NCDEX, the country’s largest agriculture derivatives focused exchange, is fast rebuilding investor confidence after the sudden ban of futures trading in seven commodities including wheat, paddy (non-basmati), chana, mustard seeds and their derivatives, soyabean, crude palm oil and moong. The exchange plans to diversify into non-price sensitive commodities and build volumes in new commodities other than agriculture. After taking over the reins amid the crisis in exchange, newly-inducted Managing Director Arun Raste has taken his time to stabilise the exchange operations and is all set revive the trading volume. In an interview with BusinessLine, Raste expressed exuberance and charted future plan for the exchange. Excerpts:
How is the exchange coping with the futures trading ban in key commodities?
This is not the first time the government is suspending futures trading in agriculture commodities. Anything that affects the wallet of consumers will always draw policymakers’ attention. The government may have banned these commodities for whatever reasons but they accounted for 45-50 per cent of our trading volumes. Given the price sensitivity of these commodities, such measures are bound to happen and we decided to diversify into other commodities.
Traditionally, NCDEX is known for trading in agriculture derivatives and now we identified few non-agriculture commodities which are big, consumed widely but not as price-sensitive as, say, edible oil. We have got SEBI approval to launch coffee. We are looking to launch futures in PVC and exploring liquidity enhancement scheme in existing steel contract from next month. Obviously, it may take time for these measures to bring the desired impact.
Will the volumes in steel stick after the LES expires?
I completely agree that volumes fall after LES is withdrawn. But we have seen success in gold. It will work for us for the simple reason that people who were trading in steel are still with us even after LES was introduced and withdrawn after some time. It is a commodity which is consumed throughout the year. It is not like gold and silver which are seasonal in nature. We need couple of market makers to provide exit once hedgers’ target is achieved. Yes, there are challenges. There are many recyclers who like to participate in the market but they do not get BIS certification.
How confident are you that PVC will succeed this time around?
We have sent the proposal to SEBI for approval and we expect to get the nod this quarter. PVC was launched earlier but flopped. The market then was dominated by one major manufacturer. Today, there are 4-5 major manufacturers within the country and 30-40 per cent is being imported from China. Lot of people would be interested in this commodity. Though it is not highly volatile, prices move widely.
Has the turnover in the exchange stabilised?
Last fiscal, we had done very well in the first six months but unfortunately because of the ban on trading in select commodities our volumes went down. Still we did an average daily trading volume of ₹1,800 crore. The existing contracts are doing well with high open interest. ADTV in spice complex, guar and steel are up not just due to rally in prices but also due to the volatility. Now our turnover is about ₹1,400 crore and by December we should go back to ₹1,800 crore level. We are making representations to SEBI and the Government the logical reasons why this ban should not continue forever. Of these seven banned commodities, rice and wheat are not even traded on our exchange.
Which are the commodities that you will be interested in relaunching?
The commodities that should be listed for trading immediately are chana and mustard. Today, even after concern over high inflation chana prices are trading below MSP. Current market prices are about nine-month low. The MSP for chana for marketing year 2022-23 was ₹5,230 a quintal, while the mandi prices in its key producing States such as Rajasthan, Madhya Pradesh and Maharashtra are down by about 10-20 per cent. When the chana contract was traded on the exchange we were sending transparent price signal to the market, farmers, policymakers and the entire value chain. At the moment, there is no reference point.
Are industry participants concerned over the futures trading ban?
Though they have concerns, industry participants will always find a way out. If not in NCDEX they will hedge their risk in CBOT or elsewhere. It is a big loss for the country. This is the point we are trying to drive with the regulators and the government. Hopefully, they will find a reason in it. I recently met a Malaysian Embassy official and he was asking why soyabean futures contract was suspended. They use the price for reference as the palm oil prices are dependent on it. It is unfortunate that we have missed an opportunity to become global price setter in soyabean.
What is farmers’ reaction to the ban?
In last two months, the arrivals in mandis have fallen by 50 per cent as farmers were holding back their produce in absence of a transparent price signal. Farmers are also smart and are abreast with latest developments across the world through internet on mobile phones.In the absence of a transparent pricing mechanism like that of NCDEX, there is an opaqueness in market with everybody want to be smarter than other. We will be meeting the government officials soon to appraise them of our views.
May 18, 2022