Slug: Understanding the benefits of investing in a transforming commodities ecosystem

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Time and again, investing in commodities – particularly gold – has proved its relevance as a safe haven, a hedge against equity and a portfolio diversifier, as well. During spells of uncertainty, like the ongoing pandemic, it has delivered exceptional returns too; even when countries were under lockdown, gold hit all-time highs in almost 70 currencies.

On the Indian exchanges, there have been huge rallies in gold and silver in the recent past. Volumes, turnover and open interest hit multiple highs in 2020, while options volumes also came of age. At the same time, SEBI has been facilitating the ecosystem with more progressive regulation.

To explore the short and long-term potential of investing in gold, various gold products that have emerged in recent times, the benefits for a retail investor’s portfolio and how it could create wealth, amongst other related themes, MCX IPF and CNBC TV18 hosted ‘Commodity Classroom’, a series of virtual discussions featuring sector experts, sharing their insights.

Transitioning times

Moderated by Manisha Gupta of CNBC TV18, the first panel comprised Shivanshu Mehta, Head – Bullion, Multi Commodity Exchange of India; Prithviraj Kothari, Managing Director, Riddisiddhi Bullions; Saurabh Gadgil, Chairman and Managing Director, PNG Jewellers and Deepak Gupta, Director, Kundan Group.

They discussed how the focus on precious metals as an asset class has been renewed in the past two years, due to the pandemic. Globally, exchange traded products and electronic accumulation have grown and domestically, MCX used the time to further innovate on its product portfolio. It has launched metals indices – Bulldex and Metldex, and introduced refined Indian gold delivery.

Interestingly, MCX’s 1gm gold deliverable contract, the first of its kind in the world, has seen approximately 50,000 coins being delivered since its introduction in 2019, while the 1kg silver deliverable contract, launched during Covid times, saw 70 tonnes of this retail product changing hands.

With rapid price movements in the bullion market and the simultaneous sharp devaluation of the Rupee, commodity exchanges enabled hedging and provided liquidity. Even the jeweller community, which faced challenges due to their stores being closed, were able to offer their customers lucrative schemes, by covering the risks involved by hedging their positions on the exchanges.

The newfound interest in such products and markets reflects a change in the way various client segments accumulate products electronically or use the efficiency and liquidity of futures order books for spot-futures integration towards better price discovery and risk mitigation.

New-age investing

The second panel discussion continued to revolve around gold, highlighting its benefits as a wealth creator and other facets that make it a valuable part of an investment portfolio. This time, Shivanshu Mehta of MCX was joined by Vikram Dhawan, Head – Commodities & Fund Manager, Nippon India

Mutual Fund; Nayan Mahendra Gogri, Vice President, Quant Group and Dileep Narayanan, Head – Bullion & Treasury, Malabar Group, best known for popularizing ‘One India one gold rate’ in 2020.

The panel discussed the best ways to invest in gold, based on whether it is for the short term or longer-term, the investment philosophies and risk parameters of the investor and whether it is held as a hedging investment or for tactical reasons or for absolute returns. They also explained how it can be harnessed as a portfolio diversifier and the extent of gold that could be held within an ideal portfolio.

As time goes by, newer, easier ways of trading, acquiring and holding gold have emerged and advances in technology have accommodated new investors, like millennials. The experts advised which forms of electronic investment were suitable for retail investors and talked about how protecting customers’ interests builds their confidence and encourages participation.

Changing landscape

The next episode of ‘Commodity Classroom’ delved into the transforming landscape of the commodities market due to regulatory changes, the launch of new products by exchanges and expanding list of participants that includes AIFs, Mutual Funds, Portfolio Management Services and eligible foreign entities, beyond individuals and corporates. The participants - Rishi Nathany, Head – Business Development & Marketing, MCX; KK Maheshwari, President, ANMI; Ashok Agarwal, Chairman, Globe Capital Market; Ramesh Varakhedkar, Head – Commodities & Currencies, ICICI Securities and Narinder Wadhwa, President, CPAI, shared their insights on how indices have acted as a broad-based catalysts to participation into the commodity derivatives market.

The domain experts offered advice to retail investors on various issues including what products are suitable under which circumstances, the importance of having commodities in a portfolio and how to begin investing in commodities and tracking the progress of these investments.

Shining future

All in all, the ‘Commodity Classroom’ series offered interesting insights into how commodities are emerging as an asset class. Exchanges, like MCX, have been working towards empowering customers – both hedgers and traders – with organized ways of investing and an ever-expanding bouquet of suitable products. Alongside regulatory changes, these efforts and adoption of best practices, will go a long way in building confidence and encourage much wider participation. The fast-developing ecosystem foretells a shining future for commodities as an asset class.

Watch Episode 1 and Episode 2 of MCX present Commodity Classroom

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