Pall of gloom yet to cast shadow over the commodities market

Written by Commodities Bureau | New Delhi, Nov 20 | Updated: Nov 22 2008, 05:07am hrs
In the turbulent past two months, while the equities market has slipped 37% in terms of value, both the turnover and value of trades in the Indian commodities market have remained steady.

An analysis of data from the three leading commodities exchanges shows that the business volume was 415 lakh metric tonne on the MCX, up 18% over the same period last year. At rival NCDEX, the trading volume was just a marginal 10% below last years figure. Since the rupee figures also build in the inflation rates, an analysis by volumes traded nets those out. By this yardstick, the exchanges show that business at the commodities exchanges has not missed a step.

This holds true across all categories of commodities. Since investors in equities and commodities in India are often the same, this means they are covering their losses in the equities market with substantial investments in the commodities market.

Just compare this with volumes in both the cash and forwards & options segments of both the Bombay Stock Exchange (BSE) and the National Stock Exchange, which both hit five-month lows on November 11. Because of the low volumes, rallies in the equities market have been running out of steam.

Compared with last year, the total monthly turnover of equities at the BSE in September 2008 dipped by 12%. The daily turnover of equities business on the market, which was Rs 6,156 crore in September 2007, has therefore cut back to Rs 5,141 crorea drop of almost 16.5%.

In October 2008, the daily turnover in the equities market was Rs 3,697crore, compared with Rs 3,690 crore in November. BSE figures show that against a monthly trading volume of 1,001 crore in September 2007, the corresponding numbers have halved to 547 crore. The figures for October are even less, at Rs 100 crore. And if one accounts for the high inflation, the figures are therefore much smaller.

According to Gnanshekar Thiagrajan, the director of Commtrendz risk management services in the commodity market, the fall in volumes at the NCDEX is mainly because of agricultural commodities. The prices of these commodities are not linked internationally. So, it is the domestic prices and production trends that are guiding market trends.

Thus, as the local production of agricultural commodities, including plantation crops, have risen this year, volumes have held up in the markets. At the NCDEX, for instance, agricultural commodities account more than half the volume. The prices of non-agricultural commodities, on the other hand, are more in tune with international trends.

Movements in the market, according to analysts, are, therefore, more in sync with the domestic economy than those in the equities market. This has been accentuated, as unlike the equities market, foreign institutional investors or banks are not allowed to participate in commodities markets in India. But analysts are unsure whether going forward the trend would deepen or whether the gloom in the equity markets will cast its shadow over the commodities markets as well.