Growth of the commodity futures trading in India

Investment in India has traditionally meant property, gold and bank deposits. The more risks taking investors choose equity trading. But commodity trading never forms a part of conventional investment instruments. As a matter of fact, future trading in commodities was banned in India in mid 1960’s due to excessive speculation.

Commodity trading is finding favor with Indian investors and is been seen as a separate asset class with good growth opportunities. For diversification of portfolio beyond shares, fixed deposits and mutual funds, commodity trading offers a good option for long term investors and arbitrageurs and speculators, and, now, with daily global volumes in commodity trading touching three times that of equities, trading in commodities cannot be ignored by Indian investors.

The strong upward movement in commodities, such as gold, silver, copper, cotton and oilseeds, presents the right opportunity to trade in commodities. Due to heavy fall down in stock market people are finding the safe option to invest and commodity future is providing them that direction.

India has three national level multi commodity exchanges with electronic trading and settlement systems.

The National Commodity and Derivative Exchange (NCDEX).

The Multi Commodity Exchange of India (MCX)

The National Multi Commodity Exchange of India (NMCE)

The National Board of Trading in Derivatives (NBOT)

India, which allowed futures trading in commodities in 2003, has one of the fastest-growing commodity futures markets with a combined trade turnover of 40.66 trillion rupees in 2007/08.

Indian commodity futures trade rose 29.74 percent to 43.93 trillion rupees during the first ten and-a-half-months of financial year 2008/09, helped mainly by the surging trade in bullion, official data showed.

Turnover at Indian commodity bourses rose 39 percent to 31.54 trillion rupees from April 1 to Nov. 15 from the year-ago period, data from regulator Forward Markets Commission (FMC) showed.

Turnover rose 3.5 percent to 2.33 trillion rupees in the fortnight ended Feb. 15, 2009, data from regulator Forward Markets Commission (FMC)

Trade was most active in gold, silver, crude oil, copper and zinc in energy and metals pack during the period, data showed.

Futures trade in bullion jumped 75.89 percent to 24.45 trillion rupees, accounting for more than half of the total trade from in April 1, 2008 - Feb. 15, 2009 period. It rose 17.79 percent to 1.42 trillion rupees in the fortnight to Feb. 15.

India’s commodity futures trade is set to grow more than 40% to Rs57 trillion in the year to March 2009, despite trading curbs on eight commodities,”said the chairman of the Forward Markets Commission.

India allowed futures trading in commodities in 2003 and the turnover at 22 Indian exchanges rose 10.58% from the year ago to Rs40.66 trillion in 2007-08.

Traders have switched from the banned items to other related commodities and bourses have successfully launched a few new commodities to fill the void,” analysts said.