INDIAN COMMODITIES MARKET
March 14, 2007
NCDEX – 6th largest commodity exchange
in the world
180,000
169,213
in '000s
160,000
140,000
120,000
99,175
100,000
93,138
78,629
80,000
61,814
50,698
60,000
42,055
40,000
33,790
33,150
28,473
20,000
0
NYMEX
Dalian
CBOT
LME
TOCOM
NCDEX
ICE
Shanghai
Futures
Source: UNCTAD, SFOA “ The world’s commodity exchanges – September 2006
2
NYBOT
Zhengzhou
NCDEX- 3rd largest agro-commodity exchange
in the world
99,175
100,000
91,872
90,000
80,000
in '000s
70,000
60,000
50,000
43,287
40,000
33,149
30,000
28,473
25,575
20,000
12,501
9,503 8,499
10,000
7,156
0
Dalian
Commodity
Exchange
CBOT
NCDEX
NYBOT
Zhenzhou
Commodity
Exchange
Tokyo
Grain
Exchange
Chicago
Mercantile
Exchange
Shangai
Futures
Exchange
Euronext
LIFFE
Source: UNCTAD, SFOA “ The world’s commodity exchanges – September 2006
3
Tokya
Commodity
Exchange
Market growth of 265% over FY05 volumes;
56% growth over FY06
USD Billion
1000
900
800
739.2
700
600
500
400
300
200
100
0
474.33
127
14.77
29
FY03
FY04
FY05
FY06
April-Feb
2007
Unlike developed markets, participation in Indian market is more
retail & individual and not institutional
4
Present volumes a fraction of the potential
USD Bn
Current
physical
volumes
Bullion
Metals etc
48.0
Farmers
Agents
Wholesalers
Processors
Retailers
175
239
Agriculture
175
Energy
85
426
Total
325
2,065
Source: NCDEX
5
17.5
Value chain
Futures
Traded
Volumes
1,225
*
Present legal & regulatory environment
6
Market Structure- Futures and Spot
State Government
Spot markets
Ministry of consumer
Affairs
Forward Markets
Commission
Futures Market
Unlike Forex and Stock markets; Spot markets in commodities
are not within the purview of the Exchanges/Regulators
7
Regulatory Structure in India
Ministry of Finance
National
Housing Bank
Housing Finance
Companies
Insurance Regulatory Pension Funds Regulatory
Development Authority Development Authority
(IRDA)
(PFRDA)
Pension
Funds
Insurance
SIDBI
State Financial
Institutions
8
Ministry of Consumer
Affairs
Company
Law Board
Corporates
RBI
SEBI
Banking /
NBFCs
Capital
Markets
FMC
Commodity
Exchanges
NABARD
Co-operative Banks &
Regional Rural Banks
Structure of Indian Commodity Futures Exchanges
FMC
Commodity Exchanges
National
exchanges
NCDEX
9
NMCE
Regional
exchanges
MCX
NBOT
20 Other Regional
Exchanges
Going forward …
10
New Products


Market would move towards trading more exotic
products
Index based products
Commodity Indices
 Rainfall & other weather indices





Spread Trading
Electricity
Real Estate
Emission Credits
..Idea will be to forge closer links with global commodities
11
Instruments to be introduced

Options
Provide up-side benefits to the market
participants
 Offer a market driven MSP to the farmers


Indices


Built-in diversification
Exchange for Physicals (EFPs)

Easy of trade for hedgers who would like to take
or make deliveries
..new instruments to attract new market participants
12
Attracting new participants

Farmers
Offering them pre & post harvest risk mitigation
platform
 Ease of trade through aggregators


Banks
Role of aggregators
 Proprietary trade


Mutual Funds



13
Attracting retail trade to the commodity
exchanges
FIIs
FDIs
Risk Mitigation: Pre-harvest
Small
Farmers
Small
Farmers
Aggregators
Large
Farmers
Future price ensured
Liquidity enhanced
Banks
Insurance
NCDEX
NCMSL
14
Weather derivatives
/Crop Insurance
Bank lending
Risk Mitigation: Post-harvest
Small
Farmers
Large
Farmers
Sell forward
Banks
NCDEX
NCMSL
Storage facility
Assaying & grading
Commodity backed
bank finance (WR)
15
Survey carried out by A C Nielsen
Yes
12%
No
88%
Wide Area Sample, Sample Size - 255
No
22%
Yes
78%
Narrow Area Sample, Sample Size - 473
 Over 78 % of farmers from NAS & 12 % of WAS agreed that they have
benefited out of the price discovery taking place through commodity
exchanges
 As NAS respondents are well aware of market dynamics ( including futures
market, they are able benefit through better price realization)
 Increase in awareness level in interior areas about commodity futures will help
the farmers
16
Typical farmers awareness programmes
A large number of
participants
Alwar, Rajasthan on 27
February 2007
Speakers include the
regulators – FMC; key
officials of NCDEX;
important officials of the
government machinery
17
Increased bank participation on the
exchange platform
farmer
farmer
Bank branch
farmer
farmer
Bank branch
Banks takes
consolidated
position on
behalf of its
customers
farmer
Bank to also take proprietary positions
18
Exchange
Facilitating lending against commodities


Banks’ lending against commodities in FY06
was USD 1,334 million
NCMSL facilitated finance against commodities
to the tune of about USD 80 million as on
31st March, 2006
ICICI Bank: USD 50 million
 HDFC Bank: USD 22 million


Other banks: USD 8 million
Average Interest rate charged: 9.5% - 10.5%
 Number of defaults so far: NIL

19
Facilitation required

20
RBI Working Group Recommendations

Banks to be allowed to have proprietary positions in
agricultural commodity derivatives

Evolution of a system for warehouse receipts which
would be freely transferable

Banks to be granted general permission to become PCMs
of commodity exchanges
Foreign Access
21

Foreign access permitted in securities marketequities & bonds under regulation

Currently can access commodity markets by
setting up a domestic entity – for broking &
investment

Require prior approval from FIPB

Precedents: Permission granted for Proprietary
trade only

No precedents for Client trade
RBI/SEBI notification dated 22.12.2006
Permits Foreign Investment in infrastructure
companies in Indian Stock Exchange to the tune
of 49%, of which

26% - FDI (Foreign Direct Investment)
o With specific prior approval of FIPB
23% - FII (Foreign Institutional Investment)
o FII will be allowed purchases in secondary market
o FII shall not seek & will not get representation on
the Board
 No foreign investor, including persons acting in concert,
will hold more than 5% of the equity capital

Similar notification expected for commodity markets…
22
Regulatory Action in Jan-Feb 2007
23
Sudden delisting of important cereals &
pulses - Jan-Feb 2007


Delisting of
Urad & Tur
contracts –
Jan 07
Suspension of
Rice & Wheat
contracts –
Feb 07
Future Prices as of Jan 23
Feb
Expiry
March
Expiry
Spot
Prices
as of
Jan 23
May
Expiry
Urad
71.86
69.88
65.31
78.88
71.88
Tur
50.68
55.04
56.95
51.93
49.24
(USD/Quintal)
Urad: Crop arrivals from Andhra & Burma expected in Feb-March
Tur: Arrivals in March; 30-40% expected production shortage
24
Spot
Price as
of Mar
06
25
Spot
F-May-07
F-Feb-07
F-Jun-07
F-Mar-07
F-Jul-07
Temporary ban; expected to be lifted soon…
F-Apr-07
F-Aug-07
01/03/2007
28/02/2007
27/02/2007
26/02/2007
24/02/2007
23/02/2007
22/02/2007
21/02/2007
20/02/2007
19/02/2007
17/02/2007
16/02/2007
15/02/2007
1,150
14/02/2007
13/02/2007
12/02/2007
10/02/2007
09/02/2007
08/02/2007
07/02/2007
06/02/2007
05/02/2007
03/02/2007
02/02/2007
01/02/2007
NCDEX wheat price movements
Rs/quintal
Temporary ban on wheat imposed
1,100
1,050
1,000
950
900
850
800
Innovations by NCDEX
26
Spot price polling
Exchange Website
Mandi
Traders
Mill owners
Refiner Polled Prices
Commission
Agents
Manufacturers
Statistical
Cleansing
of
raw data
Trading Terminals
Near real-time
nationwide prices
Info-vendor terminals
Media– electronic & print
Polling done independently by CMIE & Crisil MW
27
Dematerialized holding of commodity
balances
WH
WH
CLIENT
DP
NSDL
R&T AGENT
WH
WH
- Open Demat a/c
With DP
Gets goods to the
WH, fills in Demat
Request form for
Demat credit
28
Empanelled
DPs
in
which
members/clients
open
Demat
account
-Holds commodity
balances
in
electronic form
Facilitates
transactions
in
commodities
Link between the
warehouse and the
Depository.
Standardized
Screens
Accepts goods
for
storage/
delivery
Assaying done and
information given
to NSDL via R&T
Collateral management

Set up National Collateral Management Services
Ltd. (NCMSL)
 Warehousing, assaying
 Collateral Management
 Commodity backed financing
 Food procurement for FCI


29
2005-06 Paddy procurement project
 1.2 lakh MTs paddy from MP, Orissa
2006-07 Paddy project
 80,000 farmers involved
 600,000 MTs of paddy
Price Dissemination
ELECTRONIC
PRINT
 TV and radio
 Regional newspapers
News agencies
 Mobile phones
 Integrated kiosk
 Kisan (farmer) Call centres


Training material
 Agri-journals
TICKER BOARDS
 Member offices






30
Mandis
Bank’s rural branches
Rural warehouses
Bus stations
Abidjan- Cote D’Ivoire
Singapore- View Terminal
Future plans
 Rural Post offices
Railway platforms
 Co-operative offices
 Panchayat offices

Automatic weather stations

Cabled Vantage Pro 2 Plus
Collecting & disseminating data over multiple weather parameters
31
About NCDEX
32
Our Shareholders
Institution
NABARD
ICICI Bank
33
Share
15 %
8%
Domain Expertise
Apex bank for agricultural lending
Largest private sector bank in India. Listed on NYSE
NSE
15 %
Largest stock exchange in India. Highest volume in single
stock futures in world.
LIC
15 %
Largest life insurance company in India
CRISIL
12%
India’s first & largest credit rating agency. Now a Standard &
Poor company
IFFCO
12%
Largest farmer cooperative with affiliation of 36,000
cooperatives
PNB
8%
Large public sector bank with strong rural reach specially in
North India
Canara Bank
8%
Large public sector bank with strong rural reach specially in
South India
Goldman
Sachs
7%
Global Expertise in commodity markets
Ncdex’ market share in total volumes of key
agri-commodities (April 2006 -Jan 2007)
Cereals & Pulses
Spices
Chana\Gram
87%
Wheat
98%
Maize
99%
Barley
100%
Guar Seeds
85%
Urad
87%
Tur
91%
Processed agri-products
85%
Chilli
98%
Turmeric
Jeera
100%
95%
Oil & Oil seed complex
Rape/Mustard Seed
98%
Guar Gum
99%
Soyabean Seeds
99%
Sugar
83%
Refined Soya Oil
27%
Gur
75%
Mentha oil
15%
Soya_Meal
86%
Fiber
Medium Staple Cotton
Kapas
Indian 28 MM Cotton
34
Pepper
100%
50%
100%
Castor
100%
Groundnut (IN SHELL)
100%
Rape Mustard Oilcake
100%
Exchange Profile
Number
Products
51
Members
852
Spread across India
Terminals
18,500
Accessible from 700
centres
550
All over the country
Delivery Centres
Depository Participants
59
Clearing Banks
12
Weather Stations
35
Remarks
194
41 agro, 2 bullion,
2 energy and 6 metals
By associate company
NCMSL
Thank You
36
Market Share – Agri. Commodities
MCX
Other
NCDEX
Share
Exchange
(%)
NCDEX
85.0
MCX
11.0
Others
4.0
100
37
Large number of Physical Deliveries taking
place on NCDEX Platform




Globally less than
2% volumes result
in deliveries
Physical deliveries
are incidental
Exchanges not
delivery platform
However, NCDEX
has seen an average
delivery of 4050,000 MT per
month
Period
Deliveries (MT)
Q4' FY05
43214
Q1 ‘FY06
109562
Q2 FY06
83081
Q3 FY06
77160
Q4 FY06
134260
Q1 FY07
103,444
Q2 FY07
125,989
Q3 FY07
94,128
Jan-Feb FY07
37,136
Exchange’s are a platform for better prices discovery
38
Strategic Partners
Global
Tokyo Grain Exchange (TGE)
Dalian Commodity Exchange (DCE)
Intercontinental Exchange (ICE)
Business
Bharat Petroleum
Gas Authority of India Ltd (GAIL)
Bombay Bullion Association (BBA)
Grading &
Standards
Central Institute for Research on Cotton
Technology (CIRCOT)
Indian Agriculture Research Institute (IARI)
Warehouse &
others
39
Food Corporation of India (FCI)
CRIDA
Punjab State Cooperative Supply & Marketing
Federation
Number of contracts traded - Economic
Survey
In millions
Exchange /
Year
2005-06
2006-07
NCDEX
11
27.42
23.65
Others
4.3
16.3
28.38
71.90
63
45.45
% market
share in India
40
2004-05