There is immense potential for new players to groom the market in the entire commodities value chain, says R RAMASESHAN, managing director of the National Commodity & Derivatives Exchange (NCDEX), in an interview with Dilip Kumar Jha. Excerpts :
Apart from the recently launched Indian Commodity Exchange (ICEX), two more commodity exchanges are in the pipeline, with expected national reach. Is there enough room to accommodate six national players ?
The Indian market is largely unexplored and there is a very large potential to be tapped. We have a limited set of players who have ventured out as physical players or investors. These are two huge markets which have to be fully involved and this is why I feel the job has only just begun. Then, we have only a handful of products which are liquid. But, evidently there is need to have futures trading in the others, too, and we need to try hard to reach out to the value chain participants to ensure efficient price discovery. So, there is plenty of room, given the stature of the market.
New players always try to grab market share of existing ones. For example, ICEX lowered the transaction fee to Re 1 as against the Rs 2.50 or even higher at existing platforms, including NCDEX. How will NCDEX retain members and clients?
We believe that ultimately liquidity and credibility of the trading environment are important factors for determining customer preference. Pricing is important but a trader will look at the entire system of trading — ease of access, technology, liquidity, credibility of operations, delivery systems, etc — before taking a decision. We believe our exchange is strong on both these counts, the case since we started operations. Our strong institutional ownership pattern has been seen positively by a large section of the trading community, which has been supportive. Also, we are continuously increasing our client base which bears testimony to our credibility.
Despite exponential growth in base (total turnover), NCDEX’s market share has declined over the years. How are you preparing to protect it?
NCDEX, given its ownership pattern, has focused more on reaching out the benefits of futures trading to the farm community and has attained a dominant status in agri trading. However, as we all know, we are going through this critical phase where questions are being constantly asked about the impact of futures trading on inflation, which has resulted in a series of bans on such trading in important farm products. This has affected the confidence level of the market; it is gradually picking up now. Therefore, our numerator is increasing.
But, admittedly, the denominator is rising faster, which is primarily the non-agri products segment, getting reflected in the lower ratio. We are concentrating to begin with on the numerator and ensuring the market share in farm products is preserved, because this is our mandate. Overall market share will then be taken on at a later stage; getting market share in products where preferences are firm is a slow process.
Do you think the time has come for a specialised exchange in India, in line with LME, NYMEX, ICE or Bursa Malaysia?
No, I do not think the time is ripe for such classification. This may happen when the entire market is mature and the public psyche accepts futures trading. Presently, it is a case of room for all, and the challenge is in increasing the participation before we get into this debate, as such specialisation is still a decade away. The universe of players is very large and we have probably just covered a small percentage.
All exchanges, existing and new ones, are talking about farmers’ benefit. How far have we reached in really benefitting farmers with agri futures?
We believe there are three stages for farmers participation on the exchanges. The first is awareness. The second is knowledge of prices and the third is actual selling/hedging. We are in the first two stages, where we have attained satisfactory progress, though we admit the canvas is large. A clear regulatory stance on the future of futures trading in farm products is essential: we cannot talk to farmers about hedging product X today, when it could banned tomorrow. Liquidity is a precondition before we actually work through aggregators or farmer-oriented contracts to bring them on board.
Our own studies have shown that in farm-intensive centres in states such as MP, Rajasthan and Gujarat, there has been considerable progress in terms of farmers using our prices to take decisions in local mandis. This is a positive sign, though again we have only scratched the surface and this story has to be told by multiples of farmers.
What are your future plans?
To increase the product menu, cover more physical participants — both traders and processors — and continue our efforts at education and price dissemination to strike a balance between being a social utility service and a business entity.