The Rising Commodity Prices - Challenge or Opportunity

Investment Challenges in Commodity Market

With countries looking forward to getting over the pandemic and concentrating on economic recovery, the sudden turn of events due to the Ukraine-Russia crisis has brought them back to square one.

Russia being one of the biggest exporters of commodities has impacted various industries including EV, food sector, auto sector, etc.

Supply from Russia has stopped resulting in high prices of the commodities. Consumer Goods are facing an all-time hike in their prices, imposing a threat towards increase in the inflation rate.

Oil prices are surging as supply disruptions mounted following sanctions on Russian banks, and traders are scrambling to seek alternative oil sources in an already tight market.

The ramifications of a potentially prolonged conflict are affecting prices across all the sectors. Gold prices are rising because of the rise in the price of crude oil, natural gas, metal market.

Investment Opportunities in Commodity Market

The Ukraine-Russia crisis is undoubtedly a short-term threat for businesses and may postpone economic growth for some time. Given that corporate profits have remained resilient, the current collapse in our markets appears to be transient. This transient opens a window of long-term investment for traders.

Half of the components of the Nifty50 index are likely to benefit from the rising prices of commodities and the rupee depreciation. While metal and other commodities are direct beneficiaries, the Information Technology sector shall boost up. At the Nifty Index level, it is likely that there is going to be a surge of 29% in FY22 benefiting from rising crude and energy prices.

What should the investor do?

With the Indian markets moving in tandem with their global peers and being under pressure owing to the persistent Ukraine-Russia tensions, it is advisable to avoid fresh longs and maintain a stock specific approach.

It is also significant to have the right proportion of defensive stocks in the portfolio as volatility might increase with revision in interest rates in the near term.

Investors are also advised to obtain guidance from Investment Advisor or Certified Researchers and trade in the market based on fundamental and technical analysis.