The Hindu Business Line : `NCDEX looking at improving biz in metals, energy sectors'

In commodities, there is a conflict between farmers and consumers; farmers want better returns on their produce while consumers pray for lower prices.

Mr P.H. Ravikumar

Mumbai , Dec. 17

The year 2006 saw the Forward Markets Commission (FMC) slapping curbs on open interest positions and hiking margins to contain a sharp rise in prices of commodity futures. With the farm sector not serving surpluses, essential commodity prices started moving up and politicians were quick to blame futures trading in commodities.

Mr P.H. Ravikumar, Managing Director, NCDEX, spoke on the year's happenings.

How has the year been for commodity futures trading? What is the prospect of commodity trading in India?

It was one of the most difficult years. Having completed just three years, trading in commodity futures is still evolving. There have been instances of Government interventions to check spiralling prices without fundamental reasons. NCDEX agro prices are being looked upon by the State and Central governments as a benchmark for policy matters. Farmers have realised better prices for their produce. Total contribution of the agriculture sector to GDP is about Rs 6 lakh crore while turnover in futures commodity trading has just touched Rs 18,000 crore.

Have you chalked out any plans to deal with political risk? Any diversification?

Dealing in essential commodities always carries political risks. In share markets, everybody wants prices to rise. In commodities, there is a conflict between farmers and consumers; farmers want better returns on their produce while consumers pray for lower prices. A balancing act is difficult. We are looking at improving our business in metals and energy sectors. Our gold and Brent futures have started registering good volumes.

Despite a rise in commodity prices, turnover on NCDEX has fallen very steeply. What are the reasons?

Turnover has fallen because of cuts in open interest positions. Higher margins have scared away small investors. Lack of liquidity in agro commodities has also shrunk trading interest. Once farm production bounces back, trading restrictions are likely to be eased, boosting investor interest. We expect normalcy early next year.

Speculative trading on commodity futures has been on the rise. Is it a cause for concern?

Prices on the futures market are volatile as there is a short supply of commodities. Futures market is where producers hedge their risks while buyers hunt for cheaper deals.

Speculators carry the risk of producers and buyers to make money in the deals.

Speculation per se is not a bad word as deals are cut in futures trade in anticipation of some developments. Excess speculation is what we are concerned about and that is being addressed by the regulator in the right way.

Will the retail boom help commodity futures trading?

We see a synergy between retailers and our warehouses. Retailers can buy directly from farmers-traders in the futures market through our warehouses.

In the process, they can bypass the middlemen and save cost. Buyers can be sure of quality. This will change trade dynamics for retailers to add to their value chain.

What will be the impact of gold ETF (exchange traded fund) on futures trading in gold?

It is not yet clear whether gold ETF will be launched in the securities or commodity futures market.

Even if it is launched in the securities market, investors can look at arbitrage opportunities on the futures market. I believe gold ETF will only increase investor interest in gold.

How is your subsidiary National Collateral Management Services Ltd (NCMS) performing?

It has been a wonderful year of operations for NCMS. It has arranged funds worth Rs 1,000 crore for 40,000 farmers.

They are targeting to reach out to one lakh farmers. NCMS handles about nine lakh tonnes of commodities, which is expected to touch 13 lakh tonnes by this financial year-end.

The retail boom will further boost NCMS business.

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`NCDEX looking at improving biz in metals, energy sectors'