Why Shankar Sharma Wants to Go the Whole Hog on Com­modi­ties

Af­ter the se­vere rout, com­modi­ties like cop­per, tin, alu­minium, zinc and iron ore have man­aged to rally as much as 29% so far this year

The Economic Times - - Companies -

timesin­ter­net.in ETMar­kets.com: I would want to bet on com­modi­ties, which is re­ally the space to be in for this year rather than non-com­mod­ity or non-cycli­cal busi­nesses,” said Shankar Sharma, the mav­er­ick man­ag­ing di­rec­tor of First Global.

The state­ment came at a time when al­most ev­ery­one on Dalal Street has been will­ing to dis­card the rally seen in the com­mod­ity stocks as just a tech­ni­cal bounce. But Shankar Sharma does not like to go with the con­sen­sus.

“We do not like to be seen in places where there is too much con­sen­sus, be­cause con­sen­sus al­ways goes wrong. I be­lieve what has changed, or at least is in the process of chang­ing, is that the big bear mar­ket in com­modi­ties is near­ing an end, if it has not ended al­ready,” he said.

P Phani Sekhar, fund man­ager, PMS, Karvy Stock Broking, begs to dif­fer. For him, com­mod­ity-re­lated stocks may hold prom­ise but they are no way a port­fo­lio in­vest­ment.

“I do not think you can con­clu­sively say that they have come back. Yes, we have seen a smart bounce­back. They might be good for some­thing more. But if you are look­ing at a three- or five-year typ­i­cal port­fo­lio in­vest­ments, then I do not think com­modi­ties have reached that point yet,” he said.

There is, though, some sub­stance in Shankar Sharma’s talk. Brent crude plunged to its 13-year low on Jan­uary 20, hit­ting $27.10. Since then it has re­bounded 40% to hit the $44 mark.

Com­modi­ties like cop­per, tin, alu­minium, zinc and iron ore have man­aged to rally as much as 29%in the year so far.

Dur­ing the same pe­riod, the BSE Metal in­dex has re­bounded 15%. The BSE Oil & Gas in­dex has, too, found its feet with a nearly 7%spurt in March.

Many of the com­mod­ity-cen­tric names in In­dia such as Vedanta, Tata Steel and JSW Steel — which had cracked as much as 70% in 2015 — have re­bounded smartly. On yearto-date ba­sis, th­ese very names and few oth­ers have ral­lied up to 28%.

Some of that up­ward move in metal stocks can also be at­trib­uted to the im­po­si­tion of min­i­mum im­port price on steel im­ports from China. “There is a min­i­mum im­port price, which is help­ing the steel com­pa­nies in the short term. But on a longer-term ba­sis, the con­cerns still linger. Com­mod­ity prices are not pick­ing up as ex­pected,” said Rahul Dho­lam, se­nior equity an­a­lyst - me­tals and min­ing at An­gel Broking.

If one were to take Sharma’s words at the face value, it doesn’t paint a happy pic­ture for a com­mod­ity-con­sum­ing country like In­dia.

The steep de­cline in com­mod­ity prices led to a lot of in­put cost sav- ings for In­dia Inc, which helped them post some profit growth in the past few quar­ters. If that ad­van­tage is taken away, and given the sta­tus of the econ­omy in gen­eral, things can take a turn for the worse.

Also, with emerg­ing mar­ket funds turn­ing bullish on com­mod­ity-pro­duc­ing coun­tries on the back of pro­duc­tion cuts in China, In­dia could stand to miss out on all those dol­lar in­flows from the west.

“Go­ing for­ward, we think emerg­ing mar­kets in gen­eral will out­per­form and within that com­mod­i­ty­driven emerg­ing mar­kets such as Rus­sia, Mex­ico and Brazil are likely to fur­ther out­per­form,” said Dev­ina Mehra, global head of re­search at First Global.

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