HNIs see future(s) in exotic oil products

While crude-oil futures soared to a new record of above $147 a barrel this week on the New York Mercantile Exchange, the energy-tracking ETFs were sitting atop in the first-quarter performance posting more than 40% returns. US 12-Month Oil Fund (43.4%), PowerShares DB Oil (41.3%) and PowerShares DB Energy (40.1%) were the top performing ETFs on the New York Mercantile Exchange during April-June 2008.

According to Sonu Bhasin, senior vice-president (retail banking) and head of wealth management group at Axis Bank, with the markets continuing to remain volatile, HNIs are reluctant to take more exposure in Indian equities.

“They’re actively looking for new opportunities and now that they can legally invest a substantial amount in foreign ventures, they’re more open towards taking exposure in exotic products such as oil ETFs,” said Ms Bhasin. She said they’ve received a number of requests from their clients. However, RBI doesn’t allow banks to offer any products which are non-rupee denominated. “But we’ve heard that some other companies in the wealth management space are offering such products,” she said.

Sudip Bandyopadhyay, CEO of Reliance Money, feels that it’s not surprising that Indian HNIs are also now actively speculating in oil futures and oil ETFs. “These are savvy investors who are looking to sense every opportunity they can seize from the markets. Today they are investing in oil products, tomorrow you will find them investing in gold ETFs and probably the day after that they might be buying copper.

They are a handful of people who are investing in these leveraged ETFs and short funds that allow them to profit from market pullbacks,” he said. A CEO of a wealth management company, in fact, blamed this short-sightedness of HNIs worldwide for the rising crude oil prices in the world markets. “It’s short-term money and they should understand they cannot live a life with it.

Middle-East oil politics apart, the HNIs globally are to a great extent responsible for building speculative short positions in the crude oil futures, which is driving the prices up. With Indian HNIs also jumping into the bandwagon, it’s only adding fuel to the fire already raging on,” the CEO said.