The Hindu Business Line : `Insufficient liquidity in commodity markets'

AS the Indian capital markets went into a tailspin, the lack of integration between capital and commodity markets was found hurting players in both these sectors.

Even as the carnage was occurring in the capital markets, the few players who have an exposure in both were found to be too small to spark a major hedging phenomenon, sources in the market said.

Unlike the developed markets of the West, the major players in the Indian capital market could not hedge their positions into alternative sectors like commodity markets, Mr C.J, George, Managing Director of Geojit Securities, told Business Line.

This was primarily because there is not sufficient liquidity in the Indian commodity markets to absorb the huge volume of funds seeking alternate avenues of investments. "Nor is there a core team of big brokers with integrated offices to facilitate this process," he added.

There are hardly any major players in the Indian market with offices to facilitate transactions in both equity and commodities, said Mr Giby Mathew, Managing Director of JRG Wealth Management.

This is the main reason why the bullion prices and the value of the dollar alone appreciated when the Indian stock markets dipped sharply.

Less than one per cent of the broking offices would have both commodities and equity trading facilities, the market sources said.

There has been no significant growth in volumes in the commodities market when the Indian capital markets dipped sharply and neither the farmer nor the commodity trader could benefit from hedging operations.