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Commodity exchanges' turnover continued to fall on the second day in a row on Tuesday in panic absence of traders from futures platforms over the levy of the commodity transaction tax (CTT). The government levied 0.01 per cent of CTT on non-agri commodities effective July 1, which created a panic among traders.
The total turnover of five leading commodity exchanges - MCX, National Commodity and Derivatives Exchange (NCDEX), Ace Derivatives and Commodity Exchange, Indian Commodity Exchange (ICEX) and National Multi-Commodity Exchange of India (NMCE) - recorded a decline of 43.11 per cent on Tuesday. From the level of Rs 34,498 crore in June, the average turnover fell to Rs 19,626 crore on Tuesday. On Monday, these exchanges had lost around 38 per cent of business.
The new levy is set to raise the transaction cost in futures by over five times. Those who were dealing in very thin margin would have to seek a wider spread for inter-commodity or contract arbitrage. Consequently, traders may wait to assess the full implication of the new levy or shift to the spot market.
"The trend is likely to continue for some more time till traders get habituated with the additional cost. In case of volatility, the tax levy would be ignored through resumption in active participation of traders," said Naveen Mathur, associate director, Angel Broking.
MCX took the lead in the fall with its turnover declining by a steep 48.32 per cent to Rs 15,153 crore in the day session on Tuesday from the average turnover in the corresponding session in June at Rs 29,320 crore. NCDEX, however, recovered the early loss to witness a marginal decline of 4.73 per cent at Rs 3,150 crore on Tuesday against the average of Rs 3,306 crore in June.
While Ahmedabad-based NMCE's turnover declined 12.61 crore to Rs 1,090 crore, ICEX and Ace followed suit with a steep fall of 67.31 per cent and 56.14 per cent, respectively, in their businesses at Rs 120 crore and Rs 113 crore.
While, the decline was sudden, the reversal in business would be gradual, said Mathur.
"Jobbers have gone out of the market. They used to generate major volume through trading actively with thin price fluctuations. They remained absent largely. Consequently, the commodity futures market has lost depth as used to be the case earlier," said Ajay Kedia, managing director, Kedia Commodity.
Global commodities like crude, gold and metals have recorded a steep fall in turnover followed by processed agri commodities.
