While the broader markets were trading with a slight uptick, with the trading with a gain of 0.12% to 15,310 and the rising 0.25% to 51,490, commodity-based stocks have been continuing to tumble in today’s session.
Across the board, we are witnessing a crackdown in metal and energy shares. Looking at some sectoral indices, a clear underperformance has been witnessed today with the falling 3.47% to 4,560.6 and the tanking 1.15% to 23,879.
Some of these commodity-based shares even plunged to a 52-week Low and names include – Vedanta Ltd (NS:) (-8.6 to INR 241.25), SAIL (NS:) (-4.31% to INR 65.45), Bharat Petroleum Corp. Ltd. (NS:) (-0.76% to INR 298.8), Hindalco (NS:) (-4.35% to INR 319.1), Hindustan Copper Ltd (NS:) (-6.61% to INR 87).
The primary reason behind the continued selling is a noticeable retracement of their underlying commodities. The recession fears which started to creep in after the US Fed’s 0.75% rate hike have been denting investors’ sentiments regarding the demand for these commodities. On Friday, tanked over 5% as investors pulled out of energy markets over the forecast of abating demand in the near future. Oil marketing companies such as HPCL and BPCL have fallen already fallen to their 52-week lows in the past few sessions.
Another important commodity in the energy market, has also been making headlines after its devastating 15% one-day plunge on 14 June 2022 on the MCX. The Freeport’s LNG Terminal that suffered an explosion would take almost the entire remaining 2022 to get restarted, as said by the management which the market earlier thought would take approximately a few weeks. This simply means nearly 2 billion cubic feet of gas per day which the terminal needs would now have to be rerouted for other uses. That’s a lot of gas waiting to find a replacement demand! The result has been seen in shares such as ONGC (NS:) which is down 12.95% in just one week to the last traded price of INR 134.95.
Not to forget, the Covid-19 situation in China has also been concerning investors, especially with metal demand. Steel prices are already down over 20% from the peak of INR 76,000 – INR 77,000 per tonne to INR 62,000 – INR 63,000 per tonne. A double whammy on metal shares was the government’s imposition of export duty on steel and iron ore products which torpedoed metal shares to upwards of 15% in a day, in May 2022 and the selloff still continues.
However, falling commodity prices are a good indicator of inflation getting under control which is exactly what the world needs at the moment. If commodity prices continue to fall, we could see abating inflation in the coming months. The inflation number for May 2022 came out at 7.04%, which is lesser than 7.79% in April 2022, indicating the inflation might have topped out for the near term, which is in sync with the falling commodity prices.