May 13, 2024
Post-COVID, global commodities have entered a supercycle following nearly a decade of consolidation. Despite short-term dips, controlling inflation and interest rates is challenging during a commodities supercycle. Over the next 3-5 years, global commodities are expected to continue their upward trend.
This scenario is highly beneficial for manufacturing-oriented developing economies like China and India but less favorable for more developed markets like the US.
The chart above illustrates the correlation between commodity prices and India's broader market index, the Nifty 500 (in USD terms). Both the Global Commodities Index and the Nifty 500 (in USD terms) simultaneously reach their long-term tops and bottoms.
This indicates that smart money tends to invest outside India when commodities are in a free fall and re-enters India as commodities embark on a long-term upward rally.
Considering the 12-year downward trend in commodities from 2008 to 2020, we should expect a minimum of 8 years of upward movement, suggesting we are currently in the middle of a commodities supercycle with significant growth potential remaining.