Forward Markets Commission Chairman B C Khatua expects commodity futures turnover to rise 15.4 per cent to Rs 60 lakh crore in the financial year 2009-10 from Rs 51.5-52 lakh crore expected in 2008-09.
"In 2008-09, the turnover is likely to be Rs 51.5-52 lakh crore, which is nearly 26 per cent higher on year but below our initial target of Rs 60 lakh crore due to falling commodity prices and impact of futures suspension on certain commodities," Khatua said today.
In 2007-08, commodity futures turnover stood at Rs 40.66 lakh crore. "I hope volumes in commodity futures rise along with participations of more investors as turnover in value terms is a function of prices. Despite higher volumes, if commodity prices remain low then turnover will decline," Khatua said.
He said that he would prefer higher volumes in commodity futures to higher turnover as it would indicate growth in the market.
Khatua agreed that most of the rise in turnover was a factor of high bullion prices and said that the weakness in farm and metals complex was a major factor that led to sharp declines in their share in market turnover. During April 1-March 14, farm futures turnover declined nearly 35 per cent year-on-year to Rs 5.85 lakh crore, while the same during March 2-14 nosedived over 55 per cent on year to Rs 30,500 crore.
On the other hand, bullion futures alone contributed more than 50 per cent of the total volume so far in the current year.
"Four commodities that were banned in 2007 were very liquid and their continued absence has dented sentiment. In addition to that suspension of futures trade in soyoil, rubber, chana, and potato for nearly seven months dragged down farm volumes and turnover further," he said.
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On May 7, the government had suspended chana, soyoil, potato, and rubber futures for four months citing inflationary expectations. The suspension was extended until November 30.
Despite suspension being lifted in these four commodities, volumes in these contracts have not been able to garner significant volumes as market remains "wary and jittery" following the sudden suspension in May, Khatua said.
"Metal futures have also witnessed lower turnover this year but they have mostly held their own in turnover terms indicating that the fundamentals in the market remain strong," he said.
He also expressed concerns over rising illiquidity in many contracts and said that the regulator had asked the exchanges for views on what could be the reasons behind this.
"If there are issues regarding awareness or contract structure then the FMC would like to help exchanges boost participation by finding remedies for these problems," he said.
He said that FMC was still to clear MCX's commodity basket contract as it was an innovative product and so the regulator needed to better understand the dynamics of the contract before giving approval.
"We have not rejected the basket contract and have only sought clarifications on certain issues," he said.
He hoped that FY10 would witness passage of the amendment to the Forward Contracts (Regulation) Act, which will strengthen the regulator to take the market move to the next level.
He also said that increasing activity on National Multi-Commodity Exchange, and National Commodity and Derivatives Exchange following the re-launch of four suspended commodities are also positive signs for the market in the coming year.