Commodity derivatives set to grow, says Assocham

NEW DELHI: Composition of derivatives trading is expected to change dramatically, as newer commodities become permissible in the near future, industry chamber Assocham said today.

The current phase of consumption-led economic growth implies increasing demand for commodities. "This necessitates the use of commodity derivatives and derivative exchanges for increasing market efficiency and true price discovery," it said.

It said the investors want to trade at minimal costs with efficiency. The commodity exchange eco-system is expected to evolve in the coming years to meet these requirements, the chamber said.

As the participating segments in a commodity's lifecycle increase, the necessity to hedge the risks associated with it also increases. "Commodity derivatives present an opportunity for all participants to simultaneously hedge their commodity risks," it added.

The high levels of equity markets have made investors looking for higher returns in alternative asset classes such as commodities, fuelling speculative interest. As the market evolves, growth is expected to change the product composition.

Metals trading currently accounts for the bulk of Indian commodity derivatives.

Newer entrants in the exchange space will fuel further competition and newer products will bring in first time traders as well as experienced global players. The increasing trade will incentivise brokers to further increase market penetration, Assocham said.