Futures trading in commodities is fast picking up pace, with average daily turnover of the leading commodity exchanges in the last two months has surpassed the cash equity turnover of the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The average daily turnover in MCX during October stood at Rs 21,000 crore compared with Rs 18,253.15 crore recorded by NSE in its cash equity segment. In fact, on October 8, MCX with a total turnover of Rs 31,067 crore managed to surpass the combined turnover of BSE and NSE (Rs 27,315 crore) in the cash equity market.
When combined with other commodity exchanges like NCDEX and NMCE, which have a lower market share, the combined trades in the commodity markets now outperform the spot equity markets. It is when the equity markets tanked that several traders took on to the burgeoning commodity markets. It was in 2003 that the national commodity exchanges started offering futures contracts in select commodities. However, with the average daily turnover of the equity derivatives market still being much higher at Rs 75,000 crore, the commodity segment is fast catching up.
?This is the first landmark and soon the spots should also catch up,? said a leading fund manager.
According to a report by IDFC-SSKI on the business of Indian exchanges, India holds a huge potential as it is a commodity centric economy with commodities valued at 45% of its GDP. Globally, the futures market in commodities is 30 to 40 times the size of the underlying physical commodity trade. At present, India is just about three times the consumption. The report prognosticates the turnover growth to be around 32% on a compounded basis in the next five years, while equity markets would grow at 12% during the same period. The market share of commodity trading in India is set to rise from current 24% to 40% in 2014.
In the current market situation with valuations in the equity market shooting up, experts feel that investors are turning towards commodity market that has shown signals of recovery. Since June, MCX has seen its average daily turnover increase by 7.69% when NSE and BSE have witnessed a turnover dip by around 20%.
?Whoever have invested in gold and crude in the last few months have made good returns,? said Emkay Commodities head Atul Shah.
Motilal Oswal Financial Services commodity head Kuljeet Kataria said, ?Commodities are in a new bull market. Gold is trading at a life-time high and its value has almost doubled From Rs 8 lakh per lot to Rs 16 lakh per lot in last few years. This is also helping exchanges to generate a higher turnover with increased participation?.
Experts also attribute increased action in the commodities futures trading to increased volatility base metals and agri products. ?Commodities and agri goods have seen increased volatility in its prices, attracting more participation from investors,? said Angel Broking commodities head Naveen Mathur.