Sugandha Sachdeva, VP- Metals, Energy and Currency Research at Religare Broking, believes that women investors are now keen on exploring opportunities that exist in the organised commodity and currency markets space
In an interview with Moneycontrol's Sunil Shankar Matkar, Sachdeva said that both commodity and currency can be used to diversify and optimize the returns in a portfolio due to their low correlation with traditional assets.
Q: What is your advice for women who want to enter into commodity and currency markets?
Women generally are good at savings and when it comes to investing, the most favoured asset by women in India is gold, which they buy in the form of jewellery, serving the dual purpose of consumption as well as investment.
With the high returns that commodities have been delivering recently as an asset class, women investors are now keen on exploring the opportunities that exist in the organised commodity and currency markets space. As an asset class, they both are important for portfolio diversification and can optimize the returns in a portfolio due to their low correlation with traditional assets. They provide ample opportunities to those who want to start with smaller denominations and learn the craft. While making a foray into these markets, one can look at commodity-based stocks, commodity-based funds, or instruments that track gold.
On the other hand, if one can actively manage, the simplest way to enter these markets is through derivative contracts, via exchanges like MCX and NSE which provide excellent opportunities to trade or invest for a shorter period. All you need is a trading account with a broker. Both the markets are highly correlated and the movement is based on international market trends, which provides exposure to the global markets as well.
So, whilst one is making a head start in these markets, it is better to start small, gain some experience and then increase exposure based on your risk appetite and the amount of time you can devote. You can also seek the help of a financial advisor, for achieving your short-term and long-term financial goals.
Q: Do you feel we need more women investors in the market as we have had in the past year?
Investment by women in India is largely limited to gold or silver ornaments or some saving scheme in banks & post offices. India is an emerging economy with financial markets at a very nascent stage. Empirical data suggests that this market is dominated by male investors and traders. However, as more and more women are getting economically empowered and have ample surplus funds, they are gradually turning to these markets, especially because of the ease and convenience of investing or trading through the online mode. Also, there is ample scope for the household savings to be routed via SIPs or direct investment by the women into these markets. Like last year, we feel increased participation from women investors would make the markets much more vibrant, increase liquidity and, at the same time will provide financial independence to women.
Q: What are the challenges and opportunities available for women in commodity and currency markets right now?
Financial investments in India are primarily male-dominated with women largely underrepresented. Even worldwide, women account for less than 10 percent of the trading participants and it has also been observed that women are more risk-averse than men when it comes to investing in financial markets. They do understand financial investments but do not have much exposure or at times are reluctant to venture into this domain. Lack of awareness is the major hurdle for women in India to participate in the commodity and currency markets. Financial dependence over the family is the other major factor keeping women away from these markets. Investment is primarily limited to gold and silver in the form of jewelry or coins only.
However, it has been observed that women generally are better investors due to their inherent qualities. They are more patient and disciplined and have an attitude of nurturing so when it comes to trading or investing, they can nurture their investments in a better way. Also, the market rewards those who have a proper mindset, irrespective of gender.
In terms of opportunities, both commodity and currency markets have a lot to offer with their high correlation and easy-to-understand fundamentals. Amid vaccine roll-outs, and barrage of stimulus and liquidity, the global economy is showing strong signs of growth going ahead in 2021. China has been aggressively spending on its metals-intensive infrastructure.
In this scenario, demand for base metals and crude oil is likely to remain robust. A lot of pent-up demand and tight supply scenario is also fuelling prices higher. Green initiatives across the globe and transition towards electric vehicles will also be positive for base metals demand and price outlook. Though prices of base metals and crude oil have already run up a lot since the slide witnessed in March 2020, corrections would provide an opportunity to ride the upwards wave.
Apart from that, as fiat currencies continue to lose value and inflationary pressures built up gradually, gold and silver will remain underpinned and look quite attractive from a long-term perspective as investment assets.
Q: Is it time to be cautious now considering the correction in gold prices? Also, do we have to really worry about rising bond yields and the dollar index?
Gold prices have corrected by more than 20 percent from their all-time highs of Rs 56,191 per 10 grams primarily due to broad-based recovery in the global economy, accelerated COVID-19 vaccine rollout and 'risk-on' sentiments in the markets. Moreover, strength in the dollar index and surging US bond yields are acting as a headwind for the safe haven asset-gold and have dimmed its investment appeal. The shifting expectations of a pick-up in inflation and monetary tightening in the US are leading to a rise in bond yields. However, one need not be anxious as it can be considered as a time-wise and price-wise correction in gold after the strong advance seen last year. The US looks ready to roll out its $1.9 trillion stimulus plan, which is likely to suppress the dollar index and support gold. The combination of massive amounts of monetary and fiscal stimulus measures by all the major economies will eventually stoke inflationary pressures, which is conducive for gold prices.
We may see some more decline in gold prices in the near term and it may consolidate for a while, but for those waiting on the sidelines, it's an opportune time to start buying the yellow metal in a staggered way. The era of cheap money will keep gold prices afloat from a long-term standpoint.
Q: What is your view on the currency basket given the rising bond yields and higher dollar index?
Bond yields in the US have recently seen a sharp surge and 10-year treasury bond yields are currently hovering close to a one-year high at 1.60%, near the pre-pandemic levels. Rising treasury yields have lifted the dollar index to a three-month high and keeping other major currencies on the back foot. There are roaring signs that the arrival of the coronavirus vaccines and stimulus measures are working their way to boost economic growth in the US. The street is also pricing in the fact that central banks could start cutting back their support sooner than expected, due to the rising inflationary pressures which is leading to a rise in bond yields. Amid the evolving dynamics, major pairs in the currency basket-EURUSD, GBPUSD have witnessed significant selling pressure against the US dollar in the last two weeks, while the USDJPY pair has been appreciating, underscoring weakness in the Japanese Yen. Strength in the US dollar has also led to a significant depreciation in the rupee towards the last week of February, wherein it witnessed the highest weekly loss since March 2020, against the greenback.
Rising crude prices are also acting as a negative trigger for the Indian rupee. In the domestic currency basket, we are expecting the Indian rupee to witness major resistance around 72.40-72.20 area and inch lower towards 73.50 mark. Any violation of the 73.50 mark against the US dollar would lead to further depreciation in the local unit towards 74.70 mark. On the other hand, the rupee is expected to witness some appreciation against the Euro, Japanese Yen and, the British pound in the near term, amid persistent capital inflowsDisclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.