Metals Market Overview
The metal market has witnessed a significant rally, particularly in precious metals like gold and silver, driven primarily by geopolitical factors. However,
the analysis highlights the need for a segment-specific approach. Base metals are showing promise, especially those linked to the growth of artificial intelligence. Copper, for example, is expected to benefit from AI-led capital expenditure. Conversely, steel faces a more cautious outlook, influenced by demand in key markets like China.
Focus on Industrial Metals
Industrial metals, especially those used in electronics and electricals, such as copper, are anticipated to benefit from a surge in AI-related investments. Analysts point out that AI capital expenditure is becoming a key driver of demand. The supply-side dynamics, including mine shutdowns, have also influenced the price trends. The expectation is that the prices of metals like copper could stabilize as supply chains normalize. These trends indicate the emergence of AI as a structural demand driver for certain metals.
IT Sector: Two Segments
The IT sector is divided into two distinct areas: digital platforms and traditional IT services. Digital platform companies, which create apps and platforms for Indian consumers, are considered a long-term structural theme. On the other hand, IT services companies, such as Infosys and TCS, are largely dependent on the recovery of demand from the US market. The integration of AI by IT companies is projected to substantially enhance productivity, while simultaneously applying pressure on revenue growth. Nonetheless, margins and profitability are anticipated to improve.
Steel Market Concerns
The analysis offers a more cautious outlook on the steel sector. Steel is particularly influenced by factors like infrastructure, automotive, consumer goods, and the housing market. One of the largest markets, China, is not showing strong demand growth. The cautious view on steel is influenced by the demand from China. Therefore, until there is more positive sentiment around the Chinese economy, caution will persist in this sector. Overall, it indicates the need to consider segment-specific factors when analyzing the metal markets.
Precious Metals Dynamics
Precious metals, especially gold and silver, have experienced significant gains, mainly driven by geopolitical uncertainties and investor interest. The upswing was significant, particularly last year, but experts suggest caution due to current high valuations. Factors like geopolitical concerns and central bank moves have significantly contributed to the rise in precious metal prices. While momentum remains high, the analysis suggests a degree of caution, as a considerable part of the increase may already be factored into the price.
AI’s Impact on IT
Artificial intelligence is playing a pivotal role in the IT sector, reshaping technology spending on a global scale. AI will be instrumental in enhancing the productivity of the workforce. Simultaneously, AI is anticipated to impact the industry. While US tech spending has been weak recently, improvements are expected as the economy recovers. Beyond the near term, AI is expected to become a meaningful growth driver from FY27 onwards, thus boosting the growth and profitability of IT firms.
