With the expected entry of domestic and foreign institutional investors, growth in the commodities market is all set to outpace the equities market in terms of volumes.In India, commodities market has been in existence for many decades, but the organized market for trading commodity futures was introduced recently. During the post-Independence period, when India was still an agricultural deficit country, the natural calamities and a couple of wars put severe pressure on the agri-prices. In particular, futures trading encouraged speculation and hoarding of commodities, which were not good for the common man. So, in the mid-1960s, the trading of commodity futures in exchanges was banned in order to curb inflation. However, the informal market and few regional commodity exchanges continued to exist. But, as India became an agricultural surplus country, the situation changed. The government realized the need to liberalize this sector as well, along with other sectors, in order to boost the agricultural sector. Hence, the proposal to set up multi-commodity exchanges was put forth. In November 2002, NMCE (National Multi-Commodity Exchange) was set up, followed by NCDEX (National Commodity and Derivates Exchange), and MCX (Multi- Commodity Exchange) in 2003. Today, commodity futures are traded in 21 regional exchanges (which are usually limited to trading in one or two commodities) and three national exchanges (NMCE, MCX and NCDEX). These three exchanges account for 80- 90% of total trading volumes. The number of commodities in which futures trading is allowed, has already crossed 100 and is expected to increase further.
From a modest Rs. 2.9 cr on the first day, the commodity exchanges today are clocking turnovers to the tune of Rs. 7,000-8,000 cr a day. Recently, on August 30, 2005, the volumes of futures trading on all commodity exchanges together overtook the stock futures on BSE and NSE—a remarkable accomplishment for a market that is only two years old (while the equity markets have taken several decades to reach the current position). Turnover for the period April 1, 2005 to September 15, 2005 was up by a staggering 123% compared to the last full financial year. An Assocham study predicts the futures market turnover to be around Rs. 1,00,000 cr (Rs. 1,000 bn) by 2010. But, analysts say that they will not be surprised if the markets touch this figure in the current year itself as during April- August 2005, the gross turnover was around Rs. 57,000 cr (Rs. 570 bn). With such growth potential, the commodity futures market is all set to eclipse the equities market, both in terms of turnover and volumes. |
