It has sought the views of the Sebi for such a move, and the regulator is believed to be comfortable with the proposal
The finance ministry is mulling opening the commodities market for foreign portfolio investors (FPIs). It has sought the views of the Securities and Exchange Board of India (Sebi) for such a move, and the regulator is believed to be comfortable with the proposal.
The government is likely to make some announcements regarding opening up of the commodities in the coming Budget.
Sources close to development told DNA Money, "The government may let foreign portfolio investors as part of the second phase of reforms in the commodity market. It may allow only FPI Category I and II of investors initially."
A source said, "In reply, Sebi has given green signal to the proposal."
The regulator-appointed commodity development advisory committee had also recommended FPI participation in commodities.
As per Sebi's FPI regulations, 2014, Category-I includes government and government-related investors such as central banks, governmental agencies, sovereign wealth funds and international or multilateral organizations or agencies. Category-II includes regulated funds such as mutual funds, investment trusts and insurance companies. Under Category-II come appropriately regulated investors such as banks, asset management companies, investment managers or advisors and portfolio managers. Broad-based funds that are not appropriately regulated but whose investment manager is appropriately regulated come under Category II.
An e-mailed query to Sebi on Wednesday did not elicit any response.
A source said, "In the first phase, FPIs may be allowed in non-deliverable products and high-volume contracts." Once given an entry, FPIs will give more depth to the commodities market, the source said.
A commodity market trader told DNA Money on the condition of anonymity, "First the regulator should boost confidence of domestic investors, which is heavily lacking. It should make proper mechanism for contracts since sudden ban on contracts shakes up the whole commodity market."
Dharmesh Bhatia, a Dubai-based analyst with Emirates NBD Securities, said, "In my opinion, FPIs should be introduced only after local banks, mutual fund houses and insurance companies and other large Indian entities are allowed to stabilise in the market. So our system can take big volume before FPIs get an exposure."
Kishore Narne, head of commodities, Motilal Oswal Securities, told DNA Money, "Domestic institutions and banks can boost the confidence of corporates to hedge their exposure and increase the depth of the market. FPIs can be allowed at a later stage."
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