Festive Demand Of Commodities In India

What is the commodity market scenario during the Indian Festive Season?

This year the Festive season is markedly different from previous years. During the last two years, the nation had a prolonged period of pandemic and distress due to omicron variant during the first half of the year, and thereafter the festive demand was a bit subdued for all commodities in general whether Bullion, Industrial metals, Energy, Agriculture or softs. 

As the festive season is starting, the shopping fervor should ideally take off. We will have a normal festive season after two years and hence the sentiments should have been different. But The overhang of the macro environment and geopolitical challenges, Central Banks’ mega size rate hikes, supply disruption in the commodities due to the war between Russia & Ukraine which is a major block for commodities, the energy crisis in Europe, and elevated level of inflation will have its impact on commodities even in the festive period.

The strengthening of US dollars on Fed Hikes will continue to rattle markets more aggressively. The trade in commodities takes place in USD. Overall the prices in the commodities will soften in USD terms but a weakness in Rupee will make those commodities like Bullion, Edible oil, etc that we import costlier but support commodities that we produce and export.   

An increase in demand from bulk buyers for cereals and grains amid the ongoing festival season will support the demand and also the price. Wheat and wheat-related products like Sooji, Rava and Maida will be ahead of festival. Pradhan Mantri Garib Kalyan Yojna has been extended till December. The effect of extension of the free food plan will be seen in the next few days, but there won't be a major fall in prices as there is a strong demand for wheat due to festival season, the prices for maize will depend on arrival of fresh crops. Demand for chana would steady from the dal millers ahead of the festive season. NAFED action in liquidating chana and cereal stocks would cap the upward movement of prices.

The demand from the poultry feed industry remains hand-to-mouth which would support the Maize prices. The crop reports across key producing states are in a good condition which is hinting at an increase in maize production this year. Prices would correct but demand will remain strong. Export ban on broken rice would increase the availability in the domestic market and cap the domestic broken rice prices. Overall the physical demand for the commodities will support the demand.

What has the trading pattern been for bullions, gold and silver during this festive time, in the post-pandemic era in India?

The dollar index is at a 21-year and currently at around 112. This may rise further. 

On the price front, this will continue to dampen the sentiment for the yellow metal. The rallies will not sustain as long as the world’s central banks continue to sound more hawkish.

Gold prices in India have been witnessing a fall since the end of February 2022. There has been a downward trend since then with few ups and downs. The 24 karat gold of 99.9 per cent purity in India stood at about Rs 55,000 per 10 grams at the end of February. Since then, it started falling in India after the Russia-Ukraine war was started.

Gold prices have tumbled from Rs 52,620 per 10 grams to trade near Rs 50,300 in a month’s time on hawkish US policy stance, soaring US Bond yields and a strong dollar index as mentioned.

However, a weak Indian rupee and steady physical demand are likely to offer downside support to prices. A possible rise in demand ahead of the key festive and wedding season, which fall next month, is likely to restore some of the luster to Indian gold.

As long as COMEX gold remains above 1650 dollars, gold may see a buy-on-dip asset in the current global high inflation macroeconomic situation.

Does Indian Festive Season look like a good time of the year to invest in commodities? What are the investment trends being observed? What are the projections for the remaining months of the year?

Asset allocation and hedge against inflation make commodities worthy of investment consideration. The flows in commodity ETF and Sovereign Gold Bonds will see more action. The spot exchange in Gold will change the paradigm of trading and investment in Gold.  It is a good time to invest in commodities 

Often there's confusion in the layman's mind about investing in stocks and commodities. How different is it? What are some of the important things, an investor should look out for?

Advantages of investment in commodities:  1) Diversification - A portfolio with assets that don't move in lockstep can help you better manage market volatility 2) Potential hedge against inflation- Inflation can erode the value of stocks and bond but it can often mean higher prices for commodities 3) Individual commodity prices can fluctuate due to factors such as supply and demand, exchange rates, inflation, and the overall health of the economy. In recent years, increased demand due to massive global infrastructure projects has greatly influenced commodity prices. In general, a rise in commodity prices has had a positive impact on the stocks of companies in related industries.

Risks of Commodity Investing: A) Volatility- Exchange-traded products that track a single sector or commodity can exhibit higher than average volatility.  Volatility caused by political, economic, and currency instability. B) Principal risk- commodities industry can be significantly affected by world events, import controls, worldwide competition, government regulations, and economic conditions, all of which can have an impact on commodity prices

What is the future of the commodity market in India, during the technological era?

The future of the commodity markets will remain strong. The technological innovations and application of technology in agriculture will revolutionize agritech and agricultural commodities by offering advice from experts on how to manage crops and boost yield. It leverages data and technology to solve farmers' concerns about accessing high-quality agri-inputs and bridges the information gap. Blockchain will further give an engine push to industrial commodities.