R. Ramaseshan, MD & CEO, NCDEX, talks to Rahul Oberoi about commodities trading in India and what investors can expect from the Indian markets.
How do you see the future of commodity trading in India?
The figures speak for themselves. Last financial year, for the period between April and February, the cumulative value of trade was Rs 69.72 lakh crore, but this year, for the same period, it's Rs 105 lakh crore, a 52% growth.
What are the major problems investors face while trading in the commodity market?
Lack of awareness about commodity derivatives would probably be the biggest problem. Trading in derivatives requires knowledge about the costs and the risks involved. I would advise them to read up and learn enough from their brokers before investing.
How will the problems in the Middle East affect commodity trading?
The uncertainty of economic recovery in the US and Europe, along with the turmoil in Japan and the unrest in the Middle East, has made global commodity markets jittery. Such uncertainty only heightens the need for hedging and so I expect volumes to continue growing. Prices will move depending on the prevailing market view.
Which commodity basket is likely to benefit from the Union Budget?
The Union Budget definitely had a pro-farm thrust. But, the Budget is only one of the many factors that affect trading in commodity exchanges. So it is difficult to say if any of the Budget announcements will have a definite impact. Of course, the recent announcement by Maharashtra Government, in its 2011-12 budget, to hike stamp duty on commodity trading by 400% will likely impact the markets.
Can you name some commodities that are getting good volumes on the exchange?
While all our agricultural commodities continue to do well, the ones that did particularly well are spices-pepper (average daily traded value of Rs 267 crore), jeera (Rs 202 crore), refined soya oil (Rs 866 crore). Our exchange has also seen increased volumes in bullion (Rs 218 crore) and energy (Rs 644 crore).
Some analysts say investors do not follow the NCDEX Dhaanya Index. So, why create such an index?
Investors will start following Dhaanya once trading in commodity indices is permitted by the regulator. An index is created considering a pool of commodities. Hence, an index becomes a very important barometer to gauge market performance and investors would certainly find value in commodity indices, such as Dhaanya.
Any suggestions for commodity investors?
Investors should study commodity cycles (whether crop cycles or business cycles) before investing. It is best to gauge risk appetite and exit at a point just before this barrier is breached.
Where do you see sugar futures moving from current levels as the government recently allowed sugar exports?
It will create opportunities for hedging as participants might anticipate heightened uncertainty in prices.