Commodities hit new peaks

The boom is not restricted to the stock and property markets. Even as the Sensex is soaring to new peaks on a daily basis, commodity markets...

The boom is not restricted to the stock and property markets. Even as the Sensex is soaring to new peaks on a daily basis, commodity markets are proving that they are not far behind. Indices of commodity exchanges soared to new peaks last week.

The NCDEX AGRI Index of the National Commodity and Derivatives Exchange Ltd NCDEX has surged by over 4 per cent to an all-time high of 1258.77 on June 23 from 1209.96 on May 3, 2004. The index was quoted at 1254.09 on June 25.

NCDEX8217;s futures index FUTEX AGRI has shot up from 1236.42 on June 6, 2005 to its all-time high of 1274.87 on June 23.

Ironically, the rise in the commodity indices is a surprise element among investors and analysts, as the agricultural production this year is expected to be lower. The Centre for Monitoring Indian Economy CMIE has forecast a negative growth of 0.7 per cent in the agricultural sector in 2005 as the monsoon is expected to be weak. This lower growth is forecast to bring down the GDP growth to 6 per cent from 6.6 per cent.

Analysts are not sure whether the current uptrend in agri indices will sustain in the long term. 8216;8216;The market is up because major components like gold and coffee, are at a high and are driving the market,8217;8217; says Sushil Sinha, regional manager-commodities, Geojit Securities.

Furthermore, Sinha adds that the market was responding to news about the onset of monsoon this year. Monsoon is driving valuations higher for some commodities like cane sugar, which needs wet weather to grow. However, some other commodities like cashew and guar need dry weather and therefore might not do so well.

However, despite the gains in the market, some observers do not see anything special.

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Madan Sabnavis, chief economist, NCDEX said the market was behaving normally. 8216;8216;I wouldn8217;t call the futures index activity anything special,8217;8217; he said. Blaming a poor monsoon for the price appreciation, he said the increase in futures was not significant.

It8217;s a fact that prices of many commodities like gold, silver, oil etc have shot up in the open spot market. Is the rise in indices an indication about a rise in the inflation level? There could be a link, but analysts said it8217;s premature to hazard a guess on the index-inflation link at this juncture.

If Sabnavis is right, there is nothing to worry about even on the volumes front. 8216;8216;Volumes in 2005 are in the range of Rs 2,500-3,000 crore a day, which is the same as last year, and the gains are well-dispersed across commodities,8217;8217; he said.

He also said speculation was not driving the price appreciation. 8216;8216;There is no undue speculation in the market. We have limits in place for all traders regarding how much they can trade,8217;8217; he said.

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Even international prices of commodities will have a bearing in India. 8216;8216;Prices are reflecting international trends. Sugar, wheat and cotton have a good international relationship. If there is a shortage abroad their prices will appreciate here,8217;8217; said a market source.

Where to invest the green bags?

Analysts are bullish on agricultural commodities 8212; particularly jeera and pulses like chana, edible oil, wheat and some spices. 8212; ENS