Growth in Indian Commodities Market

Mr Narendra Gupta, CBO, NCDEX

August 10, 2005

Why Commodity Exchange in India

    

47% of GDP is Commodity related 23% of GDP is from Agriculture Over 65% of 1 trillion population depend on agriculture directly Over 7500 physical market yards History of more than 150 years of derivatives trading

Why Commodity Exchange in India



Largest producer / consumer of:

     

Bullion Oilseeds Pulses Sugar Cotton Spices

Economy growing at the rate of 8%

Evolution of Commodity markets in India

 

Ban in forward trading from mid-sixties Prior to ban  Thriving commodity exchanges for cotton, gold, edible oils etc.  more than 20 regional commodity specific exchanges Recent developments  Ban completely lifted in 2003  Emergence of national level de-mutualised online multicommodity exchanges  3 National and 21 regional exchanges  Trade in 60 commodities compared with just 8 in 2000  Growth exceeds 4 times in FY05 over FY04

Traded volume in 2004-05 around 20% of Indias GDP

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Growth in volumes of Indian Commodity Exchanges

Rs bn
6 ,0 0 0 5 ,0 0 0 4 ,0 0 0 3 ,0 0 0 2 ,0 0 0 1 ,2 9 4 1 ,0 0 0 0 45 2001-02 2002-03 2003-04 2004-05 665 5 ,7 1 0

1 USD = Rs 43 Impressive growth of 341 % between 2003-04 to 2004-05

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Choice of Product: Calculator



Parameters considered
        

Price volatility Share in GDP Correlation with global markets Share in external trade Government intervention Warehousing facilities Traders distribution Geographical spread Number of varieties

Only Physical commodities allowed in Commodity Exchanges

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Contract Specifications
   

Rigorous Product Research



Linking entire value chain Proxies- Benchmarking to all other varieties Location premium & discount

Underlying specifications identification



Identification of location basis



Grade premium & discount

Challenges ahead
    

From open outcry to online Discipline trading environment Nuances of Physical settlement Educating about commercial relevance To bring actual users on the exchange platform
  

Farmers Corporate Investors

Generating liquidity
Involvement of all value-chain entities in contract formulation  Relationship group provides relentless momentum



Generates interests of all members & clients Wide media coverage

 

Awareness Programmes


Easy access to Exchange information  Market to be opened up for banks, fund houses and Foreign Investors

Foreign Access


Foreign access permitted in securities marketequities & bonds Foreign investment regulation for investment in commodity derivatives a committee constituted by the regulator Currently can access by setting up a domestic entity for broking & investment

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Options trading


Options allowed in securities market

Single Stock options  Index Options  Interest rate Options  Currency Options


Options not yet permitted in the commodity markets

Law to be amended shortly  Informal options trading prevalent


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Regulatory Environment


Separate regulator for capital markets & commodity markets



Capital Markets


Securities Exchange Board of India (SEBI)  Autonomous body  Under Ministry of Finance Forward Markets Commission (FMC)  Part of Ministry of Consumer Affairs  Law being amended to make it autonomous body

Commodity Markets


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About NCDEX

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NCDEX Current shareholders

15%

15%

12%

12%

15%

15%

8%

8%

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Product Calendar
Dec 2003
Gold, Silver, Crude Palm oil, RBD Palmolein, Cotton, Mustard seed, Mustard oil Soybean, Refined soy oil

Apr-Dec 2004
Guar seed, Jute sacking, Chana, Rubber, Pepper, Wheat, Castor seed, Guar gum, Raw jute, Urad, Yellow peas, Sugar, Turmeric, Soymeal

Jan Jun 2005

Gur, Rice, Maize, Raw silk, Cocoon, Jeera, Chilli, Steel, Cashew, Cottonseed oilcake, Sesame seed, Tur, Arabica & Robusta Coffee, Copper Cathode

In pipeline
Other base Metals, Energy Products, More Agricultural products

IndicesIndicesNCDEXAGRI FUTEXAGRI NCDEXRAIN

Each product is selected after an in-depth research & market feedback

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Average daily volumes

Peak Volume for a single day Rs. 47200 mn on Jul 05
1619 1 1 1 1 691 1 1 9 1 1 9

Rs mn

1
ct -N ov 0 4 Q1 -2 0 0 4 Q2 -2 0 0 4 Q3 -2 0 0 4 J u n e '0 5 J u l y '0 5 D e c - '0 4 M a y '0 5 M a r '0 5 A p r '0 5 Fe b '0 5 J a n '0 5

Impressive growth of NCDEX with 85% volume contribution from agriculture Volumes in Steel & Copper picking up- daily average steel trade- 10,000 tonnes
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Question & Answers

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Thank You

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