust, with policy support through Production Linked Incentive (PLI) schemes and infrastructure investments driving long-term growth. We have favourable demographics, providing a skilled and efficient labour pool that positions India as a credible alternative to China in global supply chains. Domestic consumption, which accounts for approximately 60% of GDP, remains resilient despite short-term headwinds. Additionally, India's strong diplomatic positioning and free trade agreements (FTAs) are opening new export corridors.

Capital flows are another bright spot. The domestic institutional investors (DIIs) and NRIs continue to allocate aggressively to Indian equities. While foreign institutional investors (FIIs) have been cautious recently, we anticipate their return as valuations stabilise and macroeconomic clarity improves. India's relative outperformance versus peers like Brazil, China, and South Africa is becoming increasingly evident in portfolio allocations.

The primary drivers of current volatility are two-fold: geopolitics and US economic uncertainty.

Geopolitical tensions and ongoing trade friction between major economies are creating intermittent risk-off sentiment. Additionally, uncertainty around trade agreements with the US, especially regarding tariff policies, is adding to near-term nervousness.

The second factor is recession concerns in the US. While we believe a deep recession is unlikely, the fear itself is driving capital to rotate out of risk assets temporarily. These are cyclical headwinds, not structural ones.

Manufacturing is poised to be a major beneficiary. As global supply chains diversify away from single-country dependencies, India's manufacturing assets are being quietly re-rated. The valuations of companies with physical, export-ready infrastructure should rise meaningfully over the next three to five years.

Commodities also present compelling opportunities, particularly as global demand cycles align with supply constraints. We're seeing strength across base metals and select speciality chemicals, driven by both domestic consumption and export demand.

Allocations should be tilted toward mid- and large caps for now. These segments offer better liquidity, more resilient earnings, and lower drawdown risk in volatile environments.

That said, small caps are presenting a compelling opportunity at current valuations. However, investors should recognise that value creation in this segment will take time. Capital flows into small caps will be gradual, meaning patience will be rewarded, but near-term volatility should be expected.

Four themes stand out:

We expect gold, silver, and MCX-listed stocks to see heightened interest. There's currently euphoria in precious metals, driven by multiple factors: shifts from treasuries into gold, increased household allocation to physical gold and silver, influencer-driven retail participation, and macro concerns around de-dollarisation and geopolitical uncertainty.

Muhurat trading often reflects broader sentiment, and this year, precious metals are capturing that narrative.

The rally in gold and silver is being driven by several converging factors:

• A shift in institutional capital from US treasuries into gold as a hedge against monetary policy uncertainty.

• Increased household allocation to physical gold and silver, particularly in India, where cultural and investment demand remains strong.

• Influencer-driven retail participation, especially in digital and ETF formats.

• Broader concerns around de-dollarisation and geopolitical instability, making precious metals a preferred safe haven.

From an equity market perspective, this rally is neutral to slightly positive. It signals risk-off sentiment, but it also highlights opportunities in gold/silver ETFs and related stocks. We view this as part of a balanced portfolio approach rather than a pure equity replacement.

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