Daily Turnover Increasing at NCDEX; Trade Prospect Appears Promising

As the agricultural commodity markets remain in the upward price trend, the average daily turnover at National Commodity and Derivatives Exchange continues improving. The average daily turnover value had jumped by more than two-folds to Rs 2,151 crore in July compared to the same month of the previous year.

The agri-commodity exchange's average daily turnover was Rs 785 crore during July 2020 as per NCDEX reports. Similarly, NCDEX saw a 79 percent increase in the agri-derivatives market share from 70 percent in the same month a year ago. Growth in the average daily turnover in June month as well and versus June 2020 value of Rs 860 crore, the turnover in June 2021 had increased by more than 100 percent to Rs 1,945 crore. Refined Soy oil was the topmost commodity traded at NCDEX for the 11^th consecutive month. In July 2021, Soya oil alone had recorded an average daily turnover of Rs 560 crore, up 218 percent from Rs 176 crore in July 2020.

Volumes had dried up significantly during the first half of the previous year mainly due to the increasing threat of the pandemic. As the problem started reducing unlocking of the economies increased and demand recovered largely towards the normal levels, participation also increased in the NCDEX. Trade interest usually improves when markets are in an upward trend, and it has been an impressive story for the Agri markets as all of the commodities traded at the exchanges especially spices, the oil complex, and cotton complex basket have gained significantly between April 2020 and August 2021.

Guar complex has resumed the upward trend in recent months. Increasing participation at NCDEX is also because of improving business in retail as well as wholesale markets, including farmers thereby benefiting the entire value chain.

The growing importance of agriculture:

The Pandemic occurrence has supported the growth of our Agriculture largely thereby enhancing business/employment opportunities in this sector. We have seen farmers/common people/celebrities/sportspersons/army persons/engineers etc. taking up ventures in the Agribusiness segment in response to the growth potential emerging in the agricultural industry. Due to consistent efforts taken by the government, India will be able to have decent production of all the major pulses/food grains or oilseeds this year, despite the lockdown restrictions. A number of economic packages have been announced since the new financial year, in addition to the amendments in the farm bills.

On one hand, such developments have increased India’s export potential; on the other, it enhanced the growth prospect for income levels of the farmers/Agriculture based entrepreneurs to a large extent. Prices of most of the agricultural commodities have risen sharply since the March lows. Appreciation in prices generally implies improvement in the financial situation of the entire value chain i.e. farmers, producers, traders, stockists etc. The pandemic has prompted everyone to understand the value of agriculture because whether the world faces any challenge like the pandemic or any other adversities - demand for the food items shall always persist.   

Trade prospect appears promising:

We have observed consistent efforts taken by the NCDEX towards providing the necessary risk management products across the agri value chain to help physical market participants to mitigate their price risks in an extremely volatile market environment. This factor also supported growth in the exchange’s daily turnover. NCDEX has also introduced two sectoral indices i.e. SOYDEX and GUAREX to complement the composite index AGRIDEX, and both these products are considered to be one of the most convenient tools to participate in the agri derivatives segment.

The growth in NCDEX trading volume emphasizes the importance of robust risk management which the exchange has been offering to the farmers and other value chain participants to minimize their price risks. Also, the increase in trading volume and deliveries underlines the importance of agri-derivatives market as a place to manage price as well as raw material risks during trade disruptions. With Kharif plantations getting over, participation in the futures markets of cotton/soybean/guar seed/maize and castor seed by the farmers and Farmer Producer Organizations (FPOs) shall enable them to lock-in the price of their harvest.

Moving ahead, the ongoing bull run in the agri markets coupled with the effective risk control measures introduced by the NCDEX, and the recent introduction of the sectoral indices – looks favorable for enhancing participation in the futures market from the other value chain participants such as  speculators/arbitrageurs, stockists, corporates and the HNI’s.