NCDEX launches agri-commodity index

The National Commodities and Derivatives Exchange of India (NCDEX) today, launched a composite agri-commodity index.

Speaking at the launch of the Index, the chief business officer, NCDEX, Narendra Gupta said, "This index is the first of its kinds in Asia and is exclusively on commodities, which reflects the performance of the underlying segment." The index would be updated twice a day.

It will consist of the following sub-groups cereals, pulses, oilseeds, plantation crops, fibre crops, spices and other widely traded commodities including sugar, gur and guarseed.

The selection of the sub-sectors would be based on their relative size indicating the value of production and the net deliverable supply of the commodity and the reference period for the commodities would be 2001.

Based on this process, commodities that are excluded from one sub-sector will be replaced by other commodities.

At the inauguration of the index, the chairman of the Forward Markets Commission (FMC) said that the difference between a stock market index and a commodity index is that when the commodity index moves up, then a large number of stake holders are affected due to the volatility of these commodities.

Currently, the Forward Contracts Regulation Act (FCRA) does not permit trading in indices. The chairman indicated that progress on the amendment of the FCRA is likely as the issue is likely to be discussed in the Parliament in two to three weeks.

The rationale behind the agri index is that the futures contracts of all prominent agri commodities in all the sub sectors are traded on the exchange and there is no trade on energy and metals sector commodities.

The method of index construction would be the value weighted, which would at any time indicate which sectors have the maximum influence on the index.