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Commodity Shining

| 9/20/2012 9:00 PM Thursday

If there is one factor that plays a very critical role in shaping the future course of the economy, it is the behaviour of essential commodities. At the start of the calendar year, we had looked at how five essential commodities were expected to behave during the course of the year, depending on a host of factors that drive their demand and supply and in turn, the prices. After all, commodity-based stocks have a weightage of around 35 per cent in the overall market capitalisation of the Nifty.

Over the past nine months, the prices of commodities have remained fairly volatile. With so much happening on the macro-economic scene, not just on the domestic but also on the global front, we decided to revisit the whole paradigm of how these vital commodities are likely to behave going forward. These commodities actually have a bearing on the future course of  the economy, or so to say, are affected the most due to macro-economic happenings.

Why are we relooking at commodities within a span of nine months? As we pointed out, at the start of CY12, commodity stocks constituted about 35 per cent of the Nifty. Even as we write this story, the weightage of commodity-based stocks has increased to 40 per cent of the Nifty. As always, it makes us feel proud about being bang on target when we predicted the price movement of these commodities at the beginning of the year and how true that has turned out to be.

At that point, we had said, “We believe that the year 2012 will be a year of two distinct halves, as prices are expected to remain weak in the first half and will rise from there on”. In light of this assertion, let’s take a look at how the S&P GSCI Index, a benchmark for commodity prices, has behaved. The index has seen a good amount of volatility on a YTD basis, and has returned almost 7.64 per cent. After reaching a high of 715.52 in February 2012, it has witnessed a sharp move southwards to levels of 559, declining almost 28 per cent from its peak. As we predicted, these low levels were achieved in the month of June 2012. After hitting a low, the index has seen a steady northbound move to reach 694.12, witnessing a gain of 24.19 per cent.

 

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