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The year 2017 was the worst in three years for commodity exchanges due to migration of participants to better performing asset classes like equities and reduced price volatility in global commodities.
After two calendar years of marginal growth, the daily average turnover (DAT) on commodity exchanges declined by 15 per cent, primarily driven by a similar fall in the DAT of market leader the Multi Commodity Exchange of India (MCX). Total DAT of commodity exchanges, including MCX, National Commodity & Derivatives Exchange (NCDEX) and National Multi Commodity Exchange (NMCE), reported a decline of 15 per cent from Rs 26,311 crore in 2016 to Rs 22,494 crore in 2017.
The decline indicates traders’ keenness to deal more in the asset classes witnessing a bull run for better returns. Global equity markets led by emerging economies, including India, yielded better returns this year than previous years.
“The decline in the commodity futures volume can be attributed to the bull run in equity markets and lack of bullishness in commodity markets,” said Jayant Manglik, president, Religare Securities.
The benchmark BSE Sensex posted strong returns of 28 per cent in 2017 at its closing of 34,056.83 on December 29 from its level of 26,595.45 on January 2, 2017.
Major global commodities have also run up by around a quarter in 2017, which indicates that the investments in commodities could have also yielded good returns this year. But most of this gain was seen in the second half of calendar 2017. By then traders had already made up their minds to continue with equity markets.
“Reduced volatility in global commodities and better performance by alternate asset classes like equities have led to the decline in business volume of commodity exchanges,” said Kishore Narne, associate director (commodities and currencies), Motilal Oswal Financial Services. During 2016 and 2015 commodity exchanges had posted volume growth of two per cent and 8 per cent, respectively. Market leader MCX has reported 15 per cent decline in its DAT at Rs 20,094 crore for calendar 2017, the lowest in three years. Agriculture-centric NCDEX also reported a 15 per cent fall in its DAT at Rs 2,131 crore from Rs 2,514 crore and Rs 3,983 crore in the past two years, respectively. MCX and NCDEX jointly contribute over 99 per cent of the overall commodity futures volume in India.
“With commodity prices firming up, we expect 2018 to br much better than 2017 with positive returns,” said Manglik.