Comexes turnover continues to decline the second day on CTT levy

Govt levied 0.01% CTT on non-agri commodities effective July 1 which created a panic among traders

Commodity exchanges’ turnover continued to fall second day in succession on Tuesday in panic absence of traders from futures platforms over the levy of commodity transaction tax (CTT). The government levied 0.01% of CTT on non-agri commodities effective July 1 which created a panic among traders.

Total turnover of five leading commodity exchanges – MCX, NCDEX, Ace, ICEX and NMC E - recorded a decline of 43.11% in day session on Tuesday. From the level of Rs 34498.58 crore in June, the average turnover fell to Rs 19626.56 crore on Tuesday. On Monday, these exchanges had lost around 38% of business.

The new levy is set to raise transaction cost in futures by over five times. Those who were dealing in very thin margin would have to seek a wider spread for inter-commodity or -contract arbitrage. Consequently, traders may wait to assess the full implication of the new levy or shift to spot market which feared by many experts in the past.

“The trend is likely to continue for some more time till traders get habituated with the additional cost. In case of volatility, the tax levy would be ignored through resumption in active participation of traders,” said Naveen Mathur, Associate Director, Angel Broking.

MCX took the lead in the fall with its turnover fell by a steep 48.32% to Rs 15153.44 crore in the day session on Tuesday from the average turnover in corresponding session in June at Rs 29320.13 crore. NCDEX, however, recovered the early loss to witness a marginal decline of 4.73% at Rs 3150.07 crore on Tuesday (day session) as against the average of Rs 3306.43 crore in June. 

While Ahmedabad – based NMCE’s turnover declined by 12.61 crore to Rs 1090.08 crore, ICEX and Ace followed suit with a steep decline of 67.31% and 56.14% in their business at Rs 119.96 crore and Rs 113.01 crore from their respective June average.

While, the decline was sudden the reversal in business would be gradual, said Mathur.

“Jobbers have gone out of the market. They used to generate major volume through trading actively with thin price fluctuations. They remained absent largely. Consequently, the commodity futures market has lost depth as used to be the case earlier,” said Ajay Kedia, managing director, Kedia Commodity.

Global commodities like crude, gold and metals have recorded a steep fall in turnover followed by processed agri commodities.