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Commodity derivative volumes shrink for first time; gold leads fall

Rajesh Bhayani & Sameer Mulgaonkar  |  Mumbai 

India's Rs 170-lakh-crore market might end FY13 with its worst ever performance. So far, the daily average volumes on five commodity bourses have fallen by about four per cent, while aggregate annual volume is lower by 5.8 per cent, compared with the 50 per cent growth in the past three years. Total average daily trades, too, are lower by seven per cent against last year's 70 per cent growth.

Shreekant Javalgekar, managing director and chief executive officer of MCX, said: "International exchanges such as CME and LME have seen a sharp fall in volumes due to lower volatility across commodity baskets. MCX has seen a much lower fall due to our sustained awareness campaign among SMEs and farmers' cooperatives, etc. This year, MCX has conducted more than 600 such programmes for farmers & SMEs in the interior parts of India. MCX continues to add 30,000 to 40,000 new clients every month on account of its relentless efforts towards increased penetration in non-urban areas."

The only sectors that saw gains in both futures and options volume in 2012 were agricultural commodities and non-precious metals. Agricultural commodities futures volume rose 5.6 per cent and options volume rose 3.7 per cent. Non-precious metals futures volume rose 29.2 per cent and options volume surged 137.3 per cent.

While most segments have shown growth, the bullion segment, which forms a little less than half of the total volumes, has seen 20 per cent decline in average daily volumes. This has resulted in total volumes falling.

"Volumes in and silver are lower this year as the volatility in price is extremely low. Whenever price has fallen internationally, a weakness in the rupee has ensured a relatively high price domestically. However, volumes in base metals and energy are higher in spite of lower volatility. Volumes in agri-products such as cotton are also higher this year on MCX," said Javalgekar.

The Forward Commission (FMC) has maintained a tight hold over agri futures to curb the possibility of speculation. Total daily average agri commodity volumes have fallen only 1.3 per cent, despite the guar seed/gum contract being delisted.

Naveen Mathur, associate director (commodities and currencies), Angel Broking, said, "Traders were hesitating to take bets on price direction in commodities as there are several uncertainties in the market."

Commodity broking business has been a good hedge for brokers when equity business was not growing. In its analysis on the Indian broking industry, rating agency ICRA Research said: "A brightening outlook for the commodities and currencies broking segment stands out against the dark tones of the beleaguered equity broking industry. While for the commodities segment, traded turnover declined nominally, ICRA has observed a more broadbased increase in market participation and robust increase in customer addition aided by increased investor awareness."

Outlook for the commodity business for next year is equally uncertain. The finance ministry's proposal to impose a commodity transaction tax (CTT) could result in some trades moving out of official Nearly 400,000 trading terminals and over a million persons directly earn their livelhood from this business.

Mathur said CTT will be one of the impediments for growth of this market. "The market, which has grown at 50 per cent in the previous three years, will stagnate if more participants and newer products are not introduced in the near future."

According to him, measures such as amending the Forward Contracts Regulation Act, introducing new products and strengthening the FMC could help this market grow.

First Published: Sun, March 10 2013. 23:19 IST