Commodity stocks better than commodities: experts

Several stock analysts and investors tracking the commodities sector are of the opinion that commodity stocks are a better bet than investing directly in commodities.

According to analysts, production of commodities depends upon several variables such as weather conditions and government policies. Supply and demand also tend to fluctuate.

Purchasing stocks of sugar and castor-oil producing companies would be a better option than investing in commodities, believe analysts.

According to Birla Sun Life's Chief Investment Officer A Balasubramanian, "There is an increase in the alternative usage of commodities like sugar and corn, as these are also used in the production of ethanol".

He added that with the growing shortage of fuel in the global market, the demand for alternative fuel like ethanol is on the rise. This is likely to benefit companies dealing in commodity goods.

One analyst pointed out that sugar makers Shree Renuka had recently acquired an ethanol plant of Dhanuka Petro-Chem, a division of Dhanuka Cold Storage Pvt Ltd located at Khopoli in Maharashtra for Rs 6 crore. The unit has an installed capacity of 100 klpd of ethanol.

The company plans to increase its capacity and set up a wholly owned subsidiary - Shree Renuka Biofuels Holdings FZE in Sharjah International Free Zone for its overseas investments.

Several other companies are likely to follow the same path, by diversifying into ethanol manufacturing along with their core businesses, the analyst felt.