A veteran trader reveals how to supercharge your investment profits

Markets operate on probabilities, not guarantees—there are no “sure shots" here. To outperform, investor-traders must develop a mental edge, honing their decision-making process to select better stocks than their peers. Naturally, this means refining our stock selection strategies to improve the odds of success.

The soup-to-nuts approach

I rely on what I call the 360 degree worldview for evaluating stocks. This approach involves considering as many factors as possible to increase the probability of success, starting with an in-depth examination of a company’s profitability metrics.

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Every successful business begins with buying raw materials at favourable prices—that’s the first layer of profit. Selling the product at a higher price brings the second layer. However, conventional financial analysis, which focuses on balance sheets, profit-and-loss statements, and ratios, only tells part of the story.

A deeper understanding emerges when we extend our analysis to commodity markets, where raw material prices impact profitability.

For most manufacturing companies, commodities are the backbone of production. For example, cotton is essential for garment makers, while steel is crucial for automobile manufacturers. Analysing these raw materials helps predict profitability trends for companies in these sectors.

To illustrate, let’s look at aluminium as a core commodity and compare the impact of its price movements on two companies: Hindalco Industries and Butterfly Gandhimati Appliances.

Know your game

Peter Lynch, the renowned fund manager of Fidelity Mutual Fund, famously remarked that most people spend more time researching refrigerators than stocks. Yet, many investors buy shares on whims and tips—a costly mistake we must avoid.

To make informed decisions, let’s understand the instruments involved here:

Aluminium: Aluminium is the most abundant metal in the Earth’s crust, comprising approximately 8.1% of it. In other words, aluminium deposits can be found almost anywhere if you dig deep enough.

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Given its abundance, the idea of an aluminium "super-cycle"—an extended period of unstoppable price gains—lacks merit. Prices for abundant commodities like aluminium tend to fluctuate within a narrow range. This mirrors the sugar cycle, where sugar prices surge, turning stocks into multi-baggers, only to crash within 8–10 years, repeating a pattern familiar to commodity traders. The same cyclicality applies across commodities traded on exchanges.

Hindalco Industries: Hindalco is one of India’s leading miners and producers of aluminium, with its shares listed on all major Indian stock exchanges. Aluminium serves as a finished product for Hindalco, meaning the company benefits directly from rising aluminium prices.

Butterfly Gandhimati Appliances: A prominent manufacturer of home cooking appliances, Butterfly Gandhimati produces pressure cookers, cookware, and related products. Like Hindalco, its stock trades on Indian exchanges. However, aluminium is a key raw material for this company, meaning rising aluminium prices erode its margins.

Boots on the ground, eyes in the sky

When a soldier fires a projectile from a shoulder-mounted launcher, the target appears as vertical shapes—his mission is to bring it down. A pilot, on the other hand, views targets as circles and squares on a heads-up display and must flatten them from above. Same objective, different perspective.

Modern weapon systems are now evolving into artificial intelligence (AI)-powered smart tools, giving soldiers a 3D view of their targets—an innovation that blends ground-level precision with aerial awareness.

Similarly, successful investors adopt a hybrid approach, combining the precision of a soldier with the broader perspective of a pilot. This is the "boots on the ground, eyes in the sky" strategy, allowing you to visualize investments in three dimensions and act with clarity and foresight.

Using this approach, you can maximize profits from a single investment theme by employing both detailed, ground-level analysis and high-level market insights.

Now, let’s dive into a technical analysis to see how this strategy works.

Aluminium vs Hindalco

The graphic below plots aluminium (MCX) as a candle chart where bullish days are green colour coded and bearish days are red. The blue line is the stock price of Hindalco on the National Stock Exchange (NSE).

The first thing that strikes your eye is both charts are identical. As if they are moving in lock-step. This is called positive correlation.

Now let us check out the same aluminium (MCX) chart versus Butterfly Gandhimati Appliances. The immediate “eyeball check" tells you both plots are inversely correlated. Which means whenever aluminium rises on commodity markets, the stock price of Butterfly Gandhimati falls.

Causation vs Correlation

There’s an old saying among statistical trading system programmers (myself included): "If you don’t understand the difference between correlation and causation, you’re dead in the water."

So, why are the stock prices of Hindalco and Butterfly Gandhimati Appliances so closely linked?

The answer lies in aluminium’s role in each business. For Hindalco, aluminium is the finished product. A rise of even ₹1 per kg in aluminium prices triggers a multiplier effect on its profitability. For example, if Hindalco produces 50,000 tons of aluminium monthly, a ₹1 increase translates to ₹5 crore in additional monthly profit. Analysts often seize on such news, triggering a wave of buy recommendations on TV channels, potentially pushing Hindalco's stock price up by as much as ₹25 per share for every ₹1 increase in aluminium prices.

For more such analyses, read Profit Pulse.

This multiplier effect is also why sugar stocks become multi-baggers during bull runs—only to crash later, becoming “multi-beggars" in the inevitable bust.

On the flip side, Butterfly Gandhimati Appliances relies on aluminium as a key raw material for its cooking vessels. Rising aluminium prices squeeze its profit margins, introducing stress and volatility to its business. Now, reverse the same metrics: every ₹1 per kg increase in aluminium prices directly erodes the company’s profits, showing how consumers of aluminium suffer with every price rise.

Call to Action

To effectively double your profits from aluminium price movements, consider a two-pronged strategy:

When aluminium prices fall: Go long (buy) Butterfly Gandhimati Appliances. At the same time, short (sell futures or options contracts) on Hindalco shares.

When aluminium prices rise: Book profits on Butterfly Gandhimati, cover your shorts on Hindalco, and initiate new long positions in Hindalco. This approach is known as the Stop-and-Reverse (SAR) strategy.

Maintaining trade balance is crucial. Ensure that both trades are proportional. For example, buying 50,000 shares of Butterfly Gandhimati but only shorting 5 lots of Hindalco derivatives will skew your returns and undermine the strategy’s effectiveness.

Note: This is not financial advice but a general framework for profiting from commodity trends.

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Admittedly, forward positions involve leverage and carry significant risk, making this strategy unsuitable for everyone. Experience, disciplined risk management, and adequate capital are essential. But remember: faint hearts rarely win fair maidens.

Have a profitable day!

Disclaimer: This article draws on data from TradingView. Its sole purpose is to present interesting charts, data points, and thought-provoking opinions. It is not a recommendation. If you are considering an investment, please consult your financial advisor. This article is strictly for educational purposes only.

About the author: Vijay L Bhambwani is the author of India’s first official commodities trading guide. He designs statistical and behavioural trading models for his family-owned proprietary trading outfit. Based in South Mumbai, Vijay has been trading the markets since 1986. You can follow him on Twitter at @vijaybhambwani or watch his video blogs at www.youtube.com/vijaybhambwani.

Disclosure: At the time of writing, the author, his proprietary trading organization, family, and dependents have no exposure to aluminium, Hindalco, or Butterfly Gandhimati Appliances stocks and/or derivatives. This disclosure is made in accordance with regulatory guidelines.