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A Rising Profile of Indian Commodities Market
A Rising Profile of Indian Commodities Market
ABSTRACT
Like the equities market, the commodity futures market in India is also in a
phenomenal growth pace in the last two years. The market grew by an astounding 440
per cent during the just concluded fiscal to an aggregate value of Rs. 21.34 lakh crore
($500 billion approx), up from Rs. 5.72 lakh crore in 2004-2005 (FMC reports). There
are some 90 commodities traded in 3 national exchanges and 21 regional or commodity
specific exchanges the top five being Gold, Silver, guar Seed, Chana and Urad. The
primary function of a commodity futures market is price discovery and price risk
management. While this function is essential for farmers, other stakeholders such as
processors, corporate, traders, exporters and consumers also turn to these markets.
Research reports indicate, a significant part of trade is speculation driven, with
participation by hedgers largely limited or almost absent.
Even while feeling good about the soaring volumes, there is need to pause and
examine the increasing interests of investors to invest in commodities futures markets,
the major initiatives of FMC to strengthen the regional bourses and the impact of stake
holders to the present growth. It is stakeholders to the present growth. It is only through
a comprehensive review, that commodities futures market can set itself on a healthy and
transparent path. Clearly this is a challenge for the regulator to address and make
commodity futures a perfect trading for all participants.
A RISING PROFILE OF INDIAN COMMODITIES MARKET
INTRODUCTION
The upward stride of the commodity futures Market, a journey that commenced
sometime in 2002 after almost four decades of banning has in recent months gained
unprecedented momentum. The next Bull run is predicted in this new asset class which
seems to presently competing with securities, forex, bond and real-estate markets in
attracting investible funds. Surely, there are both demand side and supply side factors
that have contributed to the bull run in a number of commodities including Base metals,
Precious metals and agricultural goods. Prices of crude, copper, bullion, to name a few
have reached multi-year highs. With the integration of the domestic market with the
global set-up the risk perception is high, but opportunities have opened up for risk
management and profiting. According to the Forward Markets Commission, futures
trading in Commodities has quadrupled in the just concluded fiscal to an aggregate value
of Rs. 21,34,000 crore ($500 Billion) up from Rs. 5,72,000 crore in 2004-05.
Significantly this rapid growth was possible without any institutional participation like
FIIS, Banks, Mutual funds and corporates who are the key volume drivers in equities
markets.
With a positive policy and regulatory framework in place and also, sound
economic fundamentals the commodity futures markets in India can grow further in the
coming years.
Role of Stakeholders
CONCLUSION
While the commodity future markets are safe and the investors are well protected,
the study of the market is a pre-requisite before the investment.
There are differences between the security and commodity markets, in the latter
the delivery mechanism is an essential feature and quality concerns and warehousing
aspects are to be given prime importance. Volatility in the market affects important
segments of the economy with contradictory interests like producer and consumer. Some
thing should be done to attract the genuine hedgers. It is time the regulator made a
comprehensive review of the commodities futures market and set it on a healthy,
transparent growth path that advance the interests of important stakeholders.