High margins in urad may keep retail players away
High margins appear to have squeezed monthly volumes in desi urad contracts, but FMC data shows otherwise.
By Ram Sahgal, TNN |
MUMBAI: High margins appear to have squeezed monthly volumes in desi urad contracts, but FMC data shows otherwise. From a high of Rs 8,203 crore in September, NCDEX data reveals that monthly volume fell to just Rs 3,781 crore in November, a drop of 54%.
The FMC though points to data in its possession which proves that volumes, open interest — the outstanding buy/sell positions not liquidated — and value of traded contracts has actually increased.
FMC said that from August 31 to December 16, OI in urad has gone up from 23,220 tonnes to 29,690 tonnes. Over the same period volumes have increased from 29,550 tonnes to 45,490 tonnes and value of traded contracts from Rs 80 crore to Rs 143 crore.
Faced with increasing criticism that futures markets were distorting prices of essential commodities like pulses and wheat, the regulator decided to use two effective weapons in its armoury to cool the markets — increase margins and reduce position limits. Take the current margin of 37% on longs in the January 2007 contract on Tuesday.
This includes an additional 10% margin and a special cash margin of 5% on longs. From 10 August 2006, when the January contract started trading, the margin has jumped 71.5% from 21.6%, according to NCDEX data. The near month position limit for clients has come down to 500 from 600 tonnes for the desi variety which commenced trading in July 2006.
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A margin of 37% for January means a buyer would have to put up Rs 1.2 lakhs for trading in one lot, comprising 10 tonnes! Since this margin is marked to market and volatility can be pretty high in urad, a small retail player will end up burning his fingers if the price were to fall by 2-3% intraday. Market players believe that raising margins is counter-productive as it keeps out traders, millers and farmers from the exchange ecosystem. A miller from Jalgaon feels that FMC has played into the hands of large speculative funds by increasing the margin.
The FMC believes otherwise. “High margin has not affected market liquidity in any way,” said Rajeev Agarwal, member, FMC. According to Vinay Agarwal of Agarwal Trading Co in Akola, considered to be among the largest players there, Akola has been witnessing daily arrivals of 300-400 bags (1 bag comprises 100 kg) at Rs 3,350 per quintal, Jalgaon 500-600 bags at Rs 3,400 per quintal and Latur 600-700 bags at Rs 3,500 per quintal.
The miller at Jalgaon says Maharashtra's crop in the recently-ended kharif season at 2 lakh tonnes is half its normal size. However, he says, both UP and MP have reported higher output at 2 lakh tonnes (against 1-1.3 lakh tonnes normal) and 1-1.3 lakh tonnes (70,000 tonnes) respectively.
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Rabi crop (Dec-Jan) from Orissa is also anticipated higher at 80,000-1 lakh tonnes (30-50,000 tonnes) while arrivals from AP (Feb-March) are expected to be 50,000 tonnes higher at 2-2.5 lakh tonnes.The price of the benchmark January urad contract on NCDEX was up seven-tenths of a per cent at Rs 3,134 per quintal against the previous session. Brokers believe that prices will pick up in the January contract as festive and marriage season will pick up from the next month.
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