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India will continue to see an increased rotation into commodities: Crescat Capital

Updated : January 13, 2021 02:24 PM IST

The weakness in dollar, the resurgence in economic activity has prompted a sharp rise in demand for commodities. But how will it perform in 2021 and are we in for a commodities’ boom?

Kevin C Smith, CFA-Founder, CEO & CIO of Crescat Capital, said that India will continue to see rotation out of equities and into commodities.

“Commodities are cyclical and they move in big long-term cycles relative to stocks. In our analysis, we have a setup today that is similar to 2000 at the peak of the tech bubble. That was also the beginning of a new bull market for precious metals and new bull market for energy as well as for oil and gas stocks. We have tech stocks in the US that are record overvalued today, even higher by many metrics then they were at the peak of the tech bubble. So we do see this rotation setup we call the great rotation out of stocks and into commodities ahead of us,” he said in an interview to CNBC-TV18.

He also believes that inflation is going to rise with commodities. “We believe that inflation expectations are going to be rising. Inflation is really going to be starting on the commodity front because of this huge imbalance between equities versus commodities. There is a rotation trade out of overvalued stocks, overvalued fixed income and into commodities. It starts with precious metals, but it is also oil and gas. We are very constructive on the oil and gas market here too,” he said.

“The oil industry is even more cyclical than the precious metals and mining industry. But every time you get low rig count, historically we have seen a very bullish ensuing environment for oil and gas. We think we have another one of those setups today. Look at what is going on in the Middle East with the production cuts coming out of Saudi Arabia. They are taking advantage of this situation and that is very bullish for oil,” he added.

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