Will commodities cool-off as Indian markets go bottom fishing?

The Indian markets are again in the mode of bottom-fishing, FIIs, predominantly i-banks and hedge funds are in process of liquidating their portfolios to keep themselves alive with cash flows. This new round of sell-off is more likely to impact the companies which makeup the portfolio of those US firms which are now in trouble with their financial exposure.

The present eruption of year long financial crisis has casted a bigger shadow not only on the Indian markets but also on the companies. The fresh bout is expected to impact US investment banks’ investments in corporate India, which sooner or later will be liquidated. Though people are expect such liquidation from Merrill Lynch and Lehman but the fact remains that Citigroup for long (since last year) has been contemplating selling its stake in HDFC. It implies that India will see more stake sale by big US banks, though most of it may not come to the market, but will definitely impact the markets.

But, the good new may come from the commodity side, which since last year has risen tremendously on back of speculation. Now that interest rates are high, credit is further going to be squeezed out of the market and economic cycle on downhill is going to reduce the demand, speculators would prefer booking their profits and leave the markets for sometime. Commodities, especially the energy related, will see some cool-off now. This may come as good news for India, which is fighting high crude and steel prices.