With government and regulators supporting agri commodities derivatives, the leading player in the segment, National Commodities and Derivatives Exchange (NCDEX) is gearing up to grab the opportunity. Though it has some challenges as the market is expanding. NCDEX has a networth of Rs.343 crore as of March '15 and profit after tax was Rs.26.8 crore.
"It is indeed heartening to receive recognition from the government and RBI for the role that NCDEX plays in the real economy. Driving sustainable growth, we continue to focus on significantly increasing the pace of execution, with a thrust on product excellence, user experience and overall development of the commodity ecosystem in the country. We plan to strengthen participation across all the three segments available for trading agri commodities in India - the primary segment where farmers sell their produce in mandis, secondary segment which is the forward sale by traders and futures where the risk is hedged." Samir Shah, MD & CEO of NCDEX.
Government has announced national common agri market project and the Reserve Bank of India has asked banks to advise their borrowers to hedge their agri commodities price risk on derivative exchanges and in both the cases NCDEX which has the highest market share in agri derivatives commodities apart from presence in physical, forward and futures segment.
Following the RBI circular to banks, NCDEX has already begun parleys with the its shareholders banks like Punjab National Banks, Cnara Bank and also with Indian Banks Association and National Institute of Bank Management to get the emerging business.
Economic survey for 14-15 has acknowledged the e-mandi project run by the NCDEX subsidiary NCDEX E-Markets limited which is a spot exchange. E-market has modernised and interlinked 51 APMCs of Karnataka where common trading platform of all such APMCs has been developed. Farmers can sell their produce on this electronic platform and mandi member mandi where he is getting best price.
NCDEX E-Markets which is a 50:50 joint venture with the state government has connected 51 mandis and remaining will be connected in next few quarters. The company is also in talks with several other states like AP, Telangana, Tamilnad for similar projects. "our fully owned subsidiary, the NCDEX e - Markets ltd is in the process of being recapitalised by converting loan of Rs.15 crore in to equity and it has also started making cash profit from 2014-15," said Samir Shah, MD & CEO of NCDEX.
Challenge for the NCDEX is to create enough liquidity in all agri commodities contracts. While around 10 contracts have liquidity where more number of participants can be accommodated, commodities are Guar, Chana, oilseeds and oils and spices. There are giant companies which are users of wheat, potato, sugar, tobacco among other commodities. Most are traded except tobacco on the commodities exchange but there is no enough depth to help user companies of these commodities to hedge their risk on the exchange platform.
"Liquidity does not come overnight, it is a series of steps that contribute to the growth of the markets. A holistic approach is required. The RBI advisory to banks to encourage large agricultural borrowers to hedge, the FMC- SEBI merger are steps in the right direction and will surely help in developing the commodity markets."
However with ambitious growth plans in place, it is now planning to expand in the stronghold of its bigger rival and market leader in derivatives the Multi Commodities Exchange which has 85 per cent of the market share and leader in non agri segments. Highest volumes in commodity derivatives come from gold trading which is a strong hold of MCX. However recently NCDEX launched two initiatives. The gold now contracts and forward trading in gold. In forward contract even premiums and discounts in open market in gold price will be polled and reflected separately. Gold Now platform, according to the NCDEX note, "is the first transparent and convenient online market for buying and selling gold. The platform will accept gold recycled in exchange-approved refineries as Good Delivery. This is intended to reduce the dependence on imports".
The NCDEX gold prices will be acceptable for pricing proposed gold sovereign bonds, as per graft guidelines of the scheme. This is yet another recognition to NCDEX when its rival MCX is knows for gold price discovery in futures segment. NCDEX has also proposed to the government to use ecosystem for gold created by its two initiatives in gold and complement the gold monetization scheme. Even certificates issued against gold monetized can be traded on this platform. This if succeeds, could be a big challenge for its rival MCX which is still without an MD for over a year and not fully out of regulatory glair.X
