The ban on futures trading in seven agricultural commodities had a significant impact on National Commodity and Derivatives Exchange (NCDEX), as its turnover fell 19% in February to ₹24,980 crore, compared to ₹30,800 crore in the same period last year.
When the government banned futures trading on non-basmati paddy, wheat, chana, mustard seeds and derivatives, soya bean and derivatives, crude palm oil, and moong in December, the exchange’s turnover fell by 12% to ₹30,243 crore. According to data from the exchange’s website, NCDEX turnover fell further in January to ₹26,477 crore.
According to Naveen Mathur Director, Anand Rathi Shares, and Stock Brokers, the sudden ban on seven agricultural commodities has created a negative sentiment, and NCDEX has taken the brunt of the damage because it is primarily an agricultural-focused exchange.
Two months after the ban, there is still a lingering negative feeling among investors, he said, despite the fact that there is no empirical evidence that futures trading is driving up spot commodity prices.
Once investors abandon commodities, it is extremely difficult to entice them back, and NCDEX faces a long road ahead, he added.
Trading volume on the NCDEX fell 37% in February, to 36.57 lakh lots, compared to 57.81 lakh lots in the same period last year. The volume of trades has decreased from 47 lakh lots in December to 41.51 lakh lots in January.
Metal volatility drives the MCX
MCX (Multi Commodity Exchange) turnover, which fell 6% year on year in December to ₹637,908 crore, rebounded to ₹664,444 crore in January and ₹821,995 crore in February. The rebound in MCX turnover is being fueled by a sharp rise in gold, energy, and other metal prices.
Due to the volatility in metal and energy prices following Russia’s invasion of Ukraine, MCX trading volume increased nearly fourfold to 8.21 crore lots in February 2021, compared to 1.79 crore lots in February 2021. It jumped from 1.30 crore lots in December to 6.64 crore lots in January.
The recovery in MCX trading volume was a recent phenomenon, as it had been hovering around 1.50 crore lots for the majority of last year.
According to Ajay Kumar, Director of Kedia Commodities, while many investors are concerned about the high upfront margins, they are comfortable dealing in metals because there is no fear of a ban.
However, he claims that the ban on mini metal contracts (except for gold) has kept retail investors away from equity investing.