Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
40-42_AP_2010.qxp 24/9/09 12:46 Page 40 Indian commodity markets: past, present and future by Jayant Manglik, Religare Commodities Limited, India Organised futures markets in India are now 134 years old, with the first such organisation – the Bombay Cotton Trade Association Ltd. – having been set up in 1875. While India was gradually becoming the largest consumer of gold in the world, a position it still enjoys, futures markets in bullion were inevitable and began to emerge in Mumbai in 1920. 40 In due course, similar markets emerged in six other Indian trade as necessitated by WTO. This requires futures trade cities along with the initiation of several other exchanges in a wide variety of primary commodities and their in diverse commodities such as pepper, turmeric, potato, products to enable diverse market functionaries to cope sugar and jaggery. Before the Second World War broke out with the price volatility prevailing in the world markets. in 1939, several futures markets in oilseeds were also functional. After independence, the responsibility for regulation of the commodity futures markets lay with the Structure of commodity futures market in India government, leading to a Parliamentary Act in 1952. The Forward Markets Commission is the regulatory authority The 1970s saw most of the registered associations of the commodity futures market. The commodity futures becoming inactive, with futures as well as forward trading market in its new electronic avatar is almost six years old in the commodities under severe restriction or even prohibition as the price rise in agri-based commodities was blamed on the markets. Several years later, there was implicit recognition that futures contracts perform the two important functions of price discovery and price risk management, and are useful to all segments of economy. After intermittent milestones, the liberalised policy was introduced by the government of India and the gradual withdrawal of the procurement and distribution channel necessitated setting in place a suitable market mechanism. Jayant Manglik President - Commodity Business Globalisation of the economy has ensured that India opens Religare Commodities Limited the agricultural sector for seamless integration with world CHAPTER 11 I EUROMONEY HANDBOOKS 40-42_AP_2010.qxp 24/9/09 12:46 Page 41 and comprises three national-level exchanges and 19 copper. Of course, more than 100 commodities are today commodity-specific (regional) commodity exchanges. The available for trading in the commodity futures market and national exchanges operating in the Indian commodity more than 50 of them are actively traded. These include futures market are the Multi-Commodity Exchange of India bullion, metals, agricultural commodities and energy (MCX), National Commodity and Derivative Exchange of India products. Most importantly, an archaic market has (NCDEX) and National Multi Commodity Exchange of India suddenly turned into an organised, service-oriented set-up (NMCE). Recently, one new national exchange has been with shooting volumes. given permission to start and another regional exchange has The unqualified success of the futures market has ensured been permitted to upgrade to a national exchange. In line the next step, i.e., the launch of electronic spot markets for with its modern financial infrastructure, India is one of the agri-products. Being in a time-zone that falls in the gap left few countries worldwide to have commodities’ delivery in by the major commodity exchanges in the US, Europe and electronic (dematerialised) form. Japan has also worked in India’s favour because The growth paradigm of India’s commodity markets is best commodity business by its very nature is a 24/7 business. Innovation coupled with modern and successful financial reflected by the figures from the regulator’s official market environment has ensured the beginning of a website, which indicated that the total value of trade on success story in commodities which will eventually see the commodity futures market in the financial year India becoming a price-setter in major commodities on the 2008/09 was INR52.49 lakh crore (over US$1 trillion) as strength of its large production and consumption. against INR40.66 lakh crore in the preceding year, registering a growth of 29.09%, even under challenging It is pertinent to note that India and China are being economic conditions globally. The main drivers of this projected as the major drivers for the initiation of yet impressive growth in commodity futures were the national another commodity super-cycle. Tracking price trends commodity exchanges. MCX, NCDEX and NMCE along with and analysing the statistics have always been key areas of economic research; but in each cycle – whether two regional exchanges – NBOT Indore and ACE, Ahmedabad – contributed to 99.61% of the total value of defined by Jim Rogers, Kondratieff or Dewey & Dakin – the trigger is always different, and in this case it may well commodities traded during 2008/09. be increase in regional consumption, some of which we Commodity futures market trade Exhibit 1 have already seen. Turnover (INRm) 50,000,000 30 40,000,000 20 30,000,000 20,000,000 10 10,000,000 0 0 Apr 06-Mar 07 Turnover (INRm) Apr 07-Mar 08 % change of current year over previous year One outcome of the recent boom-bust cycle has been 40 60,000,000 that mergers and acquisitions have gained speed and the biggest beneficiaries will likely be large companies from historically conservative countries, like India. This phase is likely to propel India into the international big league quicker and on a firmer footing. In fact, India did Apr 08-Mar 09 % change of current year over previous year well to weather the global financial crisis over the last year and a half, with GDP growing at 6% at the worst Source: Religare Capital Markets, India of times, compared to almost every other country which showed negative growth in one or more quarters during So far, this year’s volumes have seen a significant jump this period. Growth did fall from 9% to 6% but was way over the last year in agri-commodities, as well as above the World Bank’s forecast of 4%, demonstrating ‘international’ commodities like gold, silver, crude oil and economic resilience, a sure sign of things to come. CHAPTER 11 I EUROMONEY HANDBOOKS 41 40-42_AP_2010.qxp 24/9/09 12:46 Page 42 It would seem that the alignment of growth with commodities is the most likely outcome to underline Contact us: the changing world economic order. Religare Enterprises Limited In addition to futures trading, the number of Indians looking Corporate Office: A3,4,5 GYS Global, Sector 125 at commodities as part of their investment portfolio is fast Noida (UP) -201 301, India reaching critical mass, as gold demonstrates. Add to that a state-of-the-art infrastructure for trading and the availability web: www.religare.in of trained personnel, and you have a ready market for businesses wishing to hedge their risks as the markets become more and more globalised on account of the removal of trade barriers worldwide. Companies like Religare Director - Brand & Corporate Communications Subhrangshu Neogi e-mail: [email protected]; Commodities, with a pan-India footprint and global plans, are uniquely poised to take advantage of the opportunity [email protected] and are leading the growth curve. With a conducive financial environment, the commodity markets in India have come of age and benefits are accruing to those who are most willing to identify consumer needs and service them. 42 CHAPTER 11 I EUROMONEY HANDBOOKS