NCDEX launches agriculture index futures, trading to start on Tuesday

Agridex represents produce grown in India and is not linked to any external benchmark; it will be available initially for trading of contracts expiring in June, July, September and December

National Commodity and Derivatives Exchange (NCDEX), India’s largest farm produce-centric online trading platform, has launched Agridex, a purely indigenous agriculture composite index futures trading system that will start on Tuesday. It is indigenous in the sense that it represents produce grown in India and is not linked to any external benchmark.

With a base value of 1,000, Agridex will be available initially for trading of contracts expiring in June, July, September and December.

The cash-settled agri index has 10 leading liquid contracts such as soybean, chana, coriander, cottonseed oil cake, guargum, guar seed, mustard seed, refined soy oil, castor seed and jeera. The value of this index is generated based on the spot and futures of the underlying commodities.

“The need for a composite index was felt to represent various underlying assets covering agricultural commodities of both kharif and rabi seasons, with price reference round the year. Agridex will help all classes of participants hedge their commodities risk base on price anticipation of underlying products,” said Vijay Kumar, managing director and chief executive officer, NCDEX.

Agridex has been framed based on the revised guidelines issued by the Securities and Exchange Board of India (Sebi), which allowed futures trading in commodity indices recently. Based on its success, NCDEX may launch futures trading in other indices backed by individual commodities.y 

“The advantage of having this Agridex is that traders, producers, farmers producers organisation (FPO)s, individual farmers, institutional participants and corporate can hedge their risk in agricultural commodities. Earlier, the focus of the government was on supply. With India having achieved self-sufficiency in most commodities, the focus is now to have marketing tool,” said Kumar.

With a lot size of 500, traders would have facility to place a minimum investment order of Rs 500,000 and a maximum of Rs 2.5 crore (order size of 50 lots) at one go. To attract participation from all classes of traders, the exchange has kept an initial trade margin of six per cent, with 99 per cent value at risk (VAR) and transaction cost of one rupee per RS 1 lakh of value traded on Agridex.

Agridex does not represent the entire basket of farm commodities produced across India. Cash crops like cotton and sugar have not been included in its composition for now. But, depending upon future developments, these commodities may be added while re-balancing the composition in March every year.

“There is no global reference to the Agridex as this index is developed to represent Indian commodities based on their production, consumption and availability here,” said Kapil Dev, Head (Product and Business Development), NCDEX.

As per the existing plan, soybean would have the highest weightage in the commodity index followed by chana, guarseed and refined soyoil.

Currently, the minimum threshold of any commodity to remain in the composite index stands at Rs 75 crore of average daily turnover in the last one year with a room for relaxation of 20 per cent. In case this threshold declines by 20 per cent, the commodity would be replaced with another one available on the exchange platform. The index would be re-balanced in March every year with entry and exit of commodity that breaches the minimum threshold of average daily turnover and also, availability of that commodity for futures trading.