Attrition is back at IT companies

Economic recovery has brought good times for Indian companies. The same is true for IT companies as well. From uncertain times till about a year ago, these companies are now much clearer about their revenue visibility for the medium term. Clients are back on the discussion table. And they are loosening their purse strings to spend more on IT offshoring.



Now, while all this sounds hunky dory for the IT sector and its companies, there is one concern that seems to be raising its head. We are talking about employee attrition. Given the improved business scenario and the fact that IT companies across the board are back to hiring again, IT employees are suddenly finding themselves with a plethora of job options. And this has started giving sleepless nights to the HR managers at IT companies. Even a company like Infosys is not spared. There are reports that the company is seeing higher attrition as employees are looking out for other options. But this should not be a serious worry for the company given the good amount of bench strength it has. The problem really lies for the mid and small size IT companies that nether have the bench nor the financial strength to retain key employees. In fact, we see employee costs rising for the broader IT sector, and margins coming under some pressure as companies try to retain their assets - their people.

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Gold to go only one way from here... Up!

Has the moment of truth arrived for gold prices? Are we staring at structurally high gold prices from now on till forever in the future? If the recent actions of the world's top producer of gold is any indication, you cannot help but answer in the positive to both the above questions. As per reports, Barrick Gold, the world's largest producer of gold is moving fast to completely close its hedging operations as it does not believe that gold prices could fall a great deal from here. Perhaps, the decision has a lot to do with a statement from the company's president recently that global output has been falling by roughly 1 m ounces a year (approx 33 tonnes) since the start of the decade and hence, there is a strong case to be made that we are already at 'peak' gold. And with central banks around the world also turning into net buyers of gold in recent times, supply crunch is likely to worsen a great deal more, taking gold prices even higher.





Barrick was not the only one betting on much higher floor for gold prices in the future. Marc Faber, one of the world's pre-eminent investors has also jumped on to the bandwagon. "We will not see less than the US$ 1,000 level again", he is believed to have said at a conference today in London. "Central banks are all the same. They are printers. Gold is maybe cheaper today than in 2001, given the interest rates. You have to own physical gold", the maverick investor further added.



We are of the opinion that while the case for gold looks very strong indeed, this does not mean that there is absolutely no likelihood of the yellow metal going below US$ 1,000 per ounce. For that matter, even the dollar can rally enormously from the current levels. However, the odds that both these scenarios will happen in the near to medium term is certainly on the lower side. So, while having gold in your portfolio does make sense, one should refrain from going overboard with it.

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Gold Alone Won't Take You There

Expert after expert has been shouting from the rooftops about how gold might go from strength to strength from the current levels. And it could well be justified. However, if you look at the chart of the day laid out below, you would consider buying something else. Shares in Indian companies that is. Over a really long-term period, returns from Sensex have beaten returns from gold hands down. In fact, gold doesn't even come close.

Since Jan 1990 till Sep 2009, while gold is up nearly 5-fold and just about keeping pace with inflation, Sensex is up more than 25-fold, albeit with higher volatility. Agreed that best days for gold lie ahead as the metal had barely budged in the 1990s but so do India's. While gold has historically proven to be the best bet against inflation, the chart makes it clear that making it a large part of your portfolio may not be a very good idea. To give your portfolio that extra edge, stocks are a must have.

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Central banks losing faith in the US dollar

A report by Barclays has shown that governments across the world boosted their foreign currency holdings by a huge US$ 413 bn during the September quarter. Needless to say that lending to the US government accounted for the majority of it. However, here comes the shocker! A full 63% of the new money that has come in has been invested into Euro and Yen denominated assets, thus setting a new record. Well, this potentially means that central banks are losing faith in the US dollar and want to diversify their holdings. However, there’s a problem here. If they diversify too fast, they risk depreciating the dollar to unreasonable levels, a scenario which is not too ideal for their export driven economies. Hence, the process will have to be gradual. But one thing cannot be denied. As things stand today, the dollar is headed towards a continued long-term decline

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Keep Buying Gold on Every Decline

Gold prices are hitting new highs as investors are selling currencies and buying gold. This is the trend seen not only in the US but across the world, be it UK, China or India. According to noted economist Dennis Gartman, investors are buying into gold not on inflation fears but on a general distrust of currencies. He expects gold prices to climb higher but eventually expects the rally to end. Famed commodities investor Jim Rogers echoed similar sentiments while adding that although he believes that over long term gold prices will continue to rise, he is not investing in gold as he does not see strong fundamental reasons to invest at the current levels.

Fear and Greed

Speaking of fear, it was the rampant emotion in October 2008. Greed took over in March 2009. It's back to fear again. You might find it ironical but it is 'fear' that is driving asset prices up currently. And we are talking about all kinds of assets, ranging from stocks to gold. After the sharp rally of the past few months, investors are loading up on stocks for the 'fear' of missing out on the rally. Gold bugs 'fear' massive currency declines and are therefore gorging up on the yellow metal. Bond investors 'fear' deflation. This can be seen in rising bond yields in the US despite a considerable supply from the government.



Never before has fear felt so reassuring. Pick an asset class, and it's going up in price. All based on fear. Greed is yet to return to the markets.

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Crude oil may no longer be priced in US dollars

So many senior economists of the world have been predicting that if the crude oil  is traded in the currency other than US$, that might be the cause for devaluating the dollar or even collapse of the US$.



There is little doubt that the global financial meltdown has changed the world financial order. The latest development that supports this view is the attempt of gulf oil producers to move away from pricing crude oil in terms of the US dollar to a basket of currencies instead. This move also has the support of countries like China, Russia, Japan and France. As per The Independent, these countries have already held secret meetings to discuss the same. Apparently, Brazil and India also approve of this move.





In my view, given the importance of crude oil transactions in world trade, this will dent the US dollar's role as the world's reserve currency. Other currencies, including the Chinese Yuan and gold will jointly take up that space. It means that the demand for gold will also climb.



As for the Americans, they are not going to take this development lying down. After all, it prevented the UK from joining the Euro and invaded Iraq when it moved its crude oil prices away from the US dollar. I expect a lot of muscle flexing over this issue in the days ahead.

 

POSSESS GOLD and SILVER, STAY AWAY FROM US $.

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