Sept. 28 (Bloomberg) -- Citigroup Inc. and Merrill Lynch & Co. bought 5 percent stakes in the Multi Commodity Exchange of India Ltd. to tap the threefold growth in trade last year on the world's third-largest gold bourse.

The exchange, known as MCX, sold smaller stakes to Passport Capital and GLG Partners LP, Joseph Massey, deputy managing director of the Mumbai-based company said today. The total sale is worth about 6.45 billion rupees ($162 million).

Overseas investors including Goldman Sachs Group Inc. and Fidelity International Ltd. have invested in Indian markets as the fastest pace of economic growth since independence in 1947 spurs demand for commodities in the world's second-largest sugar and rice producer.

``The foreign companies will bring in their expertise from overseas and help enhance the Indian commodity market,'' Amol Tilak, an analyst at Kotak Commodity Services Ltd., said by phone from Mumbai. ``It's a good time to be in.''

Rob Stewart, a Hong Kong-based spokesman for Merrill Lynch, the third-largest U.S. securities firm, declined to comment today. Madhulika Gupta, a spokeswoman for Citigroup, the largest U.S. bank, wasn't available.

The value of trading on MCX, which also trades commodities such as mentha oil, jute and turmeric, surged to 20.25 trillion rupees in the year ending 2006 from 6.3 trillion rupees in 2005.

Globally Competitive

Domestic traders and companies are the main participants on Indian commodity exchanges, compared with the 13 million individual investors -- three times the population of Singapore -- who invest in stocks. The South Asian nation opened up its stock markets to foreigners in 1993. MCX was inaugurated in November 2003, according to its Web site.

Jignesh Shah, managing director of MCX, said in January that overseas capital was essential for Indian commodity markets to become globally competitive.

``Overseas participants are exuberant over the prospects for commodity exchanges in India,'' said Avinash Raheja, senior vice president at Mumbai-based Commtrendz Risk Management Services Pvt. ``The market has done well in a very short period and for the next phase of growth we need the market to open up.''

Passport Capital bought a 3 percent stake in MCX and GLG Partners LP purchased 2 percent.

Goldman, Fidelity

Goldman acquired a 7 percent holding in the National Commodities & Derivatives Exchange Ltd. last year and Fidelity owns 9 percent of MCX. Fidelity, a unit of Boston-based Fidelity Investments, the world's largest mutual-fund company, paid $49 million for its stake in MCX and Goldman paid $21 million for its holding.

MCX has tied up with Euronext.liffe, the New York Board of Trade, Bursa Malaysia Derivatives Bhd. and Shanghai Futures Exchange to pool product knowledge.

Goldman, the world's biggest securities firm, and NYSE Group in January led a group of investors buying a 20 percent stake in India's National Stock Exchange. Singapore Exchange Ltd. and Deutsche Boerse acquired a 5 percent each in the Bombay Stock Exchange Ltd., Asia's oldest.

MCX trades on average about 100 billion rupees ($2.5 billion) worth of commodities a day, Ravi Muthreja, spokesman at the company, said.

``Foreign participation will help in discovering price in a more transparent manner and that's good for everyone,'' Commtrendz Risk Management's Raheja said.

To contact the reporter on this story: Pratik Parija in New Delhi at pparija@bloomberg.net

Last Updated: September 28, 2007 03:51 EDT