Gold holds potential to hit Rs 51,000 but may see profit-taking in near term: Rajeev Srivastava

In Rupee terms, there could be a drop till 45,000-45,500 in the next two months and then the resurgence of buying towards new highs, possibly 50,000-51,000 levels, Rajeev Srivastava, Chief Business Officer at Reliance Securities, said in an interview with Moneycontrol’s Kshitij Anand.

edited excerpts:

Q) Nifty50 reclaimed crucial resistance levels in the week gone by, and much of it could be because of short covering. What led to the rally?

A) Nifty50 scaled a new 3-month high and closed at 10,607 levels after an initial correction at the start of the week. Banks lead the up move followed by IT and FMCG crossing its long term 200-Day average with positive momentum.

The Nifty50 closed the week with gains of 2.1 percent led by Autos and Banks which rallied 3.6 percent and 1.2 percent respectively while mid-caps and small-caps remained flat to negative, underperforming the headline index for the week.

Q) What is your outlook for the coming week? And, important levels to track?

A) The first-quarter results for FY21 will start trickling from the next week which will provide individual stock and sectoral moves as when the numbers are being announced.

We continue to remain positive on markets and we are overweight on private banks, FMCG, and capital goods sectors over the next few weeks.

The pullback from lower levels in the broader markets and two key sectoral indices breaking its 200-Day average considers that the headline index NIFTY50 too eyeing its higher band to test its long term average placed at 10,890 levels in the current up move and the views may get negated if we break the last expiry close of 10,280 levels.

Q) Small & midcaps have outperformed in the first 6 months of 2020. Do you see the momentum to continue in the next 6 months? If yes, what will drive the rally in the broader markets?

A) The June month was stellar with strong outperformance from the small and midcaps after a long time as valuations catch up post a continuous fall from the high of 2018. FII inflows were also higher at $2.5 billion in June v/s $1.7 billion in May.

We believe one should focus more on earnings trends now after this sharp run-up as if there is any major disappointment in the quarterly results the correction will also be very sharp.

One should allocate more money to sectors where earnings visibility is high, lower debt, and stock valuations are trading below the long term averages.

Q) IT services major Tata Consultancy Services on Tuesday said its board will meet on July 9 to approve the financial results for June quarter. What do you make of the Q4 results and the expectations from the Q1 results for India Inc.?

A) TCS Q1FY21 expectations are muted with a high single-digit decline in top line and 100-150 bps q-o-q margin decline is expected.

The key things to watch are 1) deal wins 2) BFSI spend outlook 3) update on cost optimization measures 4) progress on long term WFH operating plan.

For India Inc., this is the first quarter post lockdown and will be significant to watch with respect to revenue and profitability decline but the management commentary with respect to the expectations for the coming quarters will be important as earnings remain the key to drive market returns in the long run.

Financials and Cyclicals will drag while sectors like FMCG, private banks, and IT could lead the positive momentum.

Q) The Auto sector was back in focus on Thursday post the June month numbers. What is your outlook for the auto sector?
A) Automobile sales are likely to see a sequential improvement over the next two months even as the year-on-year decline is expected to continue up to December quarter due to disruptions related to the COVID-19 pandemic.

The tractor segment reported strong volume despite the current tough situation owing to positive sentiment following a healthy Rabi output.

Both auto and two-wheeler manufacturers reported higher sales in June over May on the back of pent-up demand and revival of economic activities following the unlock 1.0 with some of them even logging growth almost to the pre-COVID-19 level.

The automobile industry is expected to recover with a lag effect of one-quarter post-economic revival. We expect industry volume to record double-digit volume decline in FY21E except for the tractor segment.

Q) Gold seems to be making record highs on a daily basis. Well, the yellow metal outperformed equity markets by a wide margin in the first 6 months – where do you see India Gold heading in the next six months of 2020?

A) Domestic gold has outperformed the domestic equity markets by a very wide margin in the first six months of 2020. Domestic gold prices are up by 23 percent whereas the equity markets are down by 12.9 percent YTD.

Fundamentally, the Fed’s expanding balance sheet and low-interest rates, globally, will continue to see investors remain invested in the precious metal.

We also see that safe-haven appeal for gold will remain intact amid concerns of a rise in COVID-19 cases and geopolitical concerns. Investment demand in the form of gold ETF is at a 7-year high.

Technically, a major hurdle is at $1800 and only a convincing close above will see prices retest the all-time high of 1920.30 in September of 2011 or even higher closer to the $2,000 mark.

In Rupee terms, there could be a drop till 45,000-45,500 in the next two months and then the resurgence of buying towards new highs, possibly 50,000-51,000 levels.

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