It is always a profound experience to listen to a seasoned player in commodities, to know from him, the common mistakes that ordinary people make when it comes to commodity investments. It is also relieving, when the same person paints a glass-half-full picture of global macroeconomic scenario.
In a brief interview with Rakesh Neelakandan of Commodity Online, C.P Krishnan, Wholetime Director, Geojit Comtrade Ltd. wards off the notion that there is a bubble existing in the commodity markets.
Commodity Online: How can one profit from commodity markets?
C.P Krishnan: People who have patience, people who do research and invest, profit! Ordinary man will be attracted to investment options only at the end of a rally. Early birds profit. A hypothetical example could be this: If someone buys crude at $110, he may stand to lose as prices can fall. But those who bought crude at $85 stands to profit.
CO: But we can educate investors...
CPK: We may be able to give investor education. But, people may not abide by advice, always as decision making is with the person who invests. If you are shaky person it may not be helpful.
Sometimes you get easy money. But it is more of an exception rather than example. Markets are the reflection of human psychology. If a commodity goes up, it simply means a lot of people are thinking that prices can be going up.
Big players may even choose to stay invested because they do not want the prices to come down!
CO: What drives the markets?
CPK: Two things: fear and greed! When the commodities go up, people want the same to go up like anything. When the commodities come down, people want prices to come down, so that, they can buy in dips. In either case, people may stand to lose as things cannot go up or come down for ever.
And, when the prices come down a tad low, people who have invested sell because of fears, and end up with a loss; only to see prices gaining later on.
CO: Coming to recession; do you think recessionary phase is over?
CPK: Recession started off in 2008. But it has not ended and is still continuing. Stimulus packages were announced and to a certain extent recession was contained. But Europe and America are reeling under recession even now and the worst is not over.
But India has remained secluded and we can be considered very lucky. The repercussions of recession were felt across the equity markets and the commodity markets. But bullion commodities have benefitted out of the same.
CO: Had you seen this recession coming? Did you have any clues then?
CPK: No. We were not feeling it coming. But we had been very cautious. The Crude Oil prices were going up. We felt it to be unsustainable. Investment banks were pulling up the markets.
Interesting enough, when the crude oil prices sky rocketed to $145, in India, prices were still ruling low at a rate 40% lower. Afterwards, the prices went up. This was when the markets eased and government decided to contain the price burden.
In my personal opinion, the government has kept the rupee low to help exporters. China is doing the same thing. Dollar is very weak. Nobody wants their currency to appreciate. Rupee should have been at Rs.40 a dollar or less.
CO: How do you relate inflation and commodity price rise?
CPK: Inflation is not due to high commodity prices. There is this mismanagement of logistics and there are supply bottle necks. I am not attributing inflation to commodity prices alone. Transportation has become costlier.
There has been good production in agri-commodities. But with improved warehousing facilities and information, the farmers are holding back commodities.
There is no magic formula to rein-in inflation. If the oil prices come below $85, inflation can be reined in. But it may not happen soon.
CO: Is there a commodity bubble?
CPK: No. Production is high and there is reasonable demand. People are additionally stocking as well, driving prices up.
As published in: http://www.commodityonline.com/news/%E2%80%98Early-birds-profit-from-commodity-markets-40853-3-1.html
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