In India, the growth of commodities markets has remained sluggish but in past three-four years, the investors’ participation in the commodities trading and futures trading has increased significantly. Figures suggest that currently, the value of commodities trading in India is about to surpass that of equities trading in the country.

Speaking about the investors’ preferences on commodities trading, their perception towards returns in commodities and the growth potential of the market, Jayant Manglik, President, Religare Commodities Ltd shared his views with Rutam Vora of Commodity Online. He described the importance of the broking houses, exchanges and the regulators in bringing awareness about the commodities trading and increasing investors’ participation to it. But considering the conservative approach of the domestic investors, he called for a requirement to accept innovation in investment products, in absence of an accord with the innovation at par with the global commodities trading, the country would continue to pay high price.
Excerpts:

Commodity Online: How do you see India’s commodity trading business growing? Do you see any constraints for growth?

Jayant Manglik: India’s commodity trading business has been on a high-growth path since its inception. The last six years have seen commodity futures trading volumes jump from scratch to almost Rs 40,000 crore a day, something which cannot be said of any other asset in terms of growth percentage. I think this trend will continue for the foreseeable future. There are a couple of issues which can be addressed and which will lead to another round of exponential growth – the introduction of options and allowing more participants like Banks, MFs and FIIs into the markets to create depth and liquidity. If agriculture has to live up to its true potential, client and member-level limits will have to be revised for participation by all entities. Finally, addition of agro-related infrastructure and introduction of Warehouse Receipts as negotiable instruments will completely change the complexion of commodities trading in India and help unlock a huge value of stored agro-inventory with maximum benefit to farmers.

CO: Broking houses or exchanges have least cared to reach out to the potential customers with awareness campaigns. How do you see commodity trading getting more into retail?

Manglik: On the contrary broking houses, exchanges and the regulator have continuously gone to the markets and held awareness campaigns across the length and breadth of the country through the years. This process continues on two fronts – programs made to different locations with a view to cover as many areas as possible and secondly, those locations from where there is a specific request to have such programs. As an intermediary, we have had several such programs either by our own product teams or some of them in association with the exchanges. Retail participation would not have reached this level if there was no interaction with potential users of this market. Having said that, the penetration level has to increase several-fold so that commodity trading has as much mass as say, equity trading or demat or MF investment pools.

CO: Are you satisfied with institutional investors in commodities or do you see the need to increase retail participation in commodities trading?

Manglik: The only ‘institutions’ allowed today are domestic corporate – and they face basic issues like client limits. This happens not only in agriculture but also in metals. India’s largest vertically integrated copper company was our client and we regularly faced this issue with them. Because of this; the foundation of commodities trading in India, is based on dominant retail participation in terms of volume as well as value. This model is unique in the world and we should look at exporting it! Retail trading in India in commodities business has been steadily increasing and different media like TV, press and online has helped in popularizing it by creating awareness of its potential as an asset class and as a trading product. Exchanges as well as the regulator have also focused on retail participation by providing small lot sizes suitable for retail. That said the entry of institutional investors like banks, MFs and FIs will take these markets to a different level. Religare is the largest retail broker in India and we keenly await the nod from the regulator to allow institutions as well because it will strengthen the markets and open new avenues for us. Increased liquidity will also help bring more retail participation.

CO: India-based investors have been hesitant in adopting innovative investment instruments. According to you, which is the best yielding investment instrument in the current situation?

Manglik: Some of the largest financial institutions in the world have Indians in very senior positions and they have been at the cutting edge of financial innovation globally. But at home we have been very conservative. While this has apparently saved us from the recent turmoil, the price we have paid and continue to pay for this has been too high because we have not accorded innovation the respect it commands worldwide. On a more specific note, I do find portfolio investment to be a truly scientific way to invest money and this view has been bolstered in the last couple of years. Therefore it is imperative to put your money in all assets with due weightage. Of course, the weightages are not static and given the growing dominance of commodities and even currencies in global economics, I would recommend that money definitely be invested in gold, other commodities and currencies. All investment will have to be active and investors will have to keep spotting new opportunities in the changing world economic order.

CO: Various commodity exchanges are offering different investment products in commodities; how do you see that benefitting the investors?

Manglik: In fact, we are hoping for many more products from the commodity exchanges. New products create investor and trading interest and certain products appeal to different sets of investors and traders. For example, e-Gold from NSEL is an excellent product which fills in a much needed gap and I am sure it will be a resounding success. While we will be pushing it internally, I hope the exchange will advertise suitably so that maximum people can participate in this new investment opportunity. Similarly, EFP (Exchange for Physical) is an international product which will generate interest over time as the understanding increases. Investors and traders keep requiring new products to fulfill their changing needs and anything that benefits investors is good for the markets. We are continuously in touch with the exchanges on the feedback we receive from clients and the exchanges formulate the products and go to the regulator for approval.  Continued...