Commodity Trading Turnover Drops

Mumbai: Participants in futures trade on the commodity exchanges appear to be treading cautiously with inflation touching seven per cent as the Government had delisted wheat, urad, tur and rice when the rate was hovering around 6.5 per cent earlier.

The delay in submission of report by the Abhijit Sen Committee, which was formed to study the impact of commodity futures trading on spot prices, has added to investors’ discomfiture. However, the commodity exchanges appear to be very confident.

P.H. Ravikumar, Managing Director, NCDEX, said: “We have presented our case to the Government. A recent study by the exchange shows that the commodities listed for futures trading have not contributed much to inflation rise.”

However, the investors seem to think differently. . The turnover on both NCDEX and MCX fell substantially last week. Between Monday and Thursday, MCX turnover dropped 19 per cent to Rs 18,710 crore, while that of NCDEX slid 15 per cent to Rs 9,248 crore.

On Friday, when inflation soared to 7 per cent mark, MCX turnover fell 13 per cent to Rs 3,214 crore and NCDEX by 28 per cent to Rs 1,797 crore. The proposed Commodity Transaction Tax has also played its part in pulling down the turnover.

Commodity Trading To Turn A Costly Affair

Mumbai: Introduction of commodity transaction tax (CTT) similar to that of securities transaction tax (STT) seems to have not gone well with the exchanges and broking firms alike.

Apart from the 12 per cent service tax, the Union budget has added an expenditure of 6 per cent as exchange levy and Rs 17 per lakh as CTT. These together are likely to increase the cost of trading in commodity futures by more than 800 per cent.

When STT was introduced in the securities market it was allowed to set off losses against profits from similar business. Moreover, the long and short term capital gains benefits extended to securities market has not been extended to commodities trading.

Jignesh Shah, MD & CEO, MCX, said: “Commodities markets are global asset class and trade flows to most efficient markets which has least trading cost. With the addition of commodities trading tax, Indian market will become unusable for risk management.”

P. H. Ravi Kumar, MD, NCDEX said: “Unlike securities markets, commodity markets perform the essential function of price discovery and the CTT will adversely affect the price discovery process. If and when CTT is to be introduced in commodity markets in future, it has to be done only with the related benefits already extended to the securities markets.”

Broking firms expect the volumes to come down as the cost of trading goes up. Sushil Sinha, Assistant General Manager, Karvy Commodities, said: “Introduction of CTT will shoo away investors and will also impact intra-day volumes. Liquidity may come under pressure”.

Dilip Bhatia, Director, Kotak Commodity Services, said: “CTT will affect the viability of trades for short term traders and arbitrageurs. In addition introduction of service tax on the services of commodity exchanges will further affect commodity businesses.”

Naveen Mathur, Head - Angel Commodities, said: “CTT would act as a dampner to commodities trading, being still in a nascent stage.”

On the positive, Jayant Manglik, Head - Commodity Business, Religare Commodities, said: “The Centre’s move shows increase in the government interest in expanding the commodity futures markets in line with equity markets and is a reiteration of the fact that investing in commodities is now an accepted investment avenue like in developed countries. It will also increase tax-compliance by default because the tax will be levied at the time of trading itself.”