MCX, the country’s largest commodity derivatives exchange, has received the approval from SEBI to introduce natural rubber futures contract.

Market observers have claimed that rubber contract has a lot of potential due to its huge market size in India in the wake of significant production and imports.

Hailing the move, Giby Mathew, Director of the Kochi-based Acumen Capital Market India Ltd, said the exchange already has a strong foothold and outreach in the commodities space which should help build a strong base for rubber futures.

India ranks sixth in terms of production and massive consumption globally. Thus, the price discovery and liquidity will remain strong which in turn will help industrial producers and the physical industries such as tyre companies, importers, dealers to hedge and manage risk, said Giby Mathew. He added that low contract value and margin requirements would help retail investors and hedgers with contract value estimated to be around ₹1.5 lakhs.

Top producers

In India, 80 per cent of the rubber is produced in Kerala. “Any form of price discovery mechanism is welcome. However, it remains to be seen how it will benefit the real growers. Our experience is that growers owing to the very small size of holdings in rubber and their inability to play the futures market have generally stayed away and it has only benefitted large buyers, traders and speculators,” said Santhosh Kumar, Executive Director (Rubber Operations), Harrisons Malayalam Ltd.

He said, while the domestic market is stable, international markets and market sentiments also impact the market. He added, the other possible fall out of the trading could also be a large volatility as seen in international market for which some regulations need to be made to cap the volatilities at a given time by fixing limits.

“It also needs to be ensured that only true stakeholders participate in this platform for which a compulsory physical delivery of product needs to be mandated,” he added.

However, Mohan Kurian, Convener, ATMA Supply Chain and Resources Group, said: “Unfortunately derivative trading in India is not properly regulated and commodities delivered often lacks quality. Participants mostly are speculative traders and deals lack transparency.”

Published on December 2, 2020