Correlation Between Commodity & Stock Markets in India | Motilal Oswal

Correlation Between Commodity & Stock Markets in India

Commodity trading is executed in India with a view to make profit by investors. Stock markets in India are also popular places to make gains. Knowing about aspects of both commodities and stocks can  help you reach a better understanding of their correlation. 

  • Understanding Concepts

What is a commodity? To understand more about commodity online trading, you need to know what a commodity is. Essentially, a commodity is a product that can be exchanged for other products that are the same type. The prices of commodities are fixed depending on factors of demand and supply of these products. Examples of typical commodities are oil, natural gas, gold and grains. In the not-so-distant past, there has been an extensive expansion in the market of commodities. This is because there is an increase in their interest by institutional investors. Commodity stocks are traded on commodity exchanges like stocks are traded on stock exchanges.

  • Importance of the Correlation Between Stock Markets and Commodities

To better understand the relationship between stock markets in India and commodities, you must know that both play important roles in financial portfolios of the majority of Indian investors. Accumulating commodities and stocks and storing them act as a hedge against downturns in the economy. Hence, both are used as safety nets in times of emergency. 

  • The Correlation

The ecosystem of trading in India is presently experiencing a radical change due to a merger between the Security Exchange Board of India and the regulator of commodities, FMC or the Forward Markets Commission. What does the collaboration of these two indicate? The merger of SEBI and FMC results in a single trading platform to facilitate the trading of stocks and securities as well as commodities. Now, commodity trading and trading in stocks take place at one spot, and this offers immense opportunities for investors. 

  • Stocks and Commodities for Investors

To make commodity stocks and shares both work for you, you should know how each benefits you. Here, too, you will find a correlation. Commodity stocks represent actual products, while stocks involve investors owning shares in a particular company or corporation. Each is an asset and can be sold and bought on exchanges. Both may be affected by different variables, but there is a relationship between them. If you look at the history of stocks and  their price fluctuations, you will find that when stock values rise, the value of commodities like gold fall, and vice versa. This is just a single instance of an inverse relation between commodities (gold being the most frequently traded in) and stocks. This relationship can be explained as gold is seen as a stable investment avenue, and when stock markets show volatility, gold can be relied on as a hedge, making its demand and value increase. 

  • Diversify Your Portfolio

Serious investors seek to diversify portfolios and will invest in a number of assets to meet this goal. At Motilal Oswal, you can choose to diversify assets by trading in a range of them with convenience. 

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