commodities market: Expect commodities market to see rapid expansion after recent Sebi moves

By DK Aggarwal

The growth in the economy gets reflected in the

financial market

. Despite seesaw movements in major financial markets, Indian equity is touching new highs, reflecting the optimism on the economy. The entire world seems to be accepting this growth story and India is projected to grow at 7.4 per cent during 2018-19 and further at 7.6 per cent next financial year.

This growth is being driven mainly by robust private consumption, major reforms initiated by the government and major capital inflows. In line with the growing economic activities, commodities trade has increased, although it is not reflecting in the commodities futures market.

In the early days of launch of this market, volumes grew multi-fold. However the turnover figures came down gradually amid competition from better performing equity. Some speed breakers such as regular government interventions and imposition of CTT came in the way and dried up volumes.

Currently, this market is facing some other issues. Despite the lucrative profit in commodities, investors are keeping an arm length distance from this asset class to avoid churning of money on the counter.

To remove all the obstacles, make this market more viable and enhance its reach to actual users, Sebi is doing its bit and has introduced many reforms.

The markets regulator gave its nod to NSE and BSE, two biggest exchanges of the market, to participate in the commodities market. Both the exchanges have seen a decent start and are working hard to enhance reach. This has created good arbitrage opportunities as Sebi’s guidelines on contract specification for same commodities in different exchanges are same; which makes trading easier.

Sebi has also allowed options trading in many commodities, viz gold, crude, copper, guar etc. To enhance liquidity, it has also allowed a liquidity enhancement scheme in gold options, which is helping improve results.

In another major decision to strengthen this market, Sebi recently allowed mutual funds to participate in commodity futures along with PMS. Sebi will amend the

Mutual Fund

Amendment Regulations of 2018 and the Portfolio Management Amendment Regulations 2016 enabling mutual funds and portfolio managers to participate in the agri and non-agri commodity derivatives segments (CDS).

The mutual fund industry saw a gradual growth in participation in the equity market and it has become one of the most preferred investment avenues for retail investors. Now latest Sebi moves are expected to gradually increase retail participation and, thus, volumes in commodities, though the pace may not match that of equity, considering the sensitivity of commodities and high levels of government interventions.

Sebi allowed Category-III alternative investment funds to also trade in commodities. Also, foreign companies with exposure to Indian commodities not having presence in India have been allowed to trade. Furthermore, Sebi has put out a consultation paper on the design of commodity indices in a bid to boost the derivative market for such indices.

In an effort to bring the Indian market in line with global markets, Sebi has directed commodity exchanges to align trading lot sizes with delivery lot sizes to remove barriers in physical delivery of commodities and adhere to global standards.

Thus, a lot of developments and brainstorming are going on among Sebi, exchanges, brokers and market participants to expand this market and I am very confident that with all these efforts, the commodities market will soon have a strong foothold and become a favourite trading destination for domestic market participants and a price setter for the entire world. It is expected that different steps taken by Sebi will ensure more credibility, liquidity and ultimately better

price discovery

for the market and its participants.

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of



Author: Prakash Poojary

Business Analyst

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