It has been an unprecedented year for the commodity derivatives market with economic lockdown and other troubles caused by the ongoing Covid-19 pandemic.

Though exchanges fought back to normalcy with the support of market regulator SEBI, trading sentiments were hit. Investors and hedgers had trimmed their trading positions due to economic uncertainties and cut down on production in March and April.

The pandemic has also narrowed the commodity market with fewer market participants even as the turnover increased largely due to sharp rise in commodity prices.

In this backdrop, the turnover on MCX, the country’s largest commodity exchange, was up four per cent at ₹8.03-lakh crore as of December 12 this year against ₹7.71-lakh crore logged in last year.

However, number of contracts traded was down 32 per cent at 20.82 crore lots so far this year against 30.45 crore lots registered in 2019.

Turnover of options on futures in MCX had increased 37 per cent to ₹2.78-lakh crore (₹2.03-lakh crore) with the traded contracts rising five per cent to 27.31 lakh lots (26.03 lakh lots). Closure of physical markets interrupted supplies in March-April, the peak harvesting period of rabi commodities, had taken a heavy toll on agriculture-focused NCDEX

. Turnover on the exchange dipped 38 per cent to ₹2.82-lakh crore (₹4.55-lakh crore), while the traded quantity was down at 6 crore (9.64 crore). Despite the pandemic impact, the commodity exchanges launched slew of new products — options in goods and index futures paving the way to attract institutional investors in near future.

Metals lead the way

Led by bullion, metals were the only saving grace, while agriculture commodity processors and exporters faced the brunt of weak demand.

Most metals, which derive prices from international markets, were the biggest beneficiary of ample liquidity in the global markets pumped in as part of economic stimulus.

The base metal pack hit a new high on supply disruption even as demand remained lacklustre globally. The rally was later supported by swift recovery in the Chinese economy. Energy commodities saw wild swings due to supply and demand side disruptions. Naveen Mathur, Director, Anand Rathi Commodities, said the sentiment in the commodity markets has already revived with the launch of new products by the exchanges and support extended by SEBI. Going ahead, exchanges should target to attract institutional investors including mutual funds in index derivatives such as MCX’s Bulldex, Metldex and NCDEX’s Agridex.

Foreign institutional investors have not shown much interest in commodity derivatives due to the abstract nature of the markets and if mutual fund take the lead it could encourage other institutional investors to follow suit, he said. Index trading will facilitate instant portfolio diversification and encourage passive, thematic elements in portfolios. Index futures can be used for various purposes such as effective benchmarking, diversification of basket and as an overall directional indicator.

NCDEX Agridex is India’s first return based agricultural futures Index which tracks the performance of the ten most liquid commodities traded on NCDEX platform.

The launch of ‘option on goods’ by NCDEX cdex was another innovative product that helps farmers to lock in price of their produce even before they the sow the seed. Given the benefits, farmer produce organisations have already started taking fancy to the product.

“Overall, we believe the next year should be much better in terms of performance at the exchanges, more so with the Covid vaccine hitting the market. We are confident that participation, turnover and volumes should beat the previous year,” said Mathur.

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