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Indian commodity markets:

past, present and future
by Jayant Manglik, Religare Commodities Limited, India

Organised futures markets in India are now 134 years old, with
the first such organisation – the Bombay Cotton Trade
Association Ltd. – having been set up in 1875. While India was
gradually becoming the largest consumer of gold in the world,
a position it still enjoys, futures markets in bullion were
inevitable and began to emerge in Mumbai in 1920.

In due course, similar markets emerged in six other Indian trade as necessitated by WTO. This requires futures trade
40 cities along with the initiation of several other exchanges in a wide variety of primary commodities and their
in diverse commodities such as pepper, turmeric, potato, products to enable diverse market functionaries to cope
sugar and jaggery. Before the Second World War broke out with the price volatility prevailing in the world markets.
in 1939, several futures markets in oilseeds were also
functional. After independence, the responsibility for
Structure of commodity futures
regulation of the commodity futures markets lay with the
market in India
government, leading to a Parliamentary Act in 1952.
The Forward Markets Commission is the regulatory authority
The 1970s saw most of the registered associations of the commodity futures market. The commodity futures
becoming inactive, with futures as well as forward trading market in its new electronic avatar is almost six years old
in the commodities under severe restriction or even
prohibition as the price rise in agri-based commodities was
blamed on the markets. Several years later, there was
implicit recognition that futures contracts perform the two
important functions of price discovery and price risk
management, and are useful to all segments of economy.
After intermittent milestones, the liberalised policy was
introduced by the government of India and the gradual
withdrawal of the procurement and distribution channel
Jayant Manglik
necessitated setting in place a suitable market mechanism.
President - Commodity Business
Globalisation of the economy has ensured that India opens
Religare Commodities Limited
the agricultural sector for seamless integration with world

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and comprises three national-level exchanges and 19
commodity-specific (regional) commodity exchanges. The
national exchanges operating in the Indian commodity
futures market are the Multi-Commodity Exchange of India
(MCX), National Commodity and Derivative Exchange of India
(NCDEX) and National Multi Commodity Exchange of India
(NMCE). Recently, one new national exchange has been
given permission to start and another regional exchange has
been permitted to upgrade to a national exchange. In line
with its modern financial infrastructure, India is one of the
few countries worldwide to have commodities’ delivery in
electronic (dematerialised) form.
The growth paradigm of India’s commodity markets is best
reflected by the figures from the regulator’s official
website, which indicated that the total value of trade on
the commodity futures market in the financial year
2008/09 was INR52.49 lakh crore (over US$1 trillion) as
against INR40.66 lakh crore in the preceding year,
registering a growth of 29.09%, even under challenging
economic conditions globally. The main drivers of this
impressive growth in commodity futures were the national
commodity exchanges. MCX, NCDEX and NMCE along with
two regional exchanges – NBOT Indore and ACE,
Ahmedabad – contributed to 99.61% of the total value of
commodities traded during 2008/09.
Commodity futures market trade
60,000,000
Turnover (INRm)
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
0 0
Apr 06-Mar 07 Apr 07-Mar 08
Turnover (INRm) % change of current year over previous year
Source: Religare Capital Markets, India
So far, this year’s volumes have seen a significant jump
over the last year in agri-commodities, as well as
‘international’ commodities like gold, silver, crude oil and
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copper. Of course, more than 100 commodities are today
available for trading in the commodity futures market and
more than 50 of them are actively traded. These include
bullion, metals, agricultural commodities and energy
products. Most importantly, an archaic market has
suddenly turned into an organised, service-oriented set-up
with shooting volumes.
The unqualified success of the futures market has ensured
the next step, i.e., the launch of electronic spot markets for
agri-products. Being in a time-zone that falls in the gap left
by the major commodity exchanges in the US, Europe and
Japan has also worked in India’s favour because
commodity business by its very nature is a 24/7 business.
Innovation coupled with modern and successful financial
market environment has ensured the beginning of a
success story in commodities which will eventually see
India becoming a price-setter in major commodities on the
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strength of its large production and consumption.
It is pertinent to note that India and China are being
projected as the major drivers for the initiation of yet
another commodity super-cycle. Tracking price trends
and analysing the statistics have always been key areas
of economic research; but in each cycle – whether
defined by Jim Rogers, Kondratieff or Dewey & Dakin – the
trigger is always different, and in this case it may well
be increase in regional consumption, some of which we
have already seen.
Exhibit 1
One outcome of the recent boom-bust cycle has been
40
year over previous year
that mergers and acquisitions have gained speed and
% change of current
30 the biggest beneficiaries will likely be large companies
20 from historically conservative countries, like India. This
10 phase is likely to propel India into the international big
league quicker and on a firmer footing. In fact, India did
Apr 08-Mar 09
well to weather the global financial crisis over the last
year and a half, with GDP growing at 6% at the worst
of times, compared to almost every other country which
showed negative growth in one or more quarters during
this period. Growth did fall from 9% to 6% but was way
above the World Bank’s forecast of 4%, demonstrating
economic resilience, a sure sign of things to come.
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It would seem that the alignment of growth with

Contact us:
commodities is the most likely outcome to underline
the changing world economic order. Religare Enterprises Limited

In addition to futures trading, the number of Indians looking Corporate Office: A3,4,5 GYS Global, Sector 125
at commodities as part of their investment portfolio is fast Noida (UP) -201 301, India
reaching critical mass, as gold demonstrates. Add to that a
state-of-the-art infrastructure for trading and the availability web: www.religare.in

of trained personnel, and you have a ready market for

Director - Brand & Corporate Communications
businesses wishing to hedge their risks as the markets
become more and more globalised on account of the Subhrangshu Neogi
removal of trade barriers worldwide. Companies like Religare
e-mail: subhrangshu.neogi@religare.in;
Commodities, with a pan-India footprint and global plans,
are uniquely poised to take advantage of the opportunity investindia@religare.in
and are leading the growth curve. With a conducive financial
environment, the commodity markets in India have come of
age and benefits are accruing to those who are most willing
to identify consumer needs and service them.

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