Commodity trading set to grow two to three times in next five years: Assocham

Trading in commodities is likely to swell two to three times in volume terms over the next five years due to increasing population and rapid economic growth fuelling demand across the country, The Associated Chambers of Commerce and Industry of India (Assocham) stated on June 09, 2011.

Weather uncertainties also have been generating considerable interest among investors and traders for the 400 billion dollar (about Rs 1,840,000 crore) commodities market as an asset class, it said.

The market size of agriculture commodities in India is currently estimated at 281 billion dollars, precious metals at 32 billion dollars, ferrous and non-ferrous metals at 55 billion dollars, and energy sector at 25 billion dollars.



“Commodities are increasingly becoming a safe bet from an investment perspective for investors as they begin to put their money in this attractive sector,” said Assocham secretary general D.S. Rawat. “Investing in commodities is one of the better ways to beat inflation.”

Cotton remains the leading trading commodity even internationally with over 90 per cent returns during the last fiscal followed by silver with around 85 per cent returns in various global exchanges. Agri commodities like wheat, soya bean and soya oil registered 35 to 45 per cent returns while metals like gold and copper garnered around 25 per cent returns.

“Any investment made in commodities now is most likely to fetch handsome returns. So more and more investors are seen trading and investing in commodities,” said Mr Rawat. “Commodities outperformed other riskier assets as per percentage wise returns during 2010, giving farmers and traders a reason to cheer about.”

Although the commodity market in India is still evolving, participation from retail investors and corporates has grown exponentially in recent years. There is a need to invest aggressively in electronic commodities spot markets.



“Without the introduction of more commodity exchanges, it will be difficult to manage price risks for farmers and traders,” said Mr Rawat adding that amendments to the Forward Contract Regulation Act 1952 will lay concrete foundation for participation of banks, mutual funds, foreign investors and other funds.

The changes will permit trading in options and derivatives, demutualisation of existing bourses and setting up a separate clearing corporation.

Considering that a majority of farmers in India are dependent upon rain gods and growing weather uncertainties due to global warming, ASSOCHAM has appealed for a weather derivative instrument through an amendment in the FCRA.

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