“Hedging will not give you windfall profit but will definitely protect your existing profit,” G.Chandrashekhar, Commodities Editor, Business Line , said here at a stakeholder awareness and education seminar on ‘Agribusiness and Commodities Price Risk Management’ organised recently by the newspaper in with the Forward Markets Commission and National Commodity and Derivatives Exchange (NCDEX).India’s economic growth is on a strong footing, he asserted, and added that it was likely to record excellent growth in food, textiles and clothing, housing and infrastructure, energy, health care, education, and leisure and entertainment. Of them the first four are commodity-intensive sectors whereas the rest are service sectors.
According to him, India is going to be a major producer, processor, consumer, importer and also exporter of commodities.
He said that the economic growth of India is going to be commodity-driven.
He was happy to note that the Government had created a free trade environment and the Indian market was gradually integrating with the global market. “Hence, global view of the market is a must for stakeholders.”
At the same time, he warned that the “risk perception is also getting heightened.”
Hence, he suggested that it was imperative to focus on risk mitigation and all risks converge in one element — price. “Price risk management nearly equals management of all other risks,” he said.
“Hedging price risk in futures exchange offers the safest way to protect margins and price risk management is extremely important in commodities market,” he added.
New asset class
Explaining how commodities have become a new asset class which has outperformed many traditional investment assets, Chandrashekhar advised that “trading decisions must be based on sound research and commercial intelligence.”
Deepak Sayna of the NCDEX, explaining the functioning of the exchange, its birth, membership, and the number of commodities traded, pointed out that this exchange was born because of the “uncertainty of the future and as people wanted safety.” He also outlined the phenomenal growth of the value of the commodities traded in the exchange, by a whopping 53 per cent from 2009-10 to 2010-11. The growth of agricultural commodities, though, was only 19.58 per cent, he said.
World over, commodity markets are larger than stock markets, he added.
The NCDEX, he said, was a common platform where prices were transparent and transaction costs low. There was no counterparty risk. Prices are available to the wider world and the contract size is standardised. At the same time, he pointed out, if it were to be bilateral trading, the customers would have restricted access, trade prices would be unknown to other players, it would entail high cost and time-consuming negotiations, involve counterparty credit risk and there would be difficulty in price dissemination. And there would be only customised contracts.
Sayna explained how futures exchange provided help in price discovery in an efficient fashion, at national level and for future months. Besides, it provided facility to protect oneself, whether it be companies or farmers against the adverse movements in the price of new materials and products. Price risk management is the major benefit of these exchanges, he added.
T.Subramanian, Regional General Manager (Advertisement), The Hindu , welcomed the gathering.