NSEL crisis, weak rupee, sluggish interests in gold hit commodity futures trading: ASSOCHAM

NSEL crisis, weak rupee, low interests in gold hit commodity futures trading
Negative investor sentiment due to recent payment crisis in the NSEL (National Spot Exchange Limited), sluggish participation in gold and silver futures and increased volatility following rupee have all combined together to pull down the turnover in India's top commodity futures trading exchanges, according to an expert paper prepared by ASSOCHAM.

From a peak of Rs 181.26 lakh crore in 2011-12, the turnover in the commodity futures dropped to Rs 170.47 lakh crore in 2012-13 and witnessed a sharp decline to Rs 85.28 lakh crore in 2013-14 (April-Jan 15).

"Despite many constraints and limited participation, this market saw a whopping rise in turnover within few years. However, in the recent time the scenario of the commodities trading has changed on a wider way. India's five top commodity futures trading exchanges have lost their pace of increasing turnover since 2012-13", the ASSOCHAM paper said.

Levy of CTT (Commodity Transaction Tax) over futures market leading to increased cost of transactions, lower volatility and higher bid-offer spread (impact cost) hitting intraday traders, investors turning to the futures and options (F&O) segment of equities, negative sentiment due to NSEL payment crisis and rupee depreciation were among the principal reasons listed for a drop in the turnover in the commodities futures.

The ASSOCHAM paper noted that a sluggish participation in gold and silver futures also led to the problems in this market which can help the country minimise price risks emerging from the international commodities prices as India now imports bulk of raw materials, especially in base metals and energy.

Referring to the policy issues, the paper which had contributions from the industry experts, said the commodity markets regulator, Forward Markets Commission (FMC) lacks financial and administrative autonomy to meet the growing challenges in the commodity derivatives market.

Dion Global Solutions Ltd.

Story first published: Monday, February 17, 2014, 9:10 [IST]
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