Key Takeaways
- India allows foreign investors to trade in physically settled contracts for non-farm commodities.
- Portfolio managers based in India can now manage global assets.
- The move aims to increase market liquidity and align India with global markets.
India has expanded foreign investor access to commodity derivatives, allowing them to trade in physically settled contracts for non-farm commodities. This move is part of the country's efforts to increase market liquidity and better align its financial markets with global counterparts.
The Securities and Exchange Board of India (SEBI) has also permitted portfolio managers based in India to manage global assets, complementing the government’s drive to attract overseas fund management activity. These portfolio managers can now invest in global and to-be-listed securities, in line with allowances for mutual funds and alternative investment funds.
Under the new rules, foreign investors can now square-off or roll-over positions at least three days before contract expiry. Any positions left open would be automatically transferred to designated trading members, preventing overseas investors from entering the delivery process. This measure is expected to boost bullion trading volumes by facilitating foreign investor participation.
Since foreign investors were allowed into cash-settled commodity derivatives in 2022, liquidity in crude oil and natural gas options has risen significantly. According to regulatory data, they have accounted for a growing share of open interest. The move is seen as a significant step towards aligning India with other major markets, particularly in the energy sector.
For India’s commodities exchange, MCX, energy contracts remain one of the exchange’s key growth engines. Energy derivatives turnover has risen by 29% in the fiscal year ending March 2026, highlighting the potential for further growth in this area.
The expansion of foreign investor access is expected to bring more liquidity and depth to the market, potentially attracting more foreign capital. This could have a positive impact on the overall performance of the Indian financial markets.
