Diwali mood drags volumes of agri-commodity futures

Experts say lack of interest in futures market has led to the decreased volumes in agri-commodities during Diwali season

Right at the beginning of Kharif season, volumes of agri-commodities in future markets have seen a downtrend owing to the festive season that has kept brokers and traders away from market participation. 

According to market experts, volumes on the National Commodity and Derivative Exchange (NCDEX) have gone down by 15% in the past 10 days, while volumes on the Multi Commodity Exchange (MCX) decreased by 41%.

“Participation in commodity future platforms has decreased before Diwali as many brokers, members and traders are busy with social engagements. This has reduced participation, reflect(ing) on volumes data,” said Shiv Kumar Goel, President of Commodity Participant Association of India.

On October 20, volumes on NCDEX were worth Rs 2,418.18 crore, which has come down to Rs 2,059.98 crore on October 27. Similarly at the MCX, volumes have come down to Rs 432.96 crore from 733.84 crore within a week.

“There has been a slight dip in NCDEX's trading volumes in the past few days, but with no prominent reason regarding the same. It can be attributed to slack trade in physical markets ahead of a long festive break, which in turn affects the momentum in the future market,” said Vinita Advani, senior research analyst at Geofin Comtrade Limited.

With this, trading activities at physical markets have come down as many of them remain closed due to Diwali festivities. 

According to experts, both spot and futures markets are interconnected and tehre is neer to change the mindset of the trading community, specially with regard to festive seasons.

Advani said, “In the physical market the price of the commodity is dominated by its current supply and demand fundamentals. Whereas futures market is an derivative instrument using the commodity as an underline. In the futures markets, at the maturity date (on expiry of a contract), the price of a futures contract converges towards the spot price at the physical market. Hence the interdependence among the physical and future always remains the key of the trade.”

According to experts, lack of interest and involvement in the futures market on the part of the traders and brokers during the Diwali festive seaon has resulted in decline in volumes. 

According to Ajay Kedia, the Managing Director of Kedia Commodity Comtrade Private Limited, the market usually faces a slight downtrend during festive seasons, but "agri-commodities volumes have been affected the most this time".

The other reason being attributed to such a fall is the dislike among traders for taking risks in the commodities futures markets. According to experts, participants prefer to remain in cash position instead of take. 

"During the holiday period, participants do not prefer to be in the hold position due to their aversion to risk. This has also trimmed volumes," added Kedia.

MUTED TRADING