Commodities turnover may treble by '10

The country's commodity market could treble to an annual turnover of Rs 100 trillion by 2010, if the government allowed investment by FIIs, banks and mutual funds as well as new products such as options trading, top market officials said.

"The commodity markets can reach the Rs 100 trillion mark by 2010 on two conditions. First and foremost, the government should approve the much-awaited Forward Contracts Regulation Act (FCRA) bill. Secondly, it should allow options trading at the earliest to bring breadth into the market," B C Khatua, chairman, Forward Markets Commission (FMC) said.

The amendment of FCRA is awaiting government's nod since 2005 and includes issues such as allowing foreign institutional investors (FIIs), mutual funds and banks to invest in commodities, entrusting the regulator with more powers and removal of ban on options trading and designating Securities Appellate Tribunal as the FCRA appellate tribunal.

The annual market turnover had nearly doubled to about Rs 35 trillion in 2006, but posted only a marginal gain in 2007. The market turnover was affected last year due to regulatory measures such as ban on futures trading of four commodities, limiting open interest and compulsory delivery, Khatua said.

Stressing on the need for more market breadth, leading commodity exchange MCX's Deputy Managing Director Joseph Massey said, "The permission to launch index-based instruments following the amendment to FCRA will open the doors for exchanges to come out with many new products such as sector-based derivatives and weather derivatives."

This would also stabilise the financial positions of market participants and lead to more stable business profits and individual incomes, Massey added

Agreeing to the view that right policies could trigger the next level of growth in the market, another leading commodity exchange NCDEX's Managing Director and CEO P H Ravikumar said that the market needs more products and more participants for its long-term growth.

"It is imperative that the FCRA is amended soon giving the FMC an independent status like Securities and Exchange Board of India (SEBI)," Ravikumar said, adding that unfinished policies related to commodity markets needed to be quickly addressed in 2008, preferably in the first quarter.

The market participants also believe that the target of Rs 100 trillion was achievable, but only when the growth becomes steady and systematic in the business volumes.

"So far, the trading activities are limited to speculators and investors such as corporate entities, and banks are away from the market," brokerage firm Karvy Comtrade's Research Head Harish G said.

The total turnover of 23 commodity exchanges stood at Rs 36.55 trillion at the end of 2007, as against Rs 34.84 trillion in the previous year. However, it had surged sharply from Rs 16.37 trillion at the end of 2005.

Saying that he was hopeful of achieving the target with the approval of FCRA bill, FMC chairman said, "If the government allows banks, mutual funds and FIIs in the commodity markets, it would help us to rope in corporates. This will strengthen the market and volumes will automatically increase."

"Once the risk-averse participants are protected with the introduction of products such as options trading, trade volumes and turnover will also rise," MCX's Massey said.