Commodity

A commodity is a basic good or raw material used in commerce that is interchangeable with other goods of the same type. Commodities are broadly classified into hard commodities (natural resources extracted or mined — gold, silver, crude oil, natural gas, copper) and soft commodities (agricultural products — wheat, cotton, sugar, soybean).

In India, commodity trading is regulated by SEBI (which took over from the Forward Markets Commission in 2015) and occurs primarily on the Multi Commodity Exchange (MCX) and National Commodity & Derivatives Exchange (NCDEX). MCX dominates precious metals and energy trading, while NCDEX focuses on agricultural commodities. The NSE also offers commodity derivatives since 2018.

Key commodities traded in India include: Gold (MCX Gold, contract size 1 kg, most liquid commodity contract in India), Silver (MCX Silver, contract size 30 kg), Crude Oil (MCX Crude, linked to WTI/Brent benchmarks), Natural Gas, Copper, and Aluminium. Agricultural commodities include Chana, Soybean, and Cotton, though SEBI periodically bans futures trading in specific agricultural commodities to control inflation.

Commodity prices impact the Indian equity market significantly. Rising crude oil prices increase import costs (India imports 85% of its crude), weakening the rupee and hurting oil marketing companies like HPCL, BPCL, and IOC. Conversely, rising metal prices benefit mining and metals stocks like Tata Steel, Hindalco, and NMDC. Gold rallies during periods of uncertainty, benefiting gold ETF and Sovereign Gold Bond holders.

For Indian retail investors, commodity exposure is typically achieved through Gold ETF, Sovereign Gold Bonds (offering 2.5% annual interest plus gold price appreciation), silver ETFs, or commodity mutual funds. Direct commodity futures trading requires understanding of margin, rollover, and contango/backwardation dynamics. MCX commodity trading hours extend to 11:30 PM IST (during daylight saving months) to align with international market hours.