Commodity stocks may fall: Shamik Bose

In a chat with ET Now, Shamik Bose, Advisor, Microsec Commerz, talks about market volatility and metal stocks.

It has been a really volatile market in what we have seen in the recent days, today really takes the cake away. Rupee at 47.70, gold has declined, most of these metals are down 5%, crude is back around $68. How do you see the scenario panning out now?

Like you summed it up, the volatility is absolutely mind blowing and primarily it is coming from the currency markets and you saw that Euro after jumping from 1.22 to 1.26 is falling back again. I suspect it could go down further, 1.18 seems a likely target, although it is oversold. Now if you think this is coming from currency market, you have to see the US index is getting a little overbought, same with the dollar against the rupee and the Euro is getting a little oversold and this is one reason. Secondly if you remember we had discussed the Euro carry trade about three weeks ago and people borrowing in Euro are now going to jump into different assets but which one, we do not know as far as in commodities and they are going to fall I suspect. Crude oil is going towards the bottom of the range, which is $66. Gold will go down and then consolidate.

Sure. It of course has to do with currency the way we have seen commodities react but how much of a more decline are you expecting for let's say base metals from hereon because as you said, gold might consolidate, crude might see some support at 66 but what about the metals?

First of all, metals depending on which one, if you remember the last time we spoke, I thought the nickel's rally a couple of months ago was overdone. I thought copper was not exhibiting fundamental strength at $8000 and I thought these things will need to correct and if you look at zinc, if you look at copper, lead, they have not held on to any support. If you see the monumental amount of stocks in aluminium, the fundamentals are asserting themselves and with America in problem and Europe in problem, that's 2 out of 3 legs where demand destruction is taking place, at least with just the BRIC countries. Now crude oil if you remember it has been in a range for a long time and I suspect here $66 can be breached. There is no rolling profit for hedge funds or index funds and in the green market, this is turning out to be very costly for the funds, so crude could collapse here if the funds withdraw.