Even as speculators make merry in the commodity markets, prices at the retail level show quantum jump SURESH P. IYENGAR Indian Express: Monday, May 08, 2006
MUMABI, MAY 7: After overtaking the turnover of 131-year-old Bombay Stock Exchange, the three-year-old commodity market has begun showing it’s not behind the former in high volatility and speculative trades. Of late, the three national commodity exchanges—NCDEX, MCX and NMCE—have been witnessing huge volumes amidst hectic speculation and volatility. Part of volatility in the commodity market can be traced to a new breed of investors—day traders. This segment of investors, very common in the stock market, divert their money into commodities, sensing a hidden treasure. Day traders jack up the prices by creating huge demand and book their profit within a day. ‘‘We are well aware of the volatility on our platform. Our surveillance team runs daily check on prices of the products and margins are revised accordingly,’’ says P. H. Ravi Kumar, MD, NCDEX. However, a school of thought feels that there is nothing wrong in volatility. ‘‘Markets are bound to face more volatility as the trade grows. The concern should be on manipulation rather on volatility,’’ says Sushil Sinha, regional head, Karvy Commodities. The exchanges, in turn, impose hefty margins to discourage speculative trades. High margins force investors to bring in a percentage of the total value of their position upfront. ‘‘Margins are a double-edge sword. While keeping speculators away, it can even scare a genuine investor away,’’ says Rajesh Shah, a commodity trader. Market regulator Forward Market Commission (FMC), which still operates as a department under the Agriculture Ministry, also keeps a close eye on volatility in the market and steps in when the situation gets out of hand. On many occasions, FMC instructed the exchanges to restrict the open position of a particular product facing huge volatility. By cutting the open position, traders will not be allowed to buy or sell in a product above the level prescribed by the exchanges. Commodity prices at the retail level are also on the rise. Can the booming commodity futures market be blamed for this? ‘‘Partially,’’ says Arvind Sahu, a Mumbai-based economist. ‘‘India is among the fastest-growing Asian economies. As the buying power of people increases the product prices are also bound to go up. However, any sharp appreciation in prices needs to checked immediately.’’ The rise in prices of agro products has been a major concern for consumers. Prices of pulses have shot up by almost 38 per cent at the retail level. Urad on NCDEX, which has gained 38 since November on the futures market, has moved up 40 per cent in the last three months at the retail level. Similarly chilli, one of the hottest commodity in the futures market, has shot up from Rs 3,345 level on NCDEX in January to Rs 5,490 in May, showing an appreciation of 64 per cent. Almost all the agro products including chana, soya, turmeric, sugar and Jeera have appreciated. ‘‘Behind every seller at loss there is a happy buyer who is laughing all the way to bank. This is the market mechanism. If one is paying more at the retail level then there are lot of additional cost involved,’’ justifies Sinha. If an investor invested Rs 6,000 in gold a year ago, he would have made a profit of Rs 4,000 by now. Silver prices have doubled in last six months. However, housemaker Sheetal Kamble is not willing to buy Sinha’s argument. ‘‘As it is we are facing an imminent rise in LPG prices, the present rise in commodity prices will only add fuel to the fire,’’ she says. As the temperatures and volatility rise, the spotlight is on measures to ensure speculation in the futures market does not impact retail prices. suresh.iyengar@expressindia.com
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