Turnover at commexes set to drop for second year in a row

Written by fe Bureau | New Delhi | Updated: Mar 28 2014, 22:18pm hrs
Commodity exchanges turnover dropped by more than half in the first fortnight of March from a year before as the bourses are set to witness a second straight year of decline this fiscal since futures trading in commodities was introduced in the country in 2003-04. Market participants blamed the 0.01% transaction tax on non-farm commodity derivatives, imposed since July, the spill-over effect of a settlement crisis at the National Spot Exchange (NSEL), curbs on gold supplies and an investor shift towards equity for the plunge in the turnover.

The trading value of various commodities in the first half of March hit R3,43,952.85 crore compared with R6,96,348.43 crore a year before, according to data by the Forward Markets Commission (FMC). The sharp drop earlier this month drove down the turnover of commodity exchanges further to R98,57,553.34 crore in the April 1-March 15 period, down 40.2% from a year earlier, the data showed. Last fiscal, the turnover of commodity exchanges dropped 6% from a year before to R170.46 lakh crore, the first annual decline.

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There is no respite for Multi-Commodity Exchange (MCX), which primarily deals in metals, bullion and energy products, as the impact of the commodity transaction tax (CTT) on non-farm items continues to bite on top of a decisive blow to its image following the R5,575-crore settlement crisis at NSEL, another group firm. With the imposition of the tax on the seller, costs more than tripled at MCX from the R1.60 on a transaction value of R1,00,000 imposed earlier, MCX executives had said earlier.

The trading value of bullion across exchanges plunged the most, at 62.2%, in the first half of this month from a year before to R1,16,211.19 crore while that of energy items crashed by 54% and metals other than bullion by 45%, the FMC data showed. An official crackdown to trim gold imports to curb the current account deficit hurt the bullion supplies, affecting trade. Not surprisingly, MCX's turnover dropped by 57.5% in the first half of March from a year earlier to R2,54,760.03 crore.

While the trading value of all commodities witnessed a decline between April 1 and March 15 from a year before, the turnover of farm items saw a rally in the first half of this month. This is good news for the National Commodity and Derivatives Exchange (NCDEX), the country's largest farm commodity exchange which derives 85-90% of its turnover from agri items, even though some of the processed farm items continue to be under the CTT ambit. Consequently, NCDEX witnessed its turnover rise 18.6% to R65,821.48 crore in the first half of this month from the same period last year.

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NCDEX managing director Samir Shah said the NSEL crisis shook the investor trust in the commodity market, both spot and futures, and hurt trading. However, with the implementation of more stringent regulatory provisions after the crisis, the commodity market is going to be more invigorating as well as effective, he said.

"The CTT had an impact in the sense that our turnover could have been even higher if there was no such tax. But even with the CTT, we have not been impacted much," another NCDEX official said.

Last month, FMC chairman Ramesh Abhishek said the government had no plans to roll back the CTT despite a plunge in exchanges' turnover and asked the exchanges to live with the tax. However, some steps would be taken to boost participation in the market, he said.

Abhishek said the exchanges are encouraged to launch small contracts, delivery-centre wise contracts, among others, to boost retail participation. The FMC has also rationalised position limits and initial margins for clients members and the corpus size of settlement guarantee fund.

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