Trump effect: commodities’ gain may be equities loss
Job curbs on US companies would translate into higher fund flows
Traders and brokers are waiting to allocate their money in commodities, as they want to get a clear picture in the US after Donald Trump assumes office. The more the new US president tightens local companies on the jobs issue, the higher would be the investment diverted from equities to commodities.
“Commodity funds are more volatile compared to diversified equity funds,” said Nilanjan Dey, director, Wishlist Capital Advisors.
A gradual hike in interest rates by the US Federal Reserve will cap sharp gains in the global crude oil prices, which has started moving up, and will ultimately be the most influential factor on prices of commodities, including metals and agriculture.
Commodities are cyclical in nature and, therefore it is also difficult to time their cycle, Dey said. Given that natural resources are located across continents, transactions in commodities (and therefore commodity stocks) go through multiple currencies, exposing investors to currency risks, he added.
Despite the risks, investors are getting their confidence back in the commodity futures market in India after the NSEL fiasco, as the turnover of all the commodity exchanges grew 9 per cent to Rs 67 lakh crore in 2015-16.
Aluminium, cardamom, castor, copper, cotton, crude oil, palm oil, gold and lead are the top traded commodities in MCX in terms of maximum open interest. If FIIs and banks are all­owed to tra­de in the comm­odities futur­es, a long-pending demand, the volume co­u­ld even be higher, an expert said.
For the coming month, it is expected that base metal prices will trade on a positive side as Opec members are taking steps in line with its promise to cut output by 1.2 million barrels a day. The growth in Chinese ec­o­nomy and its manufacturing activities will keep prices in the positive territory, Dey said, adding estimates of a gradual hike in the interest rates by the US Fed will cap sharp gains in crude prices.
In MCX, the total turn­over only in crude oil contr­acts rose to Rs 16,92,662.10 crore in 2016 from Rs 16,31,990.40 crore in 2015. The turnover on the MCX platform alone, which has a share of more than 90 per cent in commodities futures, was over Rs 56 lakh crore.
On soft commodities like natural rubber, investors will have to keep in mind that the global output is likely to fall in the first quarter of 2017, as floods have disrupted tapping in top producer Thailand. Output for the period is expected to fall 0.8 per cent from a year-ago level to 2.44 million tonnes.
But annual output from the Association of Natural Rubber Producing Countr­i­es, which acco­unts for 92 per cent of global output, could rise 4 per cent to 11.2 million tonnes in 2017, after stagnating over the past 3 years. But, Thailand will lose around 10 per cent of its rubber output after floods affected its growing region.
Traders in India keep glo­bal factors in mind while pu­tting their money in agri co­m­modities as well. The turn­over of agri commodities in MCX was Rs 1,36,222.38 crore in 2016, whereas in NCDEX, total trade stood at Rs 6,51,043.47 crore.
According to a report by Scotiabank, which is the lea­ding gold importer in India, economic growth may fall to 6.8 per cent in 2016 compared with the prior forecast of 7.5 per cent, while the pace is likely to pick up to 7.5 per cent in 2017. So, a positive growth may further fuel the turnover in futures.
With inputs from Ritwik Mukherjee & Prabhudatta Mishra