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With the expansion of the derivatives market for agricultural commodities,the Forward Markets Commission (FMC) aims to move towards making India a price setter in those products where it has been an influential producer.
In precious metals such as gold and silver, futures prices traded on the Multi Commodities Exchange (MCX) are already influencing international markets. And, markets abroad are taking note of movements in agri commodities such as cotton and soybean, since trade in these have been permitted in the evening session, too.
FMC Chairman Ramesh Abhishek said, “India should be a price setter for globally refreshable commodities, especially in which India is a major producer.” For this, he said, a vibrant futures market, with wider participation, was needed.
Things have begun improving, with the introduction of staggered delivery for most agri commodity futures, margin relaxations for genuine hedgers, improvement in monitoring and surveillance, giving exchanges the authority to check the source of funds where necessary and no contracts in the lean season.
This has resulted in some companies starting to show interest in agri hedging. The corporate sector has huge exposure to commodity price risk and the shallow market was not allowing them to hedge on Indian futures markets. This is changing and Ruchi Soya, the Adanis, some other leading companies and multinational trading ones have stated hedging their exposure, albeit on a smaller scale, said an exchange official.
After implementation of measures for risk management in recent months, price volatility has also come down. According to data provided by the National Commodity and Derivatives Exchange (NCDEX), the leading one in agri products, the prices of groundnut oil — which is not traded in the futures market —has in the past three years seen much wider price fluctuation than that in refined soya oil, which also generates the highest volume on NCDEX. Another data set which shows high and low spot prices of widely traded agri commodities in the past four years says the difference between the two levels in chana, guar seed, rapeseed/mustard seed and castor seed reduced in 2014.
This is possible because the spot market has started taking signals from the futures market. Sameer Shah, managing director, NCDEX, said: “Synchronisation between the spot market and futures market has improved significantly, especially in commodities having good liquidity.”
He said the government should state its support for futures trading and that FMC, the market regulator, will be strengthened with requisite legal amendments.
“We have started meeting physical market participants to understand their issues and bring them to hedge their risk on the futures platform. That has been proved useful for shaping regulations,” said Abhishek. A finance ministry committee has already recommended allowing banks and foreign players to hedge their risk on the futures platform. Once that happens, the market will be more vibrant and meaningful.
