NCDEX volumes, mkt share jump

With the Multi Commodity Exchange (MCX), the market leader in commodity derivatives, dealing with the regulatory pressure to get rid of its anchor investor stake in the short term, the National Commodity and Derivatives Exchange (NCDEX), the number two, is trying to widen its presence.

NCDEX has in the past two months seen a surge in its volumes, with average daily turnover up 46.6 per cent in March over a year before, to Rs 5,255 crore.

Refined soy oil, biggest contributor to the agri-based exchange’s volumes, has seen huge volatility. The price rise caused many market participants to increase their participation on the commodity market. The increase in volume is NCDEX-specific as most other exchanges have seen a fall. NCDEX’s market share has improved to 18.7 per cent, compared to 14 per cent in February.

Other agri commodities have also seen volatility in recent months, which has caused average daily turnover to move up to the levels before a commodity transaction tax (CTT) was imposed. Castor seed also helped garner volumes for NCDEX. Other introductions such as the gold and silver hedge have helped, too.

The question is if the exchange can hold on to these volumes. “While CTT has had its effect on market sentiment, stakeholders in the value chain continue to find value in contracts which provide a genuine price discovery and risk management. The host of warehouse strengthening initiatives taken by us have resulted in significantly increasing market confidence, as is evidenced in investor perception in our contracts like castor, RM seed, etc. Other measures such as smaller contracts in chana and castor, as well as GoldHedge and SilverHedge, are also seeing increased participation. Further, the launch of a spread engine, an ingeniously developed trading tool, is providing the benefits of innovative technology to market players,” said Samir Shah, managing director of NCDEX.

Adding: “All this has resulted in healthy participation.  The average daily trading volume for March (as on 24th) had grown 52 per cent as compared to that for July 2013. And, the Open Interest (unsettled contracts at session-end) has been steadily rising; it is at Rs 7,667 crore as of March 24.”

Analysts and market participants are optimistic on the trend. They say it is possible this would continue, as many agri commodities have a generally bullish sentiment, with increased volatility, which will cause these to rise further, causing participation to also increase.

“I expect these volumes to remain for the next two quarters, as the fundamentals still remain bullish for  many agri commodities. The price of some like sugar and castor seed are higher compared to last year and automatically participation on the market improves if a participant can buy and then sell, compared to sell and buy,” said Jagdeep Grewal, vice-president at Kunvarji Commodities.