The move will deepen the commodities market further.
Currently, eligible foreign entities (EFE) are allowed to participate in the commodity markets.
Narinder Wadhwa, President at Commodity Participants Association of India (CPAI), on Wednesday said FPIs may be allowed to participate in precious metal and base metal initially, and later in selected agri contracts.
CPAI is the apex pan-India association of participants in commodity exchanges and commodity derivative segments.
According to Wadhwa, FPIs being financial investors with huge purchasing power have not yet been allowed to participate in exchange-traded commodity derivatives (ETCD) due to perceived higher volatility, which may arise following the sudden entry and exit of such investors.
However, with checks and balances on exposure by exchanges, the regulator may permit such investors to trade in commodities, he added.
"CPAI definitely will welcome this move of allowing FPIs to participate in commodities markets with relaxed norms," Wadhwa said.
Over the past few years, the regulator has allowed institutional players like Alternative Investment Funds (AIFs), mutual funds and portfolio managers to participate in commodities markets.
In October 2018, Sebi had permitted eligible foreign entities having actual exposure to Indian commodity markets to participate in the commodity derivative segment of recognised stock exchanges for hedging their exposure.
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