‘Hedging is a scientific tool for price risk management in futures trading’

‘Hedging’ is a scientific tool for price risk management and helps in reassuring both sellers and buyers of the profit margins but not the speculative profits, said G. Chandrashekhar of The Hindu Business Line .

He was delivering a talk on ‘Commodities as critical driver of India's economic growth’ at the ‘Hedgers & Prospective Hedgers Awareness and Education Seminar on Agribusiness and Commodities Price Risk Management.’

Global perspective

Chandrashekhar portrayed the fast-changing economic scenario, explicitly indicating a bright future for food market and how national economies were gradually integrating with global market, necessitating the stakeholders to develop a global perspective about the dynamics of international market.

He stressed that hedging as a scientific instrument helped in price risk management and insured against adverse price movement and locked-in profit margin.

The seminar was organised by The Hindu Business Line jointly with Forward Markets Commission (FMC), the commodity futures market regulator under the Union Ministry of Consumer Affairs, and the National Commodity and Derivatives Exchange (NCDEX), an agri-commodities futures exchange.

Awareness drive

Interestingly, although commodity futures market existed for over a hundred years now, it is for the first time that an effort is being made to create awareness and educate the stakeholders on how commodities as a critical driver of economic growth through hedging could be enhanced and sustained vis-a-vis emerging opportunities in the global commodity market.

While indicating further boost in foreign trade from the present 10-12 per cent following the opening of the gates for two-way FDI, which also indicated growing competitiveness of Indian corporates going for capital investments outside the country.

Chandrashekhar drew attention to the challenges of managing a burgeoning Indian population growing at the rate of 20 million every year (equivalent to the population of Australia) and achieving a sustainable economic growth rate, he said the country is gifted with rich natural resources – 900 mm rainfall, 8,000 km of coastal line, 270 sunshine days, hundreds of rivers, plains, extraordinary biodiversity and varying agro-climatic zones.

“We can grow anything here, but a gap exists in our efforts to make India an agri-powerhouse,” Chandrashekhar said.

Food demand

He said the demand for ‘food’ was growing rapidly and food sector would never suffer recession as witnessed in other sectors.

As the current emerging scenario wherein internal and external trade reforms had created free-trade-environment resulting in integration of national economies with global market, the stakeholders need to adopt hedging, which was the only proven scientific way in risk mitigation and to protect profits vis-à-vis volatile prices of commodities.

Speaking on ‘Benefits of commodity future trading and exchange perspective & Price risk Management’, Davey Cherimulla, Assistant Manager, NCDEX, explained how the NCDEX was helping stakeholders in commodity future trading as against spot trading.

He also highlighted services and benefits of trading through NCDEX, which was engaged in online price dissemination through five national and 21 regional centres, 42,000 terminals at more than 700 centres linked to a network of 800 accredited warehouses across the country.

He said commodity future market was an ideal platform to manage against spot price fluctuations and helped in price discovery of the underlying commodity.

The commodity market, despite ban was growing at faster pace and was larger than the stock market in the global context. The NCDEX was beneficial to exporters and importers and facilitated hedging and forward price fixation, and scheduling hassle-free prices for commodities.

Role of banks

Later, N V L Ratan, Deputy General Manager (Agriculture), State Bank of Mysore, Bangalore, highlighted what he described as dichotomy of sorts wherein 50 per cent of the population in agriculture contributing less than 15 per cent to GDP.

He also highlighted the salient features of banks' role in agriculture, besides various loan schemes and subsidies available under it.

Earlier, BCCI President Satish Tendolkar inaugurated the seminar and thanked its organisers for conducting such an informative and educative programme for the benefit of traders and other stakeholders in the region.

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