Ten hot money-spinners in India

Chicago, New York, London and Shanghai bourses may be rocketing. But for making money, one needs to catch the action in desi markets. So I did a quick reccy and guess what I found. There is plenty happening right here under our noses.

Here’s my list (in no particular order) of the top 10 commodities on the upswing. Keep an eye on them.

Gold and Silver: Gold is inversely linked to the dollar. So when dollar weakens, investors switch from currency to a hard asset like gold. Gold is attractive to everyone: those who believe the economy will recover and customers will start buying again; and those pessimistic ones who believe the worst is still ahead. For the latter, gold becomes a safe shelter for impending bad times. That is why pure gold crossed Rs 15,000 on Monday. Silver, the poor man’s gold, has tracked gold and risen to a 10-month high. They will continue to remain firmly bullish.

Tea and Coffee: Tea production in India, the world’s largest producer, is down 15%, affected by very poor rains in Assam and West Bengal. That comes when there is a global shortage of 45 mn kg, pushing Indian tea prices to an unprecedented Rs 98/kg. Exports have dropped by 12 million kg between January and March 2009, compared to last year. As consumption both locally and across the world continues to rise, this bodes well for tea companies, traders and exporters.

Coffee has been hit by disease and poor rains, too. Berry borer pest has hit 13,000 ha robusta coffee crop in the main growing districts of Chikmagalur, Coorg and Hassan in Karnataka. Last year too the crop was hit, albeit by heavy unseasonal rains. Currently, coffee prices are so high in the domestic market that traders are making more money selling locally than exporting overseas.

Gur and sugar: Sugar is hot because India produced only 14.5 million t in 2008-09 while it consumed 21 million t. This deficit has to be filled by imports. But if sufficient sugar is not imported, prices will remain at Rs 26/kg ex-factory. In 2009-10, India is expected to produce 21 million t sugar, going by current sugar cane planting reports from Maharashtra and UP. But all depends on the rains, which could change yields. Even if India does produce 21 mn t in 2009-10, the supply pipeline will still be badly stretched. Traders are already licking their chops.

If sugar is hot, gur is even hotter. Gur is now more expensive than sugar and no one has seen these prices of Rs 28/kg in a long, long time. There is tremendous demand for gur because it can replace molasses and be brewed to make country liquor. Right now, molasses are so expensive, that all desi vends have switched to gur. So gur can say hic, hic, hurray.

Pulses: Pulses are actually a no-brainer. India is perennially short of pulses. And with green vegetables so expensive, old staple dal is the only affordable source of protein for most families in India.

Spices: Cardamom, pepper, cloves are all looking good because the festival season is expected to make wholesalers finish their stocking by August itself. In cardamom, for instance, the local crop is down. The areas that grow cardamom have not yet started getting southwest monsoon showers. So if rains are poor, it will affect the Indian cardamom crop next season too. Meanwhile, the lone other producer in the world is Guatemala, where the quality is not too hot either this season. No wonder then the average price in May this year has been Rs 530/kg. Last year, it was Rs 500/kg.

Rubber: Rubber June futures have topped Rs 100/kg on NMCE and spot market rates are very close behind. Indian rubber prices move mainly in line with Tokyo’s TOCOM, so a jump there gets reflected in local futures. Natural rubber moves in tandem with crude oil because when crude oil becomes expensive, petrochemical-based artificial rubber also becomes expensive. That makes natural rubber a more affordable option for tyre companies and thus increases its demand. So if crude oil continues to rise, natural rubber will rise too, though only up to the point where tyre companies shout “enough” and stop buying.

Soya bean oil: It’s rising in India because of the push up from palm oil, the world’s cheapest oil. Palm oil touched a two-week high in Malaysia yesterday after the jump in crude oil prices made it again a viable option for using in biodiesel. There is bullishness in groundnut oil too because arrivals are slowing down from Gujarat and Maharashtra.

Rice: India produced 98.9 mn t of rice this year and will consume 92 mn t. That means we have a surplus of 5 mn t. Usually, this should be sufficient to keep prices steady in the market. But that hasn’t happened this year, chiefly because the government has bought such a large quantity of rice this season that the distribution pipeline is feeling tight. Don’t forget that the bulk of the rice grown in India is actually not sold in the market and usually saved for self-consumption and use as seed by millions of small farmers. Added to this feeling of tightness is the constant threat that the government will allow non-basmati exports. Already it has permitted export of 2 mn t to Africa as aid to poor countries. If exports begin, then the tightness could translate into tremendous momentum in the market.

Cotton: New York cotton futures have spurted sharply in April and May due to the general upswing in commodities and a fear that dry weather in key cotton growing state Texas could affect the crop. In India, price of good quality cotton is rising smartly. There was initially too much cotton this year in India because exports have been poor, and textile mills too did not have sufficient demand. But that could be changing. The rise in international prices means that expensive Indian cotton is again competitive in the world market. The recovery in textile demand means that yarn mills are back to work. Over all, cotton is looking good.

Potatoes: The potato crop was lower this year because of disease in West Bengal, hotter winters in the North, and poor rains in Maharashtra and Gujarat. That has pushed up mandi prices across the country to Rs 8-9/kg, up from Rs 3-5/kg last year. In the coming weeks, all eyes are on arrivals from Maharashtra. If they are poor, then prices could really shoot during the festival season. Going further, prices in November will depend on the early crop from Hoshiarpur and Una. If that crop is down, potato prices could hit new highs.