Commodity futures trading in India, already growing at a scorching pace, is set to take a further leap with the impending entry of mutual funds and banks. But their participation has small traders and farmers, who fear trampling by entities flush with funds, worried.‘‘Mutual funds, with their huge resources, can influence price movements,’’ said a trader who didn’t want to be identified.For instance, analysts say most small traders have the wherewithal to invest only in one lot of gold. But for MFs, investments would run into at least 500 lots, thereby downing price movements accordingly. This, of course, would not suit small traders wishing to book profits, said an analyst.Also, futures trading may aim to hedge against price volatility, but more often than not commodity bourses violate price band mechanisms put in place to check rabid price movements, said a market watcher who again requested anonymity. With larger players in the fray, bourses would have a field day, he added.But market regulator Forward Markets Commission’s (FMC) officials say these fears are unfounded. FMC director V.S. Kolamkar said enough mechanisms would be in place to protect small players’ interests before bigger ones are allowed.The FMC is soon expected to decide on MFs’ participation — Kolamkar says, ‘‘It’s a matter of time’’ — based on a committee’s recommendations. ‘‘All issues including changes in market dynamics would be sorted out before a decision is taken,’’ said Kolamkar.But Sushil Sinha, manager of commodities at Geojit Securities says, ‘‘Small players must not be left at the mercy of the bigger ones.’’ The regulator and exchanges must create awareness among these sections before allowing big players, he said.But exchanges are already counting their chickens, as MFs and banks, being large players, add liquidity and drive along other such investments. Total trade value in the first quarter of this year in the three commodity futures exchanges — the National Commodities and Derivatives Exchange of India (NCDEX), National Multi-Commodity Exchange (NMCE) and MCX — has been pegged at around Rs 3,02,000 crore. MCX MD & CEO Jignesh Shah sees online commodities futures trading in India crossing Rs 10,000 billion this fiscal itself.Impressive numbers that they are, they would pale in comparison following the entry of MFs and banks, say analysts. Turnover on exchanges is bound to increase on this count, said NCDEX chief economist Madan Sabnavis.Sabnavis too echoes FMC officials’ views. ‘‘Mutual funds would bring the retail investor (individual) to the doorstep. Banks would also play the role of an aggregator representing the interests of farmers,’’ he said.Prices, Sabnavis says, should typically not be affected as banks in particular will be playing the role of a hedger while MFs will invest after thorough research based on expected demand-supply matrices. Moreover, price movements will be more well-defined by economics and definite direction will be given to the market with these large players, he added.According to him, farmers will actually benefit, as banks will charge lower interest rates to farmers. The bank’s risk is lowered if the loan given to, say, a paddy farmer is hedged by the bank either on its own or a farmer account (the aggregator route). ‘‘Small traders will see more orderly movement in prices and can take more informed decisions.’’
