The Hindu Business Line : Pepper hits 9 pc lower circuit on NCDEX

Panic gripped the agri-commodity futures market during the weekend. It all began on NCDEX where trading was suspended twice for long durations between 10.50 am and 2 pm.

Heavy selling pressure was witnessed in at least five counters - pepper, red chilli, chana, guar gum and jeera - to the extent that future prices ruled at heavy discounts to the spot.

Things got further complicated when rumours started spreading about some defaults in the volatile counters and a payment crisis at NCDEX, which, however, denied it. According to Mr Ashok Mittal of Karvy, futures in pepper declined by over nine per cent at one point of time on heavy selling. The agri-commodity index was down by 1.4 per cent. Many commodities including pepper, chilli, chana, guar hit the low circuit limit on the exchange.

However, most of the commodity fund managers, who Business Line spoke to, said the exchange was hit by technical snag.

According to traders, red chilli sold at roughly 30 per cent discount to the spot prices of about Rs 6,500.

The pepper counter has been witnessing selling pressure for last few days and prices have dropped from as high as Rs 12,500 a quintal on October 26, to the level of Rs. 10,534 on Saturday, much lower than the spot price of Rs 11,600.

"The selling pressure was generated out of the concern about the quality of NCDEX stock of pepper, chilli, jeera and chana and was pre-empted," felt one trader. Another, while admitting that such discounts over spot were not common, said the market "mixed up the suspension of trading at NCDEX and the associated rumours and overreacted leading to a further fall in prices".

Quality concern

According to another view, apart from quality concern, "cartelisation" in narrow commodities are responsible for the crash in prices much below the spot prices. When asked about the possible reasons, official sources in NCDEX said: "People should not evaluate the market through rumours and should understand the impact of contract expiry and fundamentals related to each counter". According to traders and brokers, heavy selling would have weighed heavily on the margins deposited by the brokers with the exchanges. The margin are said to be a few crores of rupees and some traders said it was close to the Settlement Guarantee Fund of Rs 750 crore of NCDEX.

The fund take care of any huge default by traders and it provides cover for 99 per cent of the loss. In view of the simultaneous decline in the prices of many agro commodities, margins moneys would have been washed off, said a broker, adding that it would have affected the Risk Management System of the exchange.

There is a suspicion in the market that there could be problems relating to pay-in and payout amounts early next week. Analysts said in view of bank holidays this week, traders could have faced mark-to-market payment problems, leading to panic. Confusion also reigned in the market on some traders saying they were not allowed to square off their positions and some saying they were asked to close their positions. However, some of the large corporate brokers were safe, said trade sources, adding that some of the small brokers, especially in places such as Guntur, Haryana and Delhi could have been hit.

(With additional inputs from M.R. Subramani in Chennai)

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