The unrelenting fall in commodity prices has taken a huge toll on investor wealth. The rout began from the end of June 2014 and commodity stocks listed on Indian bourses have been among the worst affected since then.

Stocks in the oil and gas, ferrous and non-ferrous metals and mining business had a combined market capitalisation of a little over ₹12.1 lakh crore on June 30, 2014. This halved to ₹6.40 lakh crore by this January, resulting in a loss of close to ₹5.7 lakh crore to investors.

Crude impact “Commodity prices have fallen sharply due to persistent oversupply, slowdown in Chinese demand and strengthening of the USD Index,” says Jatin Damania, AVP, Kotak Securities Ltd. Crude oil, whichrecently declined below $30 a barrel from $114 in June 2014, has accounted for much of the drag-down of the commodity basket .

Indian commodity stocks have been closely tracking the movement in global prices. Echoing the decline in global coal prices by about 30 per cent between June 2014 and now, Coal India witnessed a 25 per cent erosion in its stock price. The 72 per cent drop in crude oil prices and the 52 per cent fall in natural gas prices were similarly reflected in an average erosion of 53 per cent in crude and natural gas stocks.

The decline was more pronounced for copper and aluminium stocks. While the prices of the non-ferrous metals declined 37 per cent and 20 per cent, respectively, the stocks of companies in these spaces lost more than half their value.

Cheaper imports have effectively aligned domestic prices in line with international levels.

“Domestic companies have asked for various measures such as imposition of a Minimum Import Price, a hike in import duty, etc. from the government to protect them. If the government takes any such action, it could provide some relief to the industry,” says Damania.

Worst affected Iron and steel stocks have been the worst affected since June 2014.

The big five losers belong to this sector; Bhushan Steel, Monnet Ispat and Jindal Steel top the list, with losses between 80 per cent and 90 per cent.

Yogesh Mehta, Vice-President, Motilal Oswal Securities, says, “The steel sector in particular has taken a hard hit due to a sharp fall in demand, and diminishing export prospects.”

Investors have lost close to ₹2.5 lakh crore in market capitalisation in the crude and natural gas segment.

Cairn India, down 70 per cent, and ONGC, down about 51 per cent, are the larger players to take a hit.

Coal and zinc were the only two commodity segments that witnessed a relatively smaller erosion in stock prices. Coal stocks lost 26 per cent of their value, and zinc stocks about 15 per cent.

So, where are commodities headed now? “Commodity prices are likely to recover only over the medium-to-long term as the devaluation of the Chinese yuan, a strong US dollar and large inventories across commodities will put prices under pressure in the near term,” says Damania.

Outlook can improve Mehta believes the outlook for ferrous and non-ferrous metals can improve once the government’s plans to improve infrastructure comes into play in the next two-three years. “Zinc prices can rebound on the back of mine closures and smelter closures,” adds Damania.

Experts, however, advise caution. “It is best to stay out of commodity stocks until there is a clear sign of demand picking up, which might take another year or a year-and-a-half,” says Mehta.

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