SEBI proposes FPI access to non-agricultural commodity derivatives

The Securities and Exchange Board of India (SEBI) has proposed allowing foreign portfolio investors (FPIs) to participate in physically settled non-agricultural commodity derivatives, including bullion, energy and base metals. The move aims to transform India from a price taker to a price setter in global commodity markets by integrating domestic exchanges with global financial architecture.

Currently, overseas investors cannot participate in contracts for crude oil, natural gas, gold or silver that are settled by physical delivery. SEBI's consultation paper, citing a Chinese study, argues that FPI entry could boost liquidity and depth. The Multi Commodity Exchange (MCX), with a combined futures and options average daily turnover of Rs 10.5 lakh crore in Q1FY27, stands to benefit. FPIs could enable domestic hedging for airlines and oil marketing companies, reducing forex outflows.

The proposal excludes politically sensitive agricultural commodities. SEBI is seeking public comments. Critics worry that greater liquidity may bring volatility, but SEBI says the move will allow Indian exchanges to become regional price discovery hubs, joining China, Japan, the US and Europe where FPIs already trade physically settled derivatives.