Diamond futures gain traction; open interest doubled

Retail investors have given a thumbs up to the diamond futures trading on the Reliance Capital-anchored Indian Commodity Exchange (ICEX), which offers investment in small denominations and also physical delivery on completion of a carat.

ICEX, with over 10,000 trading clients on board, has seen its daily average open interest double to 54705.57 lots (of 1 cent each) for the fourth delivery cycle ended on January 5 from 23711.68 lots recorded for the December expiry contract. This indicates that retail investors, who abstained from diamond purchases so far due to its high prices, have gradually started adding diamond to their investment portfolio.

A commonly understandable variety of diamond is priced at ~300,000, which buyers need to pay upfront to purchase it from the spot market. ICEX, however, has launched one-cent contract, which gets accumulated to 100 cents (one carat) to take its delivery on the exchange platform. So, ICEX facilitates investors to own a carat of diamond with investment in multiple of ~3,000.

“The Indian diamond industry was in dire need of such a platform that would enable the industry to hedge its risks and provide adequate liquidity for buyers and sellers. We are happy that ICEX has been able to create a transparent and liquid market for our diamond industry. In a short span, the exchange has been able to witness a decent buildup of open interest and volumes and a wide base of market participants,” said Sanjit Prasad, managing director and chief executive officer, ICEX.

Interestingly, its third delivery cycle (January expiry contracts) saw 130 small investors seeking delivery of 36.07 carats of diamond worth ~11.3 million. Total 7124.46 carats of diamond contracts (of January expiry), worth ~2.27 billion, were traded since the launch of the contracts. The deliverable volume stood at 0.51 per cent of the total traded volume.

“We delivered 6-7 stones of 50 cents each in the third delivery cycle with smooth execution of the entire process. Factors like transparent pricing, which is aligned to the market price, and grading facility are huge benefits of this platform. We wish there were more options in terms of stone specifications, so that we could take a bigger position on the exchange. Finding buyers is not easy in the diamond sector,” said Kirit Kaklotkar, director of Surat-based Baba Sitaram Exports, a 10-year-old company into export, import and trading of exports.

When ICEX made its debut with diamond futures contracts on August 28 last year, it became the first-ever diamond derivatives exchange in the world. Since then, the exchange has been witnessing a steady increase in industry participation, volumes and open interest.