Investors flock to commodities as fears of ban ease.
The turnover of commodity markets rose in July compared to that in the year-ago period following a shift of traders’ interest from agricultural products to non-agri commodities.
BETTER RETURNS Turnover (Rs crore) | ||||
Year/month | MCX | NCDEX | ||
Total | Gold | Total | Guarseed | |
2007 | ||||
April | 2,03,840 | 44,079 | 93361 | 14,095 |
May | 2,16,166 | 53,809 | 75662 | 11,536 |
June | 2,08,998 | 47,193 | 62128 | 8,305 |
July | 2,06,111 | 48,290 | 64754 | 12,804 |
2008 | ||||
April | 2,79,580 | 1,02,500 | 47264 | 6,522 |
May | 3,09,668 | 1,05,790 | 47195 | 8,135 |
June | 3,60,646 | 1,31,130 | 47263 | 9,241 |
July* | 3,85,681 | 1,64,234 | 56947 | 15,285 |
* Till July 26 |
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A bearish stock market and the government’s decision not to impose a ban on more commodity futures also led to a surge in volumes in the commodity markets.
Led largely by an upsurge in global non-agri commodities trading and a couple of agri commodities, the turnover on the Multi Commodity Exchange (MCX), the country’s largest commodity bourse, shot up to Rs 3,85,681 crore in July (up to July 26) this year from Rs 2,06,111 crore (for the full month) in July 2007 and Rs 3,60,646 crore in June 2008.
The turnover on the National Commodity and Derivatives Exchange (NCDEX) also rose to Rs 56,947 crore in July (up to 26th) this year from Rs 47,263 crore in June this year. The volume of trade on the country’s second largest commodity exchange, however, recorded a decline compared with Rs 64,754 crore turnover recorded in July 2007.
Commodity traders got a boost after the UPA government won the vote of confidence. They have turned bullish with the exit of the Left parties – the main political parties opposing the futures trade — from the government.
The government’s decision not to impose a further ban on commodity futures also lifted their sentiment. The government’s move is significant in the backdrop of a proposal by the Parliamentary Standing Committee on Agriculture to discourage futures trade, especially in agricultural commodities, citing speculative trading as the main cause for an artificial rise in prices. The committee, however, has agreed that futures can be a good hedging mechanism.
The spurt in comexes’ turnover was largely attributed to a shift of traders from agricultural commodities, where the fear of ban is the most, to other non-agri the products. With MCX focusing more on non-agri commodities like gold, silver, natural gas and energy, the trading volumes of the bourse largely remained unaffected by the government’s abrupt decision to suspend futures trading in four agri commodities – rubber, soyoil, potato and chana – in May this year. NCDEX, however, was hit hard as the exchange concentrates more on agri commodities.
Last year, the government had suspended some varieties of pulses like tur and urad and wheat from futures trading, holding them responsible for high prices.
Amid the uncertainty, gold on MCX and guarseed on NCDEX outperformed other commodities in July. Turnover of gold futures recorded a sharp jump to Rs 1,64,234 crore in July this year from Rs 48,290 crore in the corresponding month last year and Rs 1,31,130 crore in June 2008. The volume of guarseed futures on NCDEX also rose to Rs 15,285 crore in the month under consideration from Rs 12,804 crore in the year-ago period and Rs 9,241 crore in June 2008.
“A concern over a likely delisting of another set of agri commodities from futures exchanges to curb inflation had led to a drop in trading volumes. But with the likelihood of the ban fading, investors have come back to commodity exchanges,” said Jayant Manglik of Religare Commodities.