(Bloomberg) -- Fidelity International Ltd. and Goldman Sachs Group Inc. may get approval from India's government this week to retain their entire stakes in commodity exchanges, allowing them to profit from a surge in trading.
The cabinet will consider raising overseas investment caps in sectors including the exchanges and oil refining, Trade Minister Kamal Nath said in an interview yesterday. The limit for each foreign investor may be raised to 10 percent, three people familiar with the proposals said. Goldman and Fidelity each own more than 5 percent stakes.
``We are going to ease caps in some sectors,'' Nath said in New Delhi, where he's attending the World Economic Forum.
The rule change would allow Goldman to profit from a surge in trading in India, the world's largest consumer of gold and the second-biggest producer of wheat, sugar and rice. Foreign investors are barred from buying and selling commodity futures to shield India's 234 million farmers from global price swings.
``Commodities trading is going to be the next hot thing in India,'' said D. H. Pai Panandiker, president of the RPG Foundation, an economic policy group based in New Delhi. ``With volumes expected to surge substantially, foreign investors clearly see a huge opportunity in that area.''
Overseas funds need regulatory approval to take stakes in the Indian commodity exchanges, which offer a wide array of contracts ranging from spices to sugar and soybeans. Turnover surged 68 percent to 36 trillion rupees ($908 billion) in the year ended March 31.
Buying Stakes
New York-based Goldman, the world's most profitable securities firm, acquired a 7 percent holding in the National Commodity & Derivatives Exchange Ltd. last year and Fidelity bought 9 percent of Multi Commodity Exchange of India Ltd.
The Reserve Bank of India had proposed that investment limits in commodities markets mirror the rules for stock exchanges. Overseas investors are each allowed to hold a maximum 5 percent of India's stock markets, with total foreign ownership capped at 49 percent.
Citigroup Inc. and Merrill Lynch & Co., based in New York, in September bought 5 percent stakes in the Multi Commodity Exchange, known as MCX, to tap the tripling in growth in trade last year on the world's third-largest gold bourse. The exchange sold smaller stakes to Passport Capital and GLG Partners LP.
Foreign Investment
Prime Minister Manmohan Singh is seeking to attract more foreign investment to sustain economic growth of more than 9 percent in the next five years, cut the budget deficit and spend more on reducing poverty.
Companies such as Vodafone Group Plc, the world's largest cellular-phone company, and General Motors Corp. are investing more to take advantage of the second-fastest pace of growth in the world after China. The South Asian nation, Asia's third- largest economy, has grown an average 8.6 percent since 2004, the fastest pace since independence in 1947.
``We have the most liberal foreign investment regime in the world,'' Nath said. ``Foreign investment is flowing in because India is looked upon as an incredible country.''
For investment in state-run oil refineries, the government is considering raising the current 26 percent foreign ownership limit to 49 percent to spur investment. Billionaire Lakshmi Mittal and Chevron Corp. have invested in Indian refineries as economic growth boosts demand for fuels.
Mittal was granted a waiver to buy 49 percent in a plant being built by Hindustan Petroleum Corp. in northern India. Chevron, which bought a 5 percent stake in Reliance Petroleum Ltd. last year, has an option to raise its holding to 29 percent.
Record Inflows
India last year received record foreign direct investment of $19.5 billion. This year the government aims to attract $30 billion from abroad, according to Nath.
Prime Minister Singh started allowing overseas companies to set up operations locally, introduced free-market measures and removed state-enforced capacity limits in 1991 when he was the finance minister.
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