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Commodity futures off to a tepid start in 2014

Ajay Modi     January 28, 2014
Commodity futures did not get off to a good start this New Year. The turnover of commodity exchanges fell 3.5 per cent in the first two weeks of January from the previous fortnight.

The turnover of Rs 282,002 crore in the January 1-15 period was also 59 per cent lower than Rs 689,542 crore in the corresponding period last year.

Trading in commodity futures has taken a beating for two reasons.

Firstly, the government imposed a 0.01 per cent commodity transaction tax (CTT) from July 2013 on all non-agricultural and some agricultural commodities. Secondly, trading interest in futures markets was affected following the outbreak of the National Spot Exchange Ltd (NSEL) scam in July 2013. NSEL is promoted by Financial Technologies which also owns the Multi Commodity Exchange (MCX).

MCX, the country's biggest commodity exchange, reported a turnover of Rs 217,079 crore, down marginally from Rs 219,986 crore in the second fortnight of December.

The second-biggest National Commodity and Derivatives Exchange's turnover dropped 11 per cent to Rs 49,136 crore.

The National Multi Commodity Exchange also reported a marginal drop from Rs 7,442 crore to Rs 7,267 crore.

Barring energy futures, trade in segments like bullion, agri commodities and metals reported a decline. Energy futures saw an increase in turnover from Rs 59,664 crore in the second fortnight of December to Rs 63,950 crore in the first fortnight of January. Trade in bullion futures declined from Rs 108,919 crore to Rs 104,707 crore while metals other than bullion dropped from Rs 45,880 crore to Rs 42,359 crore.

"The commodity markets are witnessing challenging times. Imposition of the CTT has had a major impact. Further, price bearishness was seen in the agricultural sector. This could have led to poor sentiment in commodity trading. In addition to the impact of the CTT, a series of events that unfolded in the NSEL case shook investors' confidence in commodity futures markets", Samir Shah, Managing Director at NCDEX, told Business Today.

However, corrective measures by the FMC are expected to provide a firm ground for revival in 2014, he added.

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