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Growth in Indian Commodities Market
Mr Narendra Gupta, CBO, NCDEX
August 10, 2005
Why Commodity Exchange in India
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47% of GDP is Commodity related
23% of GDP is from Agriculture
Over 65% of 1 trillion population depend on
agriculture directly
Over 7500 physical market yards
History of more than 150 years of derivatives trading
Why Commodity Exchange in India
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Largest producer / consumer of:
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Bullion
Oilseeds
Pulses
Sugar
Cotton
Spices
Economy growing at the rate of 8%
Evolution of Commodity markets in India
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Ban in forward trading from mid-sixties
Prior to ban
 Thriving commodity exchanges for cotton, gold, edible oils
etc.
 more than 20 regional commodity specific exchanges
Recent developments
 Ban completely lifted in 2003
 Emergence of national level de-mutualised online multicommodity exchanges
 3 National and 21 regional exchanges
 Trade in 60 commodities compared with just 8 in 2000
 Growth exceeds 4 times in FY05 over FY04
Traded volume in 2004-05 around 20% of India’s GDP
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Growth in volumes of Indian Commodity Exchanges
Rs bn
6 ,0 0 0
5 ,7 1 0
5 ,0 0 0
4 ,0 0 0
3 ,0 0 0
2 ,0 0 0
1 ,2 9 4
1 ,0 0 0
665
45
0
2001-02
2002-03
2003-04
2004-05
1 USD = Rs 43
Impressive growth of 341 % between 2003-04 to 2004-05
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Choice of Product: Calculator
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Parameters considered
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Price volatility
Share in GDP
Correlation with global markets
Share in external trade
Government intervention
Warehousing facilities
Traders distribution
Geographical spread
Number of varieties
Only Physical commodities allowed in Commodity Exchanges
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Contract Specifications
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Rigorous Product Research
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Underlying specifications identification
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Proxies- Benchmarking to all other varieties
Identification of location basis
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Linking entire value chain
Location premium & discount
Grade premium & discount
Challenges ahead
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From open outcry to online
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Discipline trading environment
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Nuances of Physical settlement
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Educating about commercial relevance
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To bring actual users on the exchange platform
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Farmers
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Corporate
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Investors
Generating liquidity
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Involvement of all value-chain entities in contract
formulation
Relationship group provides relentless momentum
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Awareness Programmes
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Generates interests of all members & clients
Wide media coverage
Easy access to Exchange information
Market to be opened up for banks, fund houses and
Foreign Investors
Foreign Access
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Foreign access permitted in securities marketequities & bonds
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Foreign investment regulation for investment in
commodity derivatives – a committee constituted by
the regulator
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Currently can access by setting up a domestic entity
– for broking & investment
Options trading
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Options allowed in securities market
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Single Stock options
 Index Options
 Interest rate Options
 Currency Options
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Options not yet permitted in the commodity markets
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Law to be amended shortly
 Informal options trading prevalent
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Regulatory Environment
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Separate regulator for capital markets & commodity
markets
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Capital Markets
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Commodity Markets
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Securities Exchange Board of India (SEBI)
 Autonomous body
 Under Ministry of Finance
Forward Markets Commission (FMC)
 Part of Ministry of Consumer Affairs
 Law being amended to make it autonomous body
About NCDEX
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NCDEX – Current shareholders
15%
15%
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15%
15%
12%
12%
8%
8%
Product Calendar
Dec 2003
Gold, Silver,
Crude Palm
oil, RBD
Palmolein,
Cotton,
Mustard
seed,
Mustard oil
Soybean,
Refined soy
oil
Apr-Dec
2004
Guar seed,
Jute
sacking,
Chana,
Rubber,
Pepper,
Wheat,
Castor
seed, Guar
gum, Raw
jute, Urad,
Yellow
peas,
Sugar,
Turmeric,
Soymeal
Jan – Jun
2005
Gur, Rice,
Maize, Raw
silk,
Cocoon,
Jeera,
Chilli, Steel,
Cashew,
Cottonseed
oilcake,
Sesame
seed, Tur,
Arabica &
Robusta
Coffee,
Copper
Cathode
In pipeline
Other base
Metals,
Energy
Products,
More
Agricultural
products
IndicesNCDEXAGRI
FUTEXAGRI
NCDEXRAIN
Each product is selected after an in-depth research & market feedback
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Average daily volumes
Rs mn
35000
30400
30000
25750
Peak Volume for a single day
25000
22310
Rs. 47200 mn on Jul ‘05
20150
20950
20000
16190
14440
15000
12310
10000
12290
6910
210
550
Q1 -2 0 0 4
Q2 -2 0 0 4
5000
J u ly '0 5
J u n e '0 5
M a y '0 5
A p r '0 5
M a r '0 5
Fe b '0 5
J a n '0 5
D e c - '0 4
Oct -N ov 0 4
Q3 -2 0 0 4
0
Impressive growth of NCDEX with 85% volume contribution from agriculture
Volumes in Steel & Copper picking up- daily average steel trade- 10,000 tonnes
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Question & Answers
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Thank You
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