The markets were rattled by notes from the recent Fed meeting. The prospect of an early end of stimulus and a probable rise in interest rates came out of these notes. This was not quite unexpected. But, the markets were fervently hoping that it would take much longer. Event risk is always factored in quickly by the markets. Possibly, this eventuality will also be factored in by the market in the coming weeks.

The commodity markets were the most rattled. The reduction in liquidity is seen by the markets as likely to cause a reduction in demand. But, given the recent trend of insulating commodity markets from global trends through protective duties, restrictions and other ways we need to see how the global trends reflect in local commodity prices. Also, with government being the primary driver of infrastructure spending, demand is likely to hold steady in India.

The prospect of supply increase in commodities within India depends on the evolving softness in export markets. During the past two years, tightness in supply of commodities was caused by very smart export strategies by local industry which ensured surplus production did not find its way into local markets.

How commodity producers manage the coming months holds the key to fortunes of Indian commodity stocks. For now, it is very interestingly poised.

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