INVC NEWS
Mumbai : Many societies rely heavily on the ongoing flow of commodities, from crude oils in gasoline to copper in electrical wirings. Recently, experts suggest that India’s commodity market indicates increasing maturity as the Multi Commodities Exchange (MCX) surpassed futures for the first time in 2023. MCX’s reach has grown substantially over the years, as the exchange is now present in over 739 locations throughout India.
Firms in various sectors such as oil refining, wire producing, and the jewelry industry rely on commodities as a source of raw materials and trade commodities internationally to hedge themselves from potential increases in commodity prices that can impact their business operations.
Today, the MCX has 96.8% of the market share, boasting non-agri commodities futures with high liquidity. Established in 2017 by MCX/SEBI, mini contracts for commodities such as gold, silver, aluminum, lead, and zinc are gaining traction. On the other hand, the National Commodity and Derivatives Exchange (NCDEX), which focuses on agricultural commodities, holds a 3.1% market share.
The impact of commodity training on India’s economy
Thanks to the rise of online trading platforms and access to global brokers, more people can now participate in the commodities market. Nowadays, people can trade commodities on trading platforms or apps using their smartphones, tablets, or computers, where traders can access the dynamic commodity market to diversify and hedge their portfolios with popular precious metals like gold and silver.
By trading commodities, traders can speculate on the price of highly volatile instruments like gold and oil without buying the underlying asset, regardless of commodity price movements.
With the increased participation in the commodities market, India’s economy can benefit significantly. Efficiency in the commodities market can help stabilize essential commodities like food and energy prices. In a previous post on essential commodities prices, we highlighted how the festive season tends to impact the general public due to inflation. The average retail prices of kitchen essentials, including wheat, flour, and rice, saw significant increases during the festive season, combined with supply concerns in case of low production. Price stability can benefit general consumers by preventing sudden price spikes when the commodities market does well.
Additionally, India’s economy is heavily reliant on agriculture. As commodities trading continues to thrive, farmers can hedge against price fluctuations and ensure they receive fair prices for their produce. On the other hand, the success of local commodity markets can also attract domestic and foreign investors, providing opportunities for more revenue and overall economic growth.
Commodities that are doing well in India
While many commodities — from agricultural products to precious metals and energy — are available for trading, some are more popular than others due to higher stability or potential gains.
Today, some of the most traded commodities in India include crude oil, with over 88,97,648 lots traded in January 2023. As a primary energy source, crude oil is a much sought-after commodity in various industries, such as transportation, manufacturing, and construction.
Another popularly traded commodity in India is natural gas, which recorded 17,63,127 lots sold in January 2023. Like crude oil, natural gas is used in various industries for electricity generation, heating, and cooking. It is also used as vehicle fuel, making it a hot pick for transportation.
Gold is another commodity in high demand in India. Gold is often required for cultural and religious reasons, primarily used for jewelry, investment, and as a reserve asset for central banks. In January 2023, 9,13,612 lots of gold were traded as traders flocked to the precious metal’s store of value as a safe haven.
Future outlook of commodity trading in India
It’s important to note that, like other trading instruments, the stability of commodity trading can be affected by various factors, from supply and demand to geopolitical events outside India’s control. As such, commodity traders must actively monitor foreign developments that can impact the commodities market. Recently, economic news from the US moved gold and crude oil prices. For example, the MCX Gold Index dipped as investors braced for critical US inflation data. At the same time, MCX Natural gas costs saw slight increases based on a mixed weather forecast in the US.
By keeping track of global geopolitical events, commodity traders can stay ahead of price fluctuations and prevent significant losses in their portfolios. Another critical factor that may impact the future of commodity trading in India is the rise of green investing as the government plans to reduce CO2 emissions through eco-friendly infrastructures and green projects. One such project is the adoption of green hydrogen, which could enable India to stop 3.6 gigatonnes of CO2 emissions between now and 2050 and reduce industrial coal imports by 95%. The catch? Researchers found that stock volatility of Indian green companies can be considerably impacted by commodity markets such as crude oil, gold, and silver. As such, for those looking to participate in commodity trading, due diligence will be vital in managing changes in the market.
