The growth prospects of commodity futures trading are simply mind-boggling. Eye-popping daily trade volumes will be seen and the consensus is that the trade volume has a potential of 4 times the equity markets including equity F&O.
With the gradual withdrawal of the government from various sectors in the post-liberalization era, the need has been felt that various operators in the commodities market be provided with a mechanism to hedge and transfer their risks. India''s obligation under WTO to open agriculture sector to world trade would require futures trade in a wide variety of primary commodities and their products to enable diverse market functionaries to cope with the price volatility prevailing in the world markets.
Commodity markets, which are on a threshold of a take off, are beset with their own set of problems, which first needs to be addressed. The biggest danger to the ever-increasing trading business in commodities is poor supervision; a proper regulatory system to supervise trades needs to be implemented. Another prodigious task in commodity trading is that of creating awareness and providing a transparent and user-friendly trading platform to investors.
The FMC has been regulating the commodity markets and steps are on the anvil to make it a full-fledged regulator, similar to the SEBI in equity markets. Bills are currently pending in Parliament, which will make FMC a full-fledged independent regulator and arm it with sufficient teeth to crack down on any malpractices. 2006 may very well be the year in which we see the FMC become to commodity markets what SEBI is to equity markets.
The likely participation of banks, mutual funds and foreign institutional investors in commodity futures trading, coupled with the introduction of options trading, after amendments to FCR Act, 1952, is expected to provide a further boost to futures trading in commodities.
Commodity exchanges in India will contribute significantly towards the development of the Indian economy as a whole. Commodity market is undergoing some breakthrough changes like demat, trading of commodities like crude oil and plastics. In the next 5years we may very well see the resurgence of the centuries old Indian commodity markets.
