Mumbai: Indian commodity futures market participants are hopeful of speedy reforms after formation of a new government, paving the way for a stronger regulator and foreign fund participation, analysts and industry players said.
“We see amendment to FCRA bill being expedited after the formation of a new government,” said R.K. Agarwal, member, Forward Markets Commission, the regulator.
Forward Contracts (Regulation) Amendment Bill 2006, which is pending approval in the lower house of Parliament, gives more teeth to the regulator and allows trade in options and non-deliverable commodities like weather derivatives, indices.
India’s six-year-old commodity futures market suffered a setback in the past two years as the government, under pressure from the Left, a coalition member then, curbed trading in some commodities.
India banned wheat, rice, urad and tur futures in 2007 and suspended soyoil, chana, rubber and potato from trade in 2008 in an effort to contain double-digit inflation.
“Without the Left there is lot of excitement in the market,” said an analyst with an international brokerage in Mumbai.
India on Friday removed a two-year-old ban on wheat futures, and on Saturday elected a stable government without the Left as a coalition partner, restoring investor confidence, analysts said.
“We look forward to more reforms across the sector soon,” said Joseph Massey, chief executive of Multi-Commodity Exchange of India Ltd.
MCX, part-owned by Fid Fund (Mauritius) Ltd. — an affiliate of Fidelity International — and NYSE Euronext, is India’s biggest commodity exchange by trade turnover.
Analysts said a strong regulator on the lines of the Securities and Exchange Board of India (Sebi), which regulates India’s equity markets, is required before allowing banks and foreign funds in the commodity futures trade.
India doesn’t allow banks and foreign funds to participate in commodity futures trade.
“Indian exchanges already have phenomenal growth rates and reforms allowing foreign funds will propel them to among top exchanges,” said the analyst with the international brokerage.
According to the Futures Industry Association, MCX and rival National Commodity and Derivatives Exchange, part-owned by Goldman Sachs, are ranked 22nd and 34th respectively among top derivatives exchanges in the world.
India has 22 commodity bourses, three of which operate at the national level and a fourth expected to be launched by June end. Total trade grew 29% in 2008-09 to Rs52.49 trillion in 2008-09.