MCX - FPI Participation In Commodity Derivatives To Be Positive: Motilal Oswal
FPI move is a long-term volume driver.
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Motilal Oswal Report
The Securities and Exchange Board of India has allowed foreign portfolio investments to participate in cash-settled non-agricultural commodity derivative contracts through the exchange-traded commodity derivative market.
Multi Commodity Exchange of India Ltd. contracts eligible for participation are crude oil futures and its variants, natural gas futures and its variants, and crude/natural gas options and Energy Index futures.
With a 98%/99% correlation of MCX Crude/MCX Natural Gas with NYMEX WTI crude oil/Nymex Henry Hub Gas prices, FPIs will find MCX products as a proxy for global benchmarks in crude oil and natural gas.
The participation of FPIs in ETCDs is expected to enhance liquidity and market depth and promote efficient price discovery.
The transition to Tata Consultancy Services Ltd. software will be vital for MCX to scale up FPI activities in commodity derivatives. MCX expects to complete the transition by June 2023.
While we are upbeat on the long-term potential of volumes from FPIs, we do not see a meaningful contribution in the near term.
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