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All about Agridex, India’s first agricultural index to trade in commodities market

Agridex was launched on 25 May by the National Commodity and Derivatives Exchange (NCDEX). It comprises 10 liquid commodities traded on NCDEX.

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New Delhi: The National Commodity and Derivatives Exchange (NCDEX) last month launched the country’s first agricultural futures trading index — ‘Agridex’ — with four contracts expiring in June, July, September and December. 

This agriculture index is based on the revised guidelines issued by the Securities and Exchange Board of India, which allowed futures trading in commodity indices.

Agridex, launched on 25 May, comprises 10 liquid commodities traded on NCDEX. The spot and future of these 10 commodities — soybean, chana, coriander, cottonseed oilcake, guar gum, guar seed, mustard seed, refined soy oil, castor seed and jeera — will define the value of this index. 

The index represents various agricultural commodities of both kharif and rabi seasons, with price references throughout the year. 

Agridex will also facilitate the participants in hedging their commodity risk based on price anticipation of the products.

The NCDEX is the country’s leading agricultural commodity exchange, which offers services across the entire value-chain of agricultural commodities. It also offers a wide range of benchmark products across agriculture commodities. It brings buyers and sellers together through its electronic trading platform.


Also read: Beyond MSPs & loan waivers, Modi govt must make agricultural market reforms its top priority


‘Agridex will be re-balanced on an annual basis’

Agridex has a commodity-wise capping so that no single commodity dominates the index. Also, to ensure diversification under Agridex, none of the group of related commodities constitutes over 40 per cent of the total weightage in the index.

Agro commodity analyst of Igrain India Rahul Chauhan told ThePrint: “There will be commodity-wise and sector-wise blocks and the upper limit will also be determined so that no one commodity or region can have a monopoly on the entire trading system. Agridex will be re-balanced on an annual basis on the first business day of April.”

“NCDEX has started its first agricultural index — ‘Dhanya’ — in 2012, which was later named ‘N-Krishi’ but this index was not tradable. According to the regulatory guidelines, the volume of the spot market traded on the index and the quantity created on the platform of the exchange was given 50-50 per cent points,” added Chauhan.

Brings investment scope in agri sector

The Agridex brings with it the possibility of investment in the agriculture sector as India is already one of the major producers, consumers and exporters of agricultural commodities.

In the present times, due to disruption in domestic business and exports, the volumes of individual commodities listed under Agridex have remained low. 

However, for Agridex the only factor that is important for the index is the overall market sentiment for the agricultural sector as it’s not just dependent on a single agricultural commodity.

For example, if soybean mandi across the country remains closed but other commodity mandis are open, the trading activities for soybean may remain low in futures as a commodity, but trading in the Agridex, which is an overall index, will not be affected as other commodities trade will move it.

The Agridex futures exchange will also help market participants to take advantage of generating returns with less risk and excessive research because they do not have to research individual commodities. 

For trading on Agridex, one needs to only know specific news or reports about agricultural commodities as a whole to get a sense of the price direction. 

This is similar to the equity market wherein participants trade at the NIFTY index as Agridex also has a base value of 1,000. Agridex also provides an opportunity to those already trading in equity markets as well as with farm produce organisations, farmers, retail traders and others. 

Fared well so far

Speaking about Agridex, Kapil Dev, head (business), NCDEX, had said last month it will be the first tradeable commodity index based on domestic prices.

“Agridex Futures Contracts provide a diversified cash-settled instrument, it will help in widening participation on the exchange from both institutional and retail investors,” he added.

The Agridex index has fared well since it was launched. It witnessed improvement in participation on the second day, i.e. 26 May. 

On 25 May, a total of 418 lots were traded with Rs 21 crore volumes, while on 26 May, total traded lots stood at 467, and Rs 24 crore volumes were noted.


Also read: Link Indian agriculture with global chains, liberalise agro-commodity markets: Experts


 

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