X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Commodities: Pros and Cons - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jan 1, 2003

    Commodities: Pros and Cons

    The year 2002 has been a mixed bag for the capital markets around the world. On one side, the developed markets like the US and Europe are closing the year with economy that is still sluggish and prone to repeated profit warnings and accounting scandals, whereas, China has been able to manage growth of just under 8% in 2002 (one of the fastest-growing economies in Asia) and, it is likely to continue on a similar strong growth path. A similar trend has been shown by India, though not as strong as the Chinese economy. India has been able to maintain a growth of about 5-6% in the last few years and is likely to end the year at around similar GDP growth as per the Reserve Bank Of India (RBI). Though at the beginning of the fiscal, the Budget had envisaged a growth of 6.5%, it seems unlikely that the government will be able to achieve the targeted growth rate.

    Though the Indian bourses are ending the year on a positive note, it has been a mixed trend for the various domestic sectors. On the one hand, automobiles and software have outperformed the market due to factors supporting their strong growth whereas, the commodities and the fast moving consumer goods (FMCG) segments have been a dampener. The major cause for the setback in these core sectors has been the after-effects of the 9/11 attacks. The attacks aggravated the already slowing down global economies. However, since last September, the scenario has improved and respite seems in sight. According to leading organisations like OECD and IMF, world economies are set to improve in 2003 led by the US and Europe.

    On the domestic front, there are a few reasons to cheer for commodities (steel, cement and aluminium) sector. With optimistic growth rate targets set for the economy and an overall improvement in sentiment (facilitating the current growth rate), it seems that the year ahead is unlikely to worsen if not improve. With the government's initiative on the infrastructure front and the prevailing low interest rates facilitating a boom in the housing and the auto sectors, it seems that the steel, cement and aluminium sectors will continue their growth momentum which picked up in the second half of 2002. Since these sectors are part of the core sectors of an economy, any improvement on the economic front is ought to be reflected in them. This is evident from the fact that these sectors tend to move in line with the Index of Industrial Output (IIP), which is an indicator of the health of the Indian economy.

    There are various factors supporting the view that these commodity sectors are set to improve in the next year. As can be seen from the chart above, the IIP growth and the corresponding growth in the cement and steel consumption have been encouraging. And this growth is more likely than not to be maintained at healthy levels. With interest rates down and various tax incentives being offered on housing loans, the current demand in the housing sector is likely to be maintained. Also, the Golden Quadrilateral Project has maintained its pace and will continue to perk up the demand for commodities. With the government planning to increase the amount of projects to Rs 80 bn offered to the private sector under the annuity/build-operate-transfer (BOT) model in the second phase of this project, as compared to Rs 58 bn in the first, the private sector players are likely to benefit. Announcements like the launch of the Rs 150 bn Rashtriya Rail Vikas Yojna for accelerated development and expansion of rail network in the country, adds up to the commitment being shown by the government towards country's infrastructure development.

    The improvement in the US and European economies will lead to a flow of positive sentiments to other countries. China, which continues to show an 8% GDP growth, is likely to continue creating demand for various commodities, especially steel. The Russian economy is also on the recovery path. To top it all, the optimism being shown by the domestic industry for the coming year is something that cannot be overlooked. The business confidence index remains optimistic. Most surveys and studies indicate the possibility of the continuance of the current growth into the second half of the current fiscal.

    However, there are also a few factors that go against the popular belief that the second half will be a good one for the domestic industry. The biggest of all is the rising tension between US and Iraq, which is dampening global sentiment. The slightest indication of the beginning of a war between the two could send the world markets spiraling to newer lows. For India and other developing nations rising crude oil prices increase the risk higher inflation. Another factor that does not support the optimists on the domestic front is the lack of investments in the industry combined with the decreasing non-food credit. The proposal by the Kelkar Committee to reduce the tax sops being offered on housing loans has come as a setback for the housing industry. The impact of poor monsoons also remains to be seen.

    However to summarize it all, the negative factors may or may not take place whereas, much of the positive factors are those that are already in existence. So, having a medium-term view, there seems to be a bright future ahead for the domestic commodities sector.

     

     

    Equitymaster requests your view! Post a comment on "Commodities: Pros and Cons". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 18, 2017 03:14 PM

    MARKET STATS