Markets have, however, discounted the beginnings of a policy shift on the part of the Fed, but we have to see the reaction when actual impact will be seen.
In an exclusive interview with Ajeet Kumar of Zeebiz.com, Rajiv Kapoor, Head Commodities, Trustline shares his views on the fundamentals of the commodities markets as well as their outlook for 2014.
Will commodity market outperform other asset classes in 2014?
Although commodities will underperform equities but will definitely give positive returns and will be at par with bonds.
How will FED tapering shape the commodity market this year?
See, FED tapering will suck in the liquidity pumped in by FED to stimulate the US economy which makes their currency weaker against other currencies. As USD has inverse co-relation with commodities because expensive USD make expensive commodities in the hands of other currency holders. When tapering`s actual impact is witnessed, it will make USD expensive and will be negative for commodities.
Which of the non-agri commodities should be more focussed on in 2014 and why?
This year industrial commodities will be the focus because improvement in economies will generate more demand for raw material and will be positive for base metals.
How will agri commodities react to the election year?
Election year might be good for agri-commodities as far as production is concerned. As we know, more production means lower commodity prices, this will definitely be good for the Indian economy.
Read more on Gold 2014 Outlook
Which of the agri commodity will you opt for better return?
Castor seed can be opted for investment around Rs 4000- Rs 4200 as production is not up to mark to fulfill the routine demand.
How will better monsoon and an estimate of record production affect commodity market outlook. Also what would be the impact of govt decisions like sugar decontrol and announcement of a bailout package of Rs 6,600 cr for the sugar sector.
Better monsoon is certainly good for quality and more production. More production means commodities shall be available at lower prices. Sugar decontrol and bailout package is to support the sugar mills grappling with very tough times since they are not getting a good price for their products. Also, sugar prices are on a downward spiral since a long time now.
Has the fears of FED tapering already been factored into commodity market or is it yet to be reacted upon?
Yes, little part of the FED tapering is already discounted by market participants but we have to see the reaction when actual impact will be seen.
Which commodities will be more vulnerable to FED tapering (both agri and non agri)?
Certainly, Gold will be most vulnerable and to some extent silver and other industrial commodities due to impact of liquidity.
Will commodity market keep the impact of NSEL crisis away in 2014?
Yes, NSEL crisis has already been digested by the market but the recovery of investor`s money will definitely restore confidence amongst market participants and will certainly be helpful to get volumes back in commodities.
Could you mention some key factors or events that will pave the way for the commodity market in 2014?
Key factors will be the recovery of US economy and their monetary stance, Chinese demand and monetary policies.
What would be your advice for the commodity investors in 2014?
See, investors must inculcate the habit to understand the matrix of economic activities and their impact on commodities market to take the benefit of the same and earn handsome profits.