Gold to trade sideways to bearish next week; investors should wait before taking long positions By Bhavik Patel Gold is bouncing from the lows of $1800 but the overall trend still is bearish. Small bounce might be because gold prices are trading near an oversold region but investors are reluctant to take long positions when fundamentals point to lower prices. Rally in US dollar and treasury yields are providing a lid to gold prices. The entire premium from the war between Russia and Ukraine has been eroded away and even if conflict worsens, we may not see any spike in prices as investors are focused on inflation and higher interest rates. The US Fed is focused on bringing inflation down even if the US economy struggles. One of the reasons why gold and silver have seen significant selling pressure in the last four weeks is because investors have faith that central banks can engineer a soft landing that will weaken the economy enough to slow-growing inflation pressures but not enough to push it into a recession. But reality is with rising interest rates, there will be recession as the economy was up because of stimulus and there is more pain down the line. Ground reality is the world economy is struggling because of high crude oil prices. We believe long term, the US Treasury will be best performing asset followed by gold. In MCX, weak INR has given some support to gold prices but still it is struggling to stay above 50000 levels. RSI_14 is at 40 after bouncing from the lows of 36 but in COMEX, RSI_14 traded at the oversold region of 30 before bouncing back. Prices are under the 20 and 50 day moving average indicating the trend is bearish. 51000 is the resistance and 49000 is the support where the 200 day moving average is. Next week we expect prices to trade sideways to bearish. Investors should wait before taking long positions. Any bounce back will be weak and succumb to selling pressure. Reversal will only come above 51500 levels. (Bhavik Patel, Commodity & Currency analyst, Tradebulls Securities. Views expressed are the author’s own.)
Logistics, good or bad, are driven by the states and the commerce ministry has a LEADS (Logistics Ease Across Different States) report, based on perceptions. The 2023 version was released in December. Since states are heterogenous, in the reporting, they are divided into four groups—coastal, landlocked, north-east, and UTs. States that do well are called achievers. Nomenclature matters. Thus, states that are middling aren’t called average. They are called fast movers. States that are sub-par are called aspirers. Let me highlight coastal states, since 75% of export cargo is estimated to originate from them. Among coastal states, ones that do well are Andhra Pradesh, Gujarat, Karnataka, and Tamil Nadu. The ones that lag are Goa, Odisha, and West Bengal. While India’s logistics performance may have improved over time, that’s not true of every state. Some have slipped. Most states have a state-level logistics policy, including Goa and Odisha. West Bengal, bottom of the pecking order in the coastal category, doesn’t have one. To quote from LEADS 2023, “Looking ahead, the State (West Bengal) could benefit from formulating a State Logistics Master Plan and State Logistics Policy to drive efficiency improvements and facilitate investments within the logistics sector and undertake consultation with the logistics stakeholders for educating and informing them about the initiatives State is undertaking for the development and improvement of logistics sector.”
Logistics has been talked about for a long time and India has also focused on improving performance. We are now getting some precise data on measurement and quantification. That helps.
Bibek Debroy, chairman, EAC-PM. Views are personal.
Services miss estimates; Software better than expected: Services business grew 0.6% q-o-q cc and missed HCLT’s Q3FY23 guidance, mainly due to a 3.8% q-o-q cc decline in the ER&D segment. Growth in the IT&BS segment moderated slightly to 1.6% q-o-qcc but was in line with estimates. BFSI and Life Sciences were the key growth drivers, while communications were the drag among verticals. Growth was led by the Americas region, while Europe and ROW posted declines.
Decline in bookings reflects delays in decision-making: HCLT won 10 large deals in services and three large deals in Software with net-new deal TCV of $2.1bn, down 8% y-o-y. Deal wins were driven by the services portfolio, were centered on cost optimisation and vendor consolidation and came mainly from BFSI, manufacturing and Life Sciences verticals. Management highlighted a ramp-down in discretionary spending in Hitech and communications verticals but pointed to a strong deal pipeline.
FY24 guidance in line with expectations: HCLT has guided for 6-8% y-o-y growth for overall business and 6.5-8.5% y-o-y cc growth in services segment and 18-19% margins in FY24—all in line with our assumptions. We maintain our FY24-25 cc revenue growth and margin estimates and expect HCLT to deliver 6.5% cc revenue growth and 18.4% margins in FY24. However, we lower our earnings forecasts by 2% to factor the higher tax rate indicated by the management.
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Raise PT: HCLT has fared better in Q4, particularly in North America and BFSI, unlike its peers. However, rising demand uncertainty as a US recession nears remains a concern. HCLT’s stock at CMP trades at 17x PE and offers a 5% yield, which in our view should limit downsides and derating. Hence, we raise our target PE to 17x (16x earlier) and raise our PT to Rs 1,125, offering 8% potential upside.