Posted by: commoditywise | January 1, 2008

Good Wishes, and beyond…


After the good wishes…some realities in the world of commodities  

Three news items point to the things in store for the members of the commodity markets, including the consumers and investors.  First, Consumers may have to pay more in 2008 Two, a model portfolio for investment in 2008 – Though a model portfolio, it does not have a single item of commodity even when commodities are the flavor of the season not just in India but the world over.  Three, Drop in demand may hurt growth These items were published in Hindustan Times Business Section pages. Published on the very first day of the supposedly Happy New Year, these news – for general reader and not financially savvy investor, along with other news – point to some hard times in store for consumers, investors, industry players and therefore, of course, the economies and the global economy.

Investors of commodity market like those in the roller coaster equity and currency markets, have gained good returns in 2007 at least in three commodities – crude oil, gold and wheat (among other agro commodities). Crude oil ended the year 2007 with a gain of 57 per cent, gold 31 per cent and wheat almost 100% (if the prices of wheat futures on Chicago Board of Trade – CBOT are any indication). 

Clouds of gloom on global economy loom large. Over the past couple of weeks, these have been cited by the US Federal Reserve, analysts of leading banks, and also in India by both the Prime Minister and the Finance Minister. This could impact the demand for commodities, however, despite this, the likely trend for commodity prices seems to be upward, barring may be the crude oil prices that though threatening to cross $100 a barrel, is flirting at that levels and it could slide below $85 too.

Given the kind of dual demand for commodities as a whole (from consumers as also from investors) and their supplies, chances are consumers will be disappointed as they will have to pay more for the food products as also for the fuel for their vehicles. The investors in these commodities are on the other hand sure to be happy with possibly good returns from their investment. But it always pays to be cautious then overoptimistic.

In this sense commodities are an integral part of any model portfolio and therefore, cannot be ignored by any analyst or investment advisor. Therefore, the published news item on so-called `model investment portfolio’ cannot be considered to be a model one, as the analyst of one of the mid-level brokerage seems to be hooked more on to the equity markets that in India did give good returns over the last two years and are likely to do so even in 2008.

What this `model portfolio’ (mentioned above) reflects is more of the general mindset of the investment analysts of almost all the brokerages in India. For, various reasons, commodities in India are yet to enter their collective mindset of investment analysts and advisors.

And here lies the biggest challenge for all connected with India’s commodity markets – brokerages, commodity exchanges, the commodity market regulator and of course the government – to make commodity markets attractive not just for the investors but also for the whole lot of players of the commodity markets.

Investors are ready to invest in commodities, analysts at brokerages may also be willing to recommend the possibly rewarding investment avenues in commodity markets and some of them do recommend, but commodities are not yet as part of a `model investment portfolio’ in India. Therefore, both the regulator and the government are collectively responsible for making commodity markets attractive even for the industry players and of course, the investors.And in India, of the two leading nation-wide multicommodity exchanges, Multi Commodity Exchange (MCX) of India seems to be in for a good tidings during the whole of 2008, as its rival National Commodity & Derivatives Exchange (NCDEX) has been forced to reset its entire business development team after the resignation last month of the members of its business team lead by N Gupta. There are more developments to unfold at the NCDEX. All this has severely hit the business at NCDEX.

Even as NCDEX will be busy strengthening its business as a whole, the possible lifting of suspension of trading in wheat, rice and two pulses, could benefit MCX without it doing anything. Since March 2007, the government’s suspension in trading in these key agro commodities has severely hit the business of NCDEX.

And one of the most aggressive and also influential brokerages in New Delhi has tied up with India’s top commodities trading firm owned by the government to set up yet another commodity exchange in the country. It remains to be seen how and when will this new commodity exchange emerge on the horizons of Indian commodity market.

 And the Indian government keeps promising to strengthen the commodity market regulator Forward Market Commission (FMC), even when there is confusion among the finance and agriculture ministry as to the overall subject of independence of the FMC.  In these sense, a lot many developments are in store for the Indian commodity markets that will be interesting – both for consumers and investors – during 2008.  But the moot question will remain unanswered – if commodity markets are attractive for investors, can it be equally interesting for the consumers too? Given the diverse interest of the players of these two markets they always will be on the opposite camps where consumers find themselves at the receiving end.

My earlier posts will be interesting

Are we fuelling the commodities bubble?


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