Traders And Investors Rebounding After Guar Controversy
Indian exchanges are seeing an increase in commodity trading after regulatory action was taken because of the guar gum trading issues. Guar gum prices had increased 1,000 percent before trading was banned, and many traders suffered as a consequence. Many investors have stayed away from trading for the past two months.
Ramesh Abhishek, who is the chairman of the body that regulates trading of commodities futures, Forward Market Commission, said that the goal is to prevent speculation while promoting commodity market hedging.
The guar gum trade speculation happened between November 2011 and March 2012. It is estimated that speculators and traders gained approximately 2,000 crore as prices rose dramatically until trading was stopped on the 27th of March. Ravindra Rao of Motilal Oswal Commodities said that many clients disappeared after the guar controversy, but that they are returning because they have seen that the market regulator is taking action. These regulatory actions have given commodities companies a boost in optimism that they will be able to increase their client portfolios over the next half year.
President of Commodity Participants Association of India, DK Aggarwal, indicated that rapid membership growth is expected. With the positive changes that have been made, he expects his current membership of 300 to rise 50% in the next year.
Across exchanges, total trade has risen to 8,41,752.29 crore, or a 40 percent increase during the last two weeks of May. Each of the two week periods prior saw declining trade of 15 percent, 9 percent, and 1 percent, in that order. It is expected that the market will continue to expand.
Associate director of currencies and commodities at Angel Broking, Naveen Mathur, felt that the market is definitely in an upturn and expects the volume being traded to increase between 5 percent and 10 percent next month. His optimism is based on the amount of interest that new investors are showing. In addition, he believes that the monsoon will provide a better view on the guar productivity, which could definitely boost investor interest.
Staggered delivery, which means that sellers must file their delivery intentions 28 days prior to the expiration of the contract, is assisting in the reduction of speculation. This regulatory step combined with a required warehouse stock declaration, the position limits of clients and members being restricted, special margins being imposed to curb the rise of futures prices to an excessive level, and contract reviews, is making headway in stabilizing the markets, according to Aurobinda Prasad of Karvy Comtrade.
In order to improve trade monitoring mechanisms and price discovery, the regulator is putting together an advisory committee.
