Institutional Investors in Indian Commodity Market

The interest of institutional investors in Indian commodity market is increasing rapidly. The market was reopened in 2003 and four exchanges were set up for the purpose of trading. The investors are more interested in the market because the risk is limited.
The traditional investment options like property bank deposits, metals etc. are preferred in India. At the same time, investment in the stocks and bonds are also increasing in India but commodity trading is something new to the Indian market. Although commodity trading appeared in the Indian market in the later part of 19th century it was banned in 1960s for some specific reasons.

In 2003 permission for commodity market trading was granted by the Indian government. The entry of foreign institutional investors in Indian commodity market has been granted recently.

The exchanges that have been permitted for the purpose are The Multi Commodity Exchange of India (MCX), The National Board of Trading in Derivatives (NBOT meant for online trading), (The National Commodity and Derivative Exchange (NCDEX), The National Multi Commodity Exchange of India (NMCE).
The foreign institutional investors in the Indian commodity market are expected to invest in huge quantity and this would be highly beneficial for the market. These investors are expected to add additional breadth and depth in the market. At the same time, the institutional investors would also make huge profits from the market in the same manner as they have done in the equities market.

The institutional investors in Indian commodity market is becoming interested because of several reasons. Firstly, the transactions done in this market are exempted from securities transaction tax. At the same time, the market fluctuates very rarely compared to the securities market. The risk adjusted returns are also very attractive in this market. The investors also get the option to increase their potential earnings.

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Last Updated on : 5th July 2013