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Crude, gold drive trade as agri futures decline

Crude, gold drive trade as agri futures decline
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First Published: Sun, Jun 15 2008. 10 20 PM IST
Updated: Sun, Jun 15 2008. 10 20 PM IST
Kochi: Gold and crude oil have been driving rising volumes in commodity futures, but traders have mostly stayed away from agricultural futures because of the proposed commodity turnover tax, or CTT as well as a ban on trading in some important commodities.
India has proposed CTT on the lines of the securities transaction tax in the Budget for 2008-09. In May, it suspended futures trading in soya oil, rubber, potato and channa (chickpea) for four months, adding to its early 2007 ban on rice, wheat, tur (pigeon pea) and urad (black gram). As a result, about 25-30% of the investors in domestic commodity markets have withdrawn, according to a cross-section of brokerages contacted by Mint.
Trade volumes between January and May on the Multi Commodity Exchange (MCX), the National Commodities and Derivatives Exchange and the National Multi-Commodities Exchange increased to about Rs39.2 trillion from Rs29.9 trillion in the year-ago period.
Gold and crude oil have been driving rising volumes in commodity futures, but traders have mostly stayed away from agricultural futures because of the proposed commodity turnover tax, or CTT as well as a ban on trading in some important commodities.
India has proposed CTT on the lines of the securities transaction tax in the Budget for 2008-09. In May, it suspended futures trading in soya oil, rubber, potato and channa (chickpea) for four months, adding to its early 2007 ban on rice, wheat, tur (pigeon pea) and urad (black gram). As a result, about 25-30% of the investors in domestic commodity markets have withdrawn, according to a cross-section of brokerages contacted by Mint.
Trade volumes between January and May on the Multi Commodity Exchange (MCX), the National Commodities and Derivatives Exchange and the National Multi-Commodities Exchange increased to about Rs39.2 trillion from Rs29.9 trillion in the year-ago period.
The rise on MCX was mainly because of the interest shown in crude oil and gold, said Joseph Massey, its managing director and chief executive. “But the sentiments of the commodity markets are generally not bullish,” he added.
Corporate houses have been active in international markets. The Reserve Bank of India (RBI) has allowed companies to hedge risks on international exchanges such as the London Metals Exchange and the Chicago Board of Trade.
“It is sad that the government bans futures trade in wheat but allows the Food Corporation of India to hedge its risk on an international exchange,” said B.C. Khatua, chairman of Forward Markets Commission. The commodity markets regulator has taken up the issue with RBI and is awaiting a reply, he added.
“Sadly, when global commodity markets are thinking in terms of growth, the Indian commodity market is still struggling for survival,” said Manoj Choudhary, head of the commodities wing at domestic brokerage Karvy Comtrade Ltd.
Companies in India buy or sell commodities in rupees and hedge their price risks in dollars. This protects them from commodity price fluctuations, but creates another risk in exchange rate fluctuations.
Such hedging is usually done by large companies as the high costs involved distances smaller and medium enterprise players from international exchanges, said Shailendra Kumar, head of brokerage Sharekhan Commodities Pvt. Ltd.
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First Published: Sun, Jun 15 2008. 10 20 PM IST