The value of trade on commodity exchanges is likely to drop for the first time this fiscal since the first commodity futures exchange began functioning in 2002.
Two reasons are cited for the trend. One is the current downtrend in the bullion. The other is that some investors shifted to smaller denominations, i.e., mini lots in trade parlance, after gold prices touched Rs 32,000 for 10 gm during the first half of last year.
According to the Forward Markets Commission (FMC), an arm of the Consumer Affairs Ministry that supervises the functioning of commodity futures, the value of trade between April 1, 2012 and February 15 dropped to Rs 151 lakh crore against Rs 159 lakh crore during the same period a year ago.
In 2011-12, the value of commodities traded on the exchanges was a record Rs 181 lakh crore, up from Rs 119 lakh crore the previous year.
Statistics from the FMC show that the trade value in bullion dropped by 23.28 per cent to Rs 70 lakh crore from Rs 91.32 lakh crore during the same period a year ago.
“The bull run in gold and silver that was witnessed since 2004 halted in 2011. We have seen 40 per cent correction in silver price and 20 per cent correction in gold price. This is one reason for the drop in value,” said Manoj Kumar Jain, President, Commodities and Foreign Exchange, IndiaNivesh Commodities.
“The movement in major commodities was choppy, denting speculative buying and the overall volume,” said C.P. Krishnan, Wholetime Director, Geojit Commodities.
“Investors shifting to mini lots due to surging prices could be a reason,” said Kishore Narne, Associate Director and Head, Commodity and Currency, Motilal Oswal.
“Sentiments turned positive in the equities markets last year and volatility in the commodity market saw people switching to stocks,” said Naveen Mathur, Associate Director, Commodities and Currency, Angel Broking.
The Sensex gained 26 per cent or 3,971.79 points in 2012 to close at 19,426.71.
With gold prices ruling below Rs 30,000 for 10 gm against nearly Rs 32,000 last year and the rupee turning volatile, it is unlikely that the drop in the value of trade can be made up before March 31.
Guar factor
Other commodities have also contributed to the drop in trading, though in real terms it is insignificant (Rs 1.28 crore vs Rs 5.99 crore).
A ban on futures trade in guarseed and guar gum besides the regulator upping the vigilance is also seen as a reason for the slowing down of trading.
While Motilal Oswal’s Narne rules out any effect of the regulator’s vigil for the drop in trade value, Geojit’s Krishnan said it had resulted in lower speculator interest.
“Simultaneously, it has attracted more genuine hedgers and arbitrageurs to the futures platform. Such vigil from the regulator has also attracted many farmer participants to the futures segment, which is a good sign,” said Krishnan.
IndiaNivesh’s Jain said the Commission’s actions have brought in a lot of changes in the trading system. “Though the volume could be affected for the time being, in the long run these kinds of changes will help the market,” he said.
“The regulator’s actions did well to serve the purpose,” said Angel Broking’s Naveen Mathur.
Despite a ban on guarseed and guargum, the trade value in agricultural commodities increased by nearly nine per cent. “Guar’s bull run in 2011-12 or its ban has got nothing to do with volumes. Record prices in gold and silver was the reason for the rise in volume and value,” said Narne.