Do it yourself

FY23 was mostly a year of normalization. After two years of disruptions, uncertainty, and volatility, both the markets and the economy regained a semblance of normalcy in terms of the level of activity, trajectory of growth, direction, and future outlook. Building on the momentum regained in FY23, the Indian economy and the markets made a steady move forward in the financial year FY24. The resilience of growth has been surprising, given the tighter money conditions and challenging external environment. The global economy was also stable despite geopolitical and climate challenges. Global markets accordingly performed well. The sentiments remained mostly positive and supportive of risk. The following are some of the highlights of the performance during FY24. Equity Markets Indian equity market was amongst the best-performing global markets. The benchmark Nifty yielded a return of ~29% (27% in USD terms), which was in line with the US markets (S&P500 +28%), but much higher ...

The 2023 rd year of the Christ is ending on a rather buoyant note for the Indian financial markets. The equity markets are at all-time high levels. Bond markets are now looking up, after challenging 18 months. Cryptocurrencies have yielded good returns. Gold has also been positive. Macroeconomic conditions have become supportive of the markets – prices are under control, currency stable, twin deficits under control, no overhang of government borrowing crowding out private capex, manufacturing growth is accelerating as capacity utilizations improve and PLI payments begin to flow in, and overall growth is the best amongst the global peer. The foreign flows have improved, while the overall domestic flows have remained strong. Corporate earnings remained buoyant led by easing raw material prices, improved domestic demand environment, deleveraged balance sheets, and materially improved asset quality for the lenders. Stock markets – Capex theme finally catches up The Benchmark Nifty50 h...

I have been tracking the news flow and experts’ opinions regarding the developments in global commodities markets for the past couple of years. Of course, I am a novice in matters of global economics, trade, and finance; but the commodities markets are particularly something I could never understand. From my elementary understanding of economics and human behavior, I understand that aging demography, deeper & wider penetration of dematerialization & digitalization in human lives, rising awareness about climate change, and deteriorating growth potential of the developed economies, and perhaps China also, definitely do not augur well for the commodities’ demand in the long term (10-15yrs). However, the opinion of experts is overwhelmingly in favor of a bull market in commodities in the short term (2-5yrs). The key arguments presented by experts in favor of a bull market in commodities could be summarized as follows: (a)    Energy prices have corrected back to the p...

The global markets behaviour in the year 2022 would remain subject matter of analysis for many decades. Almost all markets – equity, bonds, commodities, crypto, housing, arts etc. - have shown a classical pattern in the current year, despite several unconventional factors impacting the global economy. If we observe from the averages the behaviour of commodity markets in particular has been very archetypal in a market still enduring a war, inclement weather and supply chain dislocations. S&P Goldman Sachs Commodities Index, has gained ~17% YTD 2022. Evidently, the first half of 2022 saw a sharp surge in commodity prices led by energy and food prices, ostensibly due to the Russia-Ukraine conflict and severe drought in many parts of the world. However, easing of post Covid logistic constraints and monetary tightening by most central bankers led to an improvement in supplies; demand destruction and unwinding of speculative positions; resulting in lower commodity prices.   However...

In past couple of weeks, some news items, and market & economic trends have attracted my attention. All these news items & trends somehow reflect on the reflation trade that has dominated the global markets for past few months. The rise in commodity prices in past one year is seen mostly a function of a combination of demand and supply side factors. Post global financial crisis (GFC 2008) the investment in new capacities had slowed down considerably. The economic lockdown due to outbreak of pandemic further curtailed the supply of many industrial commodities. The logjam at Suez Canal further impacted the supply chain. The supply of commodities obviously could not match the recovery in economic activity as the economies began to open up. The trillions of dollars in pandemic related stimulus further boosted the demand, as all three activities, viz., consumption, capex and trading got boost from worldwide stimulus. The US government’s plan to invest US$1trn in building nation’...

 “Commodities” is the most important buzzword in equity markets these days. Chartists, analysts, economists, strategists and traders et. al. are predominantly talking about stocks of commodity companies. The strong rally in the stocks of commodity producers is primarily based on the material rise in the global commodities’ prices, especially in past one year. I analysed the market performance since announcement of first lockdown (25 h March 2020). I also looked at the market performance in three other timeframes, viz., (i)     Since January 2021, because most of the restrictions announced in March 2021 were lifted, US elections were completed and vaccine launches had already begun. (ii)    Since February 2021, because a market exciting budget was presented with strong on infra building and fiscal discipline; and UK exit from EU was complete, and global trade had started to normalize. (iii)   Since April 2021, when a second wave of pandemic sta...

Whereas the investors have enough good opportunities to invest in markets, the traders are facing many challenges. The biggest challenge is that most trading opportunities are available in the cyclical businesses like commodities and automobile. The price movements in these stocks are sharp and quick on both sides. Since most of these stocks (metals, sugar, paper, cement, textile, power, auto etc.) have already gained significantly from their recent lows and are no longer available at cheap valuations, the margin of safety in trading these stocks is obviously low. In past couple of decades, the commodity cycles have been short and deep. If this cycle also turns out to be a usual cycle, against a super cycle as widely assumed, the corrections could be quick and deep. In these circumstances, most of the traders, especially the smaller ones, are forced to trade with small quantities. The holding period is much smaller, mostly less than a week. Profits/losses are booked at much smaller...