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Need for a healthy commodity market for an Atmanirbhar Bharat

Indian commodity derivatives markets have played a pivotal role economic development in terms of price discovery and price risk management in the ecosystem. Commodity exchanges are largely used by various value chain participants such as farmers/FPOs, traders/brokers, importers/exporters to hedge their price risk. The exchanges are providing a robust platform for exchange of goods between buyers and sellers in an effective manner. However, still there is a long way to make a robust delivery mechanism for Indian market as par with global exchanges.

Indian government, regulator and exchanges have taken series of measures by introducing futures contract in different commodity segments such as bullion, metals, energy, oil & oilseeds, spices, pulses, cereals etc. After taking over of commodity regulation from erstwhile FMC, SEBI has introduced options on futures, options on goods, commodity indices, permission for participation of AIF Cat-III, mutual funds, portfolio management services thereby making all out efforts to make Indian commodity derivatives market self-reliant. Permission for bank broking subsidiaries to provide commodity derivative trading to the investors and banks being allowed to provide clearing services. With these developments’ commodity derivatives markets have made enormous progress in terms of technology, transparency, compliance and trading activity.

Indian commodity market is evolving to make it a robust technology driven ecosystem by integration various market intermediaries such as brokers, banks, warehouse service providers, mutual funds, spot markets, collateral management service providers, custodians. Commodity derivatives market found a renewed strength with SEBI permitting the formation of universal exchange i.e., integrating trading in equities, commodity, and currency on a single platform. Trading in a universal exchange offers significantly greater convenience for investors and traders who can trade in all asset categories from a single account thereby trading is becoming seamless.

Commodity exchanges are adding economic value to the country’s growth by creating employment, helping farmers in deciding on cropping pattern, opening of national market for actual buyers and sellers for exchange of goods through exchange platform, another asset class for investors to balance their portfolio. Government’s initiative to establish spot gold exchange in India will enhance gold pricing across the country by adopting a concept One Nation One Price so that India has its benchmark price rather than price follower from global market. Despite of being a second largest consumer of gold after China, India follows COMEX for pricing of gold. With an establishment of gold spot exchange, the country will become Atma Nirbhar in gold pricing standards. By making all base metals contracts deliverable against cash settled contracts, the base metal contracts are deriving their pricing from the domestic spot markets is one more step towards Atma Nirbhar.

The vision of Indian Prime Minister Shri Narendra Modi to make $5 trillion economy by 2025 creates ample opportunities for the Indian commodity derivatives market. Central government’s pledge to double the farmers’ income could be done through participation of farmers and government agencies in exchange platform. It is important for government nodal agencies who are involved in procurement under market support mechanism to participate in commodity exchanges for hedging their risk.

Disclaimer : ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103), MCX (Member Code no. 56250) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Mr. Anoop Goyal, Contact number: 022-40701000, E-mail address: complianceofficer@icicisecurities.com. Investment in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.

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