ANALYSIS: India plans growth in onshore commodity derivatives markets
26th September, 2025|Aravind Bulusu
Commodity trading experts are bullish about the future for Indian commodity derivatives, citing regulatory changes to support that sector.
Speaking at the FOW Trading India Conference on Wednesday, Rishi Kumar, senior vice president of Clearing services at Globe Capital Markets Ltd, said: “Commodity markets are the backbone of real economy, as it affects citizens every day. Apart from trading perspective, commodity derivatives help in real price discovery and risk management.”
“As India aims to become a $5 trillion economy, commodities form the very basis of growth engine. They are core to policy formulation, inflation, price control and purchasing power parity. Going forward they will remain the centre of focus.”
Responding to a question on commodity pricing in India, Kumar said: “Pricing of agricultural commodities has been transparent as it involves stakeholders buying contracts for physical delivery. Whereas with gold and base metals, India has been a price-taker with international factors driving the price discovery. Also, in base metals, we don’t see much physical deliveries. More action is needed on the delivery side to enhance liquidity.”
Anil Ghelani, head of Passive Investments & Products at DSP Mutual Fund, commented: “Soon, we will see greater participation in the commodity segment with the Securities and Exchange Board of India’s (SEBI) new initiatives to allow institutional investors and foreign portfolio investors (FPI) to trade in commodity derivatives. On the retail side, we have pooled vehicles like mutual funds, where structural investments can be made in commodities.”
“Also, participation in gold and silver ETFs increased significantly after SEBI took over the regulation of this segment. In the last three years, assets under management in silver ETFs grew to INR 250 billion (£2.1bn). We have robust trading platforms and prudent regulator. There is a need to create awareness on commodities as an asset class.”
Responding to a query on investing in commodities, Ghelani said: “I think regulatory assurance is key to attract investors in commodity space. If you go back to 1980s, investing in equities was not like how we see it today. Access to digitalised trading platforms and regulatory assurance have increased investor confidence in equity investment. With commodity markets, we are in a sweet spot at this moment, as SEBI is taking great initiatives to create a robust ecosystem. We just need to give a push and be a little aggressive to attract investors in this segment.”
Jay Prakash Gupta, founder of Raise Securities Pvt Ltd, said: “There are three reasons why investor participation in the commodity segment has been less. Earlier, there were different regulators for different commodities, and some commodities were banned overnight, causing distress in the market. Also, commodities carry anchoring affect, as they don’t give dividends like equities. This discouraged commodity trading to some extent. The third reason is position sizing and the way commodity contracts are designed, which needs to be improved. Having said all this, commodities carry emotional value. Gold bullion is a classic example. People should consider commodities to diversify their portfolios.”
On global commodity outlook, Amar Singh, head of Metals Asia-Pacific & Middle East at StoneX, said: “Globally, commodity has been a relatively small segment for investment and trading, compared to other asset classes. However, in other countries there is more liberty and flexibility to trade in commodities, which is now being slowly worked out in India. Tokenisation is going to be the next big thing in commodity trading. Blockchain-based digital tokens allow fractional ownership by retails and institutional investors, creating more liquidity.”
Speaking on regulatory reforms in the segment, Kumar said: “There has been unified regulation since Forward Markets Commission (FMC) got merged with SEBI in 2015. Introducing options in commodity markets led to enhanced liquidity. Unified stock broking license was introduced in 2018, allowing equity brokers to participate in commodities. Overall, the outlook is positive. We are awaiting FPI participation in the segment.”
On technology adoption and the role of data analytics, Ghelani said: “Machine learning algorithms can analyse trends of commodity utilisation. High frequency trading can be implemented for increased trader participation and better price discovery.”
“There are 120 million demat [dematerialised] accounts in equity derivatives, and only 1.3 million for commodities. There is a need for product innovation. The market is now stable without risks of commodity ban. With investor awareness efforts, both retail and institutional participation can be improved,” Ghelani added.
