The run up in commodity futures turnover seems to be ending, with a sharp drop in bullion and metal trade that accounts for nearly 80 per cent of the turnover.
Commodity futures turnover in the fortnight ended December 15 dropped 16 per cent to Rs 6,88,768 crore against Rs 8,23,908 crore during the same period a year ago. In fact, the slide started from September with turnover dipping five per cent each month.
In the first eight months of this fiscal, the turnover was down five per cent to Rs 1,16,26,842 crore (Rs 1,22,33,835 crore), according to the Forwards Market Commission data.
Gold prices
Trading in bullion and metal was impacted due to lack of clear signal from international markets. Gold prices are currently influenced more by the movement of the rupee against the dollar than the developments in overseas markets.
For instance, spot gold prices on the Comex gained by $10 to $1,682 a troy ounce on Wednesday. In India, gold gained Rs 85 (less than $2) to Rs 30,870 for10 grams. The appreciation of the rupee by 27 paise against the dollar restricted the commensurate gain in gold prices.
It has become more difficult for day traders and speculators to take a call on prices with a distorted trend in domestic and international bullion prices. The fall in gold and silver prices also impacted growth in turnover. Besides, price of metals such as copper, zinc, lead, aluminium and nickel declined a major part of last year. The global economic slowdown hampered demand and depressed prices.
Mini contracts
The launch of mini contracts in bullion and metals was also one of the reasons for the downtrend in the futures turnover. Many retail investors and small jewellers preferred to bet on mini contracts to cut down on the risk and circumvent the volatility involved in the normal contracts. The ban on algorithm trading in mini contracts curtailed volatility in these contracts and reduced investor interest.
Agri commodities
In the agriculture commodity space, investors were put off by huge volatility in pepper and chana contracts. The sharp movement in prices makes it difficult for investors to take a call. The staggered delivery introduced in agriculture commodities reduced the lifespan of the contract by 15 days and encouraged fresh position with investors wishing to take delivery in the near month contracts.
Sushil Sinha, Director, Karvy Comtrade, said the regulator has done well to step in whenever there was a sudden spike in prices without valid reason.
“Going ahead, the awareness programmes conducted by the FMC and exchanges will attract corporate hedgers and serious investors,” he added.