Equities rally draws traders away from commodities
MCX, NCDEX turnovers decline sharply
Alarge number of traders have reduced their positions in the commodities market to build interest in rallying equities. Turnover on commodity futures exchanges has declined sharply over the past year.
The daily average turnover on the Multi Commodity Exchange (MCX) declined by 33 per cent in a year from ~27,443 crore to ~18,319 crore in May 2017. Experts attribute this to a sharp fall in commodity prices, primarily base metals and energy. An MCX spokesperson refused to comment on the development. In January 2016 the average daily contract traded on the MCX were 1.12 million, which fell to 0.67 million in December before recovering to 0.74 million in May.
“Low volatility in the non-agri segment coupled with lack of confidence on continuity of agri contracts have driven investors from commodities to equities. Volumes in the agri segment could be very high if the fear of frequent government intervention fades,” said Jayant Manglik, president, Religare Securities.
Prakarsh Gagdani, chief executive officer, 5paisa.com, said the transaction cost in equity investments also played a role in attracting investors. “The Indian equity markets are among the most costeffective worldwide,” he said. A PwC survey last year indicated that 55 per cent of investors felt Indian equity market transaction costs were moderate in comparison to emerging market benchmarks.
The daily average turnover of the NCDEX has fallen from ~3,453 crore in July 2016 to ~1,881 crore in May. “The volumes in agri commodities are a result of the interplay of supply trends, uncertainty over the GST and the performance of the equity markets. The introduction of options is a big step. We should see some innovative options in agri-commodities soon,” an NCDEX spokesperson said.
The National Stock Exchange (NSE) has witnessed a sharp increase in its daily average turnover in the futures segment from ~62,252 crore in July 2016 to ~80,823 crore in May. The Sensex and Nifty have climbed 12- 13 per cent since July 2016. While prices of agri-commodities have fallen sharply since then, non-agri commodities largely have moved in a narrow range during the past year.