The Indian commodity market has experienced significant growth over the past decade, allowing Indian traders to capitalise on price fluctuations in commodities such as gold, crude oil, and natural gas. Earlier, commodity trading required substantial capital as these contracts were only available in bulk quantities. But to make the commodity market more accessible, exchanges such as the Multi-Commodity Exchange (MCX) have launched smaller and more flexible commodities contracts, including mini and micro contracts. These changes in the commodity lot size have changed the way small traders trade in commodity markets.
Finance Minister Nirmala Sitharaman on Sunday announced an increase in the Securities Transaction Tax (STT) on Futures and Options trade with a view to discouraging small investors from speculative trading in derivatives, which led to a sharp decline in the stock market.
The continuing efforts of Indian exchanges at user education need to be given a different focus.
Exchange-traded currency derivatives volumes are likely to drop in view of new Reserve Bank of India (RBI) rules, casting a cloud over further participation of retail investors and proprietary traders. There are concerns that existing positions without any underlying exposure will need to be liquidated. Also, weighed down by dollar demand from local oil companies and weakness in its Asian peers, the rupee on Wednesday (April 3) ended at a new closing low of 83.44 versus the US currency.
FMC chairman B C Khatua said differential margins were being considered as the perceived risk of hedgers and speculators was different.
A higher transaction tax is likely to defeat the very purpose of commodity markets by forcing farmers and hedgers to exit due to greater cost, an ICRIER report said.
The Reserve Bank has asked banks to encourage borrowers to hedge agri-products on commodity bourses.
Petrol and diesel are among the 90-plus commodities that have been approved by the government for derivatives trading
Speculators do play a role in creating liquid markets. Other players like hedgers, arbitrageurs and long-term investors are not enough to create continuous market liquidity and prices.
Gold prices plunged on the bullion market in New Delhi on Wednesday on aggressive offloading by the stockists and traders, sparked by a sharp fall in overseas markets. Silver, too, met with frantic selling pressure due to the prevailing overall trend. Standard gold (99.5 purity) tanked by Rs 305 per ten grams to close at Rs 17,305 from overnight's closing level of Rs 17,610. Pure gold (99.9 purity) dropped by a similar margin to end at Rs 17,395 from Rs 17,700 on Tuesday.
Investors, speculators, hedgers and consumers who sold their gold stocks to partly set off losses in the financial markets will start replenishing within six to eight months, says Ajay Mitra, managing director - Indian sub-continent, World Gold Council.
How does the Commodity Futures Market operate and how can it help you as an ideal investment opportunity?
It is an Internet-based government regulated derivatives exchange where traders can hedge against or speculate on economic events and price movements.
The previous fiscal year proved to be quite a contrast in some ways. While the year started with the banning of a few commodity futures contracts from the national bourses, it ended with the allowing of FDI/FII investment in the commodities sector and the amendment of the archaic Forward Contracts Regulation Act. Proactive measures were also undertaken by the government to give autonomy to the Forward Markets Commission.
Voices of concern over cumin seed and pepper delivery and quality standards were aired at a meeting of traders and hedgers called by the Forward Markets Commission.
While the bond market is relatively conservative about their interest rate expectations, the currency market seems to be projecting that interest rates should be much sharper
In terms of value, this translates into more than Rs 300 crore (Rs 3 billion) of delivered quantity.
It will be the first to go, in what has become an overcrowded segment since India first allowed futures trading in commodities in 2003.
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