As the Indian commodity futures market enters its seventh year in operation with increasing volumes and as many as five national exchanges, there are some commodities which have caught investor fancy over the years. Some commodities, however, have been not so popular. FE analyses the commodity futures market, to get a low-down on commodities which have been a hit and which haven?t. This will give a clear idea why some commodities like gold and silver are eternally favourite with investors and why the same is not true with other commodities.
Gold and silver continue to be favourite with investors since the restart of commodity futures market in 2003. Gold is one commodity that is easily understood by all, even by a lay man. However, its simplicity is only one part of the story.
?Gold has attracted robust investment interest as it has emerged as a tool for hedging currency risk, riding on time-tested inverse correlation with the dollar. The robust volumes and negligible spreads in its various denominations (lot size in gold futures varies from 1kg to 100 g to 8g) make it investor favourite,? said Anand James, senior analyst at Geojit Commodities.
Common man?s interest was also seen in crude futures, as it is understood by a wider section, though not as much as gold. A wide section of traders were seen taking a ?hold? strategy rather than trading on a daily basis in crude oil.
And yes, through the spectacular rally in Nymex oil towards $150 in 2008, and its subsequent fall towards $30, crude futures in MCX continued to attract huge trading interest, irrespective of price fluctuations.
Analysts said in the last two years, nickel, too, has attracted considerable investor attention. The metals? volume has increased steeply from 4,388,283 lakh in 2008 to 18,977,263 lakh, a whopping 330% rise.
James of Geojit feels that low investment (margin amount to be kept with the exchange) and a steady rise in prices in line in anticipation of heightened demand from infrastructure companies (mainly steel makers) are two of the main reasons for the rally.
Copper has been equally attractive, given the short supply and high demand in practically all the sectors.
?Both copper and nickel are equally attractive investment options,? said Jayant Manglik, vice-president, Religare Commodities.
However, Manglik prefers agriculture commodities over non-agri ones for maximum returns, because supplies are short and there is scope for profitability.
Refined soya oil, guar seed and pepper are some of his favourites.
However, there is a word of caution: pepper trading volumes have seen lacklustre performance in last two years.
After testing Rs 170 per kilogram in 2007, it could not reach that level ever since. Though, there has been some upward movement of late, it is still nowhere near its highs.
?This are reasons that we don?t recommend farm commodities for trading in futures markets as there is lot of fluctuation in the latter? Navin Mathur, President, commodity and currency at Angel Broking avers.
What ever has been the opinion, commodity futures have attracted considerable eyeballs ever since trading was re-started seven years back. The growing turnover in commodity exchanges, which crossed almost Rs 78 lakh crore in 2009-10 is testimony to the fact.