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Commodity Market in India

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Commodity market is an important part of financial market in a country. Commodity market is an alternative investment avenue to those who want to invest beyond shares, bonds, real estate etc. India being a country in which agriculture occupies a vital position in overall economy, fluctuation in prices during the harvesting period has always been a major concern for the farming community. Commodity future trading has emerged as a viable option to hedge the risk of price volatility. Now with the merger of two regulators Securities Exchanges Board of India (SEBI) and Future Market Corporation (FMC) the market is expected to grow further with the increase in the confidence of investors. The merger is aimed at streamlining the regulations and curb wild speculations in commodity market, while facilitating future growth. This paper attempts to throw light on commodity market in India and to find out the impact of the SEBI-FMC merger and also to analyze future growth prospects and challenges of commodity market.
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International Journal of Multidisciplinary Research and Development
Online ISSN: 2349-4182 Print ISSN: 2349-5979
www.allsubjectjournal.com
Volume 2; Issue 11; November 2015; Page No. 31-35
Commodity Market in India
1 S Poornima, 2 Deepthy K
1 HoD and Associate Professor, Department of Business Administration, PSGR Krishnammal College for Women.
2 Research Scholar-PhD, Department of Business Administration, PSGR Krishnammal College for Women.
Abstract
Commodity market is an important part of financial market in a country. Commodity market is an alternative investment avenue to
those who want to invest beyond shares, bonds, real estate etc. India being a country in which agriculture occupies a vital position
in overall economy, fluctuation in prices during the harvesting period has always been a major concern for the farming community.
Commodity future trading has emerged as a viable option to hedge the risk of price volatility. Now with the merger of two regulators
Securities Exchanges Board of India (SEBI) and Future Market Corporation (FMC) the market is expected to grow further with the
increase in the confidence of investors. The merger is aimed at streamlining the regulations and curb wild speculations in commodity
market, while facilitating future growth. This paper attempts to throw light on commodity market in India and to find out the impact
of the SEBI-FMC merger and also to analyze future growth prospects and challenges of commodity market.
Keywords: Commodity Market, shares, real estate, agriculture occupy
Introduction
Commodity market is a market that facilitates trading in various
commodities. It may be a spot market or a derivatives market.
In spot market commodities are bought and sold for immediate
delivery, where as in derivatives market various financial
instruments based on commodities are traded.
Commodity futures market was very much there in earlier times
in India. In fact it was one the most vibrant markets till the early
70s. But due to numerous restrictions the market could not
develop further. Now that most of these restrictions have been
removed, there is enormous scope for the development and
growth of the commodity futures market in the country.
The Forward Markets Commission (FMC) is the chief regulator
of commodity futures markets in India. As of July 2014, it
regulated Rs 17 trillion worth of commodity trades in India. It
is headquartered in Mumbai and this financial
regulatory agency is overseen by the Ministry of Finance.
(Source: https://en.wikipedia.org/wiki/Forward_Markets
_Commission_ (India))
On 28 September 2015 the FMC was merged with
the Securities and Exchange Board of India (SEBI).
Objective of the Study
1. To provide an overview of commodity market in India
2. To understand the market share of various commodity
exchanges in India
3. To find out which commodity is maximum traded in MCX
and NCDEX
4. To find out the future opportunities and challenges of
commodity market in India
Research Methodology
The present study is based on secondary data collected from the
websites of different Commodity Exchanges, Forward Markets
Commission, SEBI, related journals, Government of India
reports, and related websites. The period covered in the study is
2011-12 to 2013-14. Simple percentages are used as statistical
tool in the present study
Overview of Commodity Market in India
In India there are 12 recognized Commodity Exchanges of
which 6 are National Commodity Exchanges and 6 are
Commodity Specific Regional Exchanges. The following table
shows various commodity exchanges in India:
Table 1
Sr. No. Name of the Exchanges
A. National Multi Commodity Exchanges
1 Multi Commodity Exchange of India Ltd., Mumbai
(MCX)
2 National Commodity & Derivatives Exchange Ltd.,
Mumbai (NCDEX)
3 ACE Derivatives and Commodity Exchange, Mumbai.
(ACE)
4 National Multi Commodity Exchange of India Ltd.,
Ahmedabad (NMCE)
5 Indian Commodity Exchange Ltd., Mumbai (ICEX)
6 Universal Commodity Exchange Ltd, Navi Mumbai
(UCX)
B. Commodity Specific Regional Exchanges
7 The Chamber of Commerce, Hapur
8 Rajkot Commodity Exchange Ltd., Rajkot
9 India Pepper & Spice Trade Association, Kochi
10 Bombay Commodity Exchange Ltd, Mumbai
11 Spices & Oilseeds Exchange Ltd, Sangli
12 Cotton Association of India, Mumbai
Source: Annual Reports, 2011-14, FMC
The regulatory body is Forward Markets Commission (FMC)
which was set up in 1953. As of September 2015, FMC is
merged with Securities Exchange Board of India (SEBI), the
regulator of capital market. As a unified regulator for
commodities and capital market, SEBI will be able to control
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and monitor commodity future trading and to check wild
speculations. With a strong regulatory backup, commodity
market can facilitate huge volumes of trade, in a manner that
every participant is confident of trading.
Given below are the major commodities that are traded in
various commodity exchanges in India
Table 2
Bullion Gold and Silver
Oil &
Oilseeds
Castor Seeds, Soy Seeds, Castor Oil, Refined Soy Oil, Soy meal, Crude Palm Oil, Groundnut Oil, Mustard Seed, Mustard
Seed Oil, Cottonseed Oilcake, Cottonseed
Spices Pepper, Red Chilli, Jeera, Turmeric, Cardamom
Metals Steel Long, Steel Flat, Copper, Nickel, Tin, Steel, Aluminium Zinc ingots
Fibre Kapas, Long Staple Cotton, Medium Staple Cotton
Pulses Chana, Urad, Yellow Peas, Tur, Yellow Peas
Grains Rice, Basmati Rice, Wheat, Maize, Sarbati Rice, Jeera
Energy Crude Oil, Natural Gas, Brent Crude
Others Rubber, Guar Seed, Guar gum, Cashew, Cashew Kernel, Sugar, Gur, Coffee, Silk, Sugar.
Source: www.motilaloswal.com
The following table shows value of various commodities traded
in India. The market share of Various commodities in terms of
value shows that Bullion was maximum traded in all the three
periods, where as agricultural commodities were least traded
during these period.
Table 3: Value - In  Crore
2013-14 2012-13 2011-12
Sl. No Name Of Commodity Value Share% Value Share% Value Share%
A Bullion 4308938 42% 7862679 46% 10181957 56%
B Metals other than Bullion 1761360 17% 3260051 19% 2896721 16%
C Agricultural Commodities 1602402 16% 2155700 13% 2196150 12%
D Energy 2472095 24% 3768409 22% 2851269 16%
E Other 0% 1.28 0% 1.35 0%
F Plastic 0% 0% 6.45 0%
Grand Total 10144795 100% 17046840 100% 18126104 100%
Source: Annual Reports 2011-14, FMC
An exchange that allows trading of different commodities is
known as commodity exchanges. Today apart from numerous
regional exchanges, India has six national commodity
exchanges, viz; Multi Commodity Exchange (MCX), National
Commodity and Derivative Exchange (NCDEX), National
Multi Commodity Exchange (NMCE), Indian Commodity
Exchange (ICEX), Ace Derivatives Exchange (ACE) and
Universal Commodity Exchange (UCX).
The following table shows the market share of various
commodity exchanges in India
Table 4
Name Of Commodity Exchange 2013-14 2012-13 2011-12
MCX 84.89% 87% 86.05%
NCDEX 11.30% 10% 9.90%
NMCE 1.51% 1% 1.48%
ICEX 0.84% 1% 1.42%
ACE 0.46% 1% 0.76%
Others 0.72% 1% 0.30%
Source: Annual Reports 2011-14, FMC
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The table shows that MCX enjoys the maximum market share
of more than 80% in all the three years followed by NCDEX
and NMCE. ACE and ICEX have the least market share among
all the commodity exchanges.
Since more than 95% of the trading in commodity market is
done in MCX and NCDEX, this paper focuses on the trading of
these two exchanges, where MCX specializes in bullion and
metals and NCDEX is highly trusted in trading agriculture
based products like oil, oils seeds, cereals etc
Commodity Wise Analysis of Various Commodity
Exchanges In India
1. Multi Commodity Exchange(MCX), Mumbai
The following table shows the major commodities traded in
MCX during the period 2011-12 to 2013-14
Table 5
Multi Commodity Exchange of India Ltd, Mumbai
2013-14 2012-13 2011-12
Sl. No: Commodity Value in
Crores % Share of
Value to Total Value in
Crores % Share of
Value to Total Value in
Crores % Share of
Value to Total
1 Gold 2482438 28.83 3720129 25 4224786 27.09
2 Crudeoil 1794312 20.84 2981892 20.04 2463336 15.79
3 Silver 1780757 20.68 4086933 27.46 5738871 36.79
4 Copper 776666.3 9.02 1443348 9.7 1437082 9.21
5 Natural Gas 655322 7.61 672892.9 4.52 260916 1.67
6 Lead 398401.6 4.63 616192.2 4.14 259508.7 1.66
7 Zinc 228653.6 2.66 416834.4 2.8
8 Nickel 187172.8 2.17 432047.2 2.9 385334.1 2.47
9 Aluminium 134964.9 1.57 229582 1.54
10 Cotton 62439.13 0.73
11 Other Commodities 110321.4 1.28 174795.6 827260.9 5.3
12 CPO 106409.7
Total 8611449 100 14881057 100 15597095 100
Source: Annual report, 2011-14 FMC
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The table shows that Gold was maximum traded with a share of
28.83% during the year 2013-14, whereas cotton was the least
traded commodity (0.73%) in the year. During the year 2012-
13, silver was maximum traded with a share 27.46%, and
aluminum was least traded (1.54%). In 2011-12, silver was
maximum traded with a share of (36.79%) and lead was the
least traded commodity with a share of 1.66%.
2. National Commodities and Derivatives Exchange Ltd
(NCDEX), Mumbai
The following table shows the major commodities traded in
NCDEX during the years 2011-12 to 2013-14:
Table 6
National Commodity and Derivatives Exchange Ltd, Mumbai
2013-14 2012-13 2011-12
Sl.No Commodity Value in
Crores % Share of
Value to Total Value in
Crores % Share of
Value to Total Value in
Crores % Share of
Value to Total
1 Soya Oil 269914.6 23.55 557601.6 34.88 415762.1 22.97
2 Soya Bean 182336.3 15.91 217991.1 13.64 122637.8 6.77
3 Castor Seed 161068.7 14.05 93828.42 5.87
4 Chana 132966.2 11.6 159492.6 9.98 274605 15.17
5 Dhaniya 95259.02 8.31 52828.99 3.31
6 Rape Mustard Seed 84217.51 7.35 180196.8 11.27 165405.1 9.14
7 Cotton Seed Oil Cake 51044.17 4.45 65460.34 4.1
8 Kapas 35461.41 3.09 36775.61 2.3
9 Turmeric 29606.19 2.58 33083.6 2.07
10 Jeera 28917.5 2.52 65955.89 4.13
11 Other Commodities 75536.52 6.59 135210.8 8.46 324098.2 17.9
12 Guar Seed 323119.6 17.85
13 Guar Gum 98356.67 5.43
14 Crude Oil 86225.7 4.76
Total 1146328 100 1598426 100 1810210 100
Source: Annual reports, 2011-14, FMC
The table shows that Soya oil was maximum traded in terms of
Value during the period 2013-14,2012-13 and 2011-12, with a
share of 23.55%,34.88% and 22.97% respectively whereas
Turmeric was least traded in 2013-14 and 2012-13 with a share
of 2.58% and 2.07% respectively. In the year 2011-12, crude oil
was least traded with a share of 4.76%.
Future Growth Opportunities and Challenges to
Commodity Market
The union budget for 2015-16 saw the announcement of the
merger of the two regulators- Forward Markets Commission
(FMC), regulator of commodities market with Securities
Exchange Board of India (SEBI), regulator of capital market.
The merger process will take place between September 2015
and early 2016.
The merger will generate many opportunities for the
commodity market to grow. There will be better market
integrity as SEBI has the power to raid, search, impose fine and
take action on irregularities. Products like options, exchange
traded funds, weather derivatives, freight derivatives will be
introduced, which will further accelerate the growth of
commodity market. With merger, it is also expected that there
will be new participants, who will be entering into commodity
market viz; Banks, FPI and Mutual funds. More over there will
be penetration of exchanges and intermediaries into each
other’s market segment.
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A lot of challenges also arise with the merger. Finding
additional manpower and resources to monitor the commodity
market is one thing that SEBI should look into. Aligning the
securities and commodities brokers to uniform regulations is
also a challenge. Another important area where SEBI should
look into is that of physical settlements, as the delivery and
settlement process in commodity and stock exchanges differ
significantly.
Conclusion
Commodity market has a great potential to become a separate
asset class for market savvy investors, arbitrageurs and
speculators. Commodities are easy to understand unlike equity
market. The retail investors should understand the risk and
advantages before entering into commodity market. By looking
into the previous year’s data, pricing in commodity futures are
less volatile compared with equity and bonds, thus providing an
efficient portfolio diversification option.
References
1. Gurbandini Kaur, Rao DN. Efficiency of Indian
commodities Market:- A study of agricultural commodities
derivatives traded on, 2009. NCDEX
http://ssrn.com/abstract=1600687
2. Nirmala Reddy, Chandrasekar BM. A study on
commodities futures market in India, R.V.S Journal of
Management 2012; V (1):111-125.
3. Nilanjana Kumari. Recent Trends in commodity market in
India” Abhinav International Monthly Journal of research
in Management and Technology, 2014, 3(12).
4. Padmasree Karamala. Growth and Challenges of
commodity derivatives market in India, BEST:
International Journal of Management, Information
Technology and Engineering (BEST: IJMITE). 2013;
1(3):205-218.
5. Gaurav Raizada, Gurpreet Singh Sahi. Commodity Futures
Market Efficiency in India and its effect on Inflation, 2006.
http://ssrn.com/abstract=949161.
6. Nilanjan Ghosh, Kushankur Dey. Opportunities and
Challenges of Regulatory Convergence in India’s Financial
Sector, Economic and Political weekly, September 2015;
L:3664-70.
7. www.fmc.gov.in
8. www.sebi.gov.in
9. www.moneycontrol.com/commodity
10. www.financialexpress.com SEBI to release guidelines for
FPI into commodity market Oct. 27, 2015
11. www.hindubusinessline.com. NSE mulls launching more
commodity ETFs Oct 26, 2015
12. www.timesofindia.indiatimes.com Curb Manipulation in
Commodity market- Jaitley to SEBI, September 28, 2015.
Article
Full-text available
The commodity Derivative markets in India witnessed a phenomenal growth since liberalisation of commodity markets in the year 2000. This process was followed by setting up of the commodity exchanges leading the Indian commodity markets to be at par with the International Commodity markets. At present, the Indian commodity markets have an exhaustive list of commodities available for trading. The present study reviews the available literature and work done by various researchers on the commodity markets in India. The various themes on which the review has been done are origin and development, role of Exchanges, Regulatory mechanism, Performance of commodity market and Commodity Risk Management. The study aims at providing related information to the stakeholdersof commodities market like investors, policy makers, and academicians.
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Recent Trends in commodity market in India
  • Nilanjana Kumari
Nilanjana Kumari. Recent Trends in commodity market in India" Abhinav International Monthly Journal of research in Management and Technology, 2014, 3(12).
Growth and Challenges of commodity derivatives market in India
  • Padmasree Karamala
Padmasree Karamala. Growth and Challenges of commodity derivatives market in India, BEST: International Journal of Management, Information Technology and Engineering (BEST: IJMITE). 2013; 1(3):205-218.
Opportunities and Challenges of Regulatory Convergence in India's Financial Sector, Economic and Political weekly
  • Nilanjan Ghosh
  • Kushankur Dey
Nilanjan Ghosh, Kushankur Dey. Opportunities and Challenges of Regulatory Convergence in India's Financial Sector, Economic and Political weekly, September 2015;