As the Indian stock market continues to swing between gains and losses, volatility remains elevated amid persistent geopolitical risks and foreign capital outflows. Market experts are warning that a disappointment from the upcoming Union Budget 2026, coupled with overall weak December quarter (Q3FY26) results from Indian corporates, could trigger a significant correction in equities. Such a correction might have a cascading effect on other asset classes, with even gold and silver prices potentially seeing double-digit declines in the event of a stock market crash.
Gold and Silver Challenge Equities as Top Asset Class
For many new retail investors, the stellar rise in gold and silver prices over the past year has challenged the long-held belief that equities are the best asset class for long-term investment. While the Indian stock market benchmark, the Nifty 50, has delivered a subdued 8% return over the last year (up to the January 23 close), domestic spot silver prices have soared by nearly ₹2.26 lakh, or 250%, per kg over the same period. Similarly, domestic gold prices have jumped by nearly ₹74,500, or 94%, over the last year, highlighting a remarkable divergence in performance.
Market Ripe for a Deeper Correction?
Heightened geopolitical risks, heavy foreign capital outflows, and mixed corporate earnings are currently weighing on market sentiment. The Nifty 50 has fallen about 5% from its record high, and experts see the possibility of another 5–10% correction if the upcoming Budget fails to reinvigorate growth momentum and an India–US trade deal remains in limbo.
Volatility Index Spikes Ahead of Budget
The India VIX index, which captures market volatility, has spiked 60% in January so far, hovering above the 15 level. Historically, when the India VIX stays in the zone of 15–16, the domestic market sees sharp directional moves and elevated option premiums. According to brokerage firm Anand Rathi, this spike could be attributed to caution ahead of the Budget, as historical data shows that India VIX tends to rise 3–4 weeks ahead of the event, with participants adjusting positions in anticipation of policy outcomes.
Geopolitical Uncertainty Adds to Nervousness
Market participants appear nervous about the evolving geopolitical and geoeconomic scenarios. The uncertainty over US policies has increased after the US reimposed tariffs on South Korea, with reports suggesting that key figures in the US administration are blocking the India–US trade deal. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that the US may impose additional non-trade conditions on India, beyond tariffs, which could complicate negotiations further, creating a serious negative market sentiment.
Can a Stock Market Crash Trigger Correction in Gold and Silver?
Experts see the possibility of a significant correction in gold and silver prices in case of a stock market crash, as sharp equity sell-offs can trigger liquidity-driven selling across asset classes. In simple terms, investors sitting on significant gains in gold and silver may feel tempted to book profits in precious metals and deploy that money into equities available at cheaper valuations.
ETF Inflows and Bubble Concerns
Gold and silver are currently in a bubble, driven largely by ETF inflows. ETFs require physical metal backing, which has pushed prices higher, with many retail investors rushing into gold and silver ETFs. Vijayakumar explained that if there is a major correction in equities, investors may liquidate precious metals to move back into stocks, leading to a sharp correction in gold and silver as well. He added that a correction in precious metals is overdue, and that money could eventually rotate back into equity markets.
Long-Term Factors May Limit Durability of Correction
However, any correction in gold and silver rates may not be durable, as both metals have strong positive factors, including geopolitical and geoeconomic risks, US tariff-related uncertainties, central bank buying, and strong industrial demand in the case of silver. Ajit Mishra, SVP of Research at Religare Broking, stated that a major crash in gold and silver, directly triggered by an equity market crash, looks unlikely, as the current bull run in bullion is driven largely by global factors rather than domestic ones.
Liquidity Risks from ETF Participation
Mishra added that ETF participation has introduced liquidity risks, noting instances where a sharp single-day decline in silver triggered massive selling in ETFs due to demand-supply mismatches and liquidity issues. He suggested that investors may book profits in gold and silver ETFs to reallocate to equities, which could cause some correction, but he does not see a major structural challenge for bullion at this stage. According to brokerage firm Kotak Securities, a stock market crash may temporarily drag silver rates down by 25–30%, triggered by forced liquidation across assets.
In summary, while the Indian stock market faces heightened volatility and potential correction risks, this could spill over into gold and silver markets, though long-term fundamentals for precious metals remain robust. Investors are advised to monitor these developments closely as market conditions evolve.
