The National Commodity and Derivatives Exchange (NCDEX) is a commodities exchange specializing primarily in agricultural commodities in India. Established in 2003 and headquartered in Mumbai, NCDEX plays a vital role in the agricultural sector.
Many of India’s top financial institutions hold a stake in the NCDEX. As of 2024, significant shareholders included Life Insurance Corp. of India (LIC), the National Stock Exchange of India Ltd. (NSE), and the National Bank for Agriculture and Rural Development (NABARD).
Key Points to Note
- Agri-Focused: The NCDEX is a commodities exchange dealing mainly in agricultural products.
- Nationwide Presence: Though based in Mumbai, the NCDEX has offices nationwide to facilitate trade.
- Driving Agricultural Improvement: The exchange has played a crucial role in enhancing Indian agricultural practices.
- Popular Commodities: Barley, wheat, and soybeans are among the leading agricultural items traded.
Understanding the NCDEX
The NCDEX is a premier commodity exchange in India, noted for both its value and the number of contracts. Unlike its counterpart, the Multi Commodity Exchange (MCX), which focuses on energy and metals, the NCDEX specializes in agricultural commodities.
In its 2023 annual report, the NCDEX detailed that it featured futures contracts on 23 agricultural commodities and one non-agricultural product, along with options on six agricultural commodities. Additionally, it offers clearing services for derivatives traded on the exchange.
India is a global powerhouse in agriculture, ranking as one of the largest producers of wheat, rice, milk, and more. Though much of India’s produce is consumed domestically, its increasing productivity shines a light on its agricultural strengths. The NCDEX is pivotal in driving advancements in this sector through various offerings and services.
An independent board of directors, with no direct interests in agriculture, oversees the NCDEX.
Benefits of the NCDEX
The NCDEX has established an online futures market that significantly enhances market transparency, aiding Indian farmers in the price discovery process. This exchange eliminates the dominance of intermediaries, thereby lowering the cost of price information for farmers.
Standardizing quality specifications via contracts, the NCDEX has raised awareness about quality among Indian farmers. This move has encouraged better farming practices, resulting in consistently high-quality crops.
Despite being relatively young, the NCDEX has succeeded in attracting traders and significant market participants who use the exchange for hedging and speculation. As India’s agriculture sector continues to grow, the NCDEX is expected to play an even more significant role.
NCDEX Financial Performance
For the fiscal year 2022-23, the financial performance of the NCDEX showed room for improvement. The exchange saw a notable decline in total income to ₹4,884 Lakhs, primarily due to lower average daily traded values. Total expenses slightly increased, leading to an operating loss before tax of ₹5,905 Lakhs on a standalone basis.
Consolidated figures for the entire NCDEX Group were not much brighter, with a decrease in total income by 12% to ₹13,557 Lakhs and a rise in expenses to ₹19,624 Lakhs, culminating in a loss after tax of ₹4,237 Lakhs.
Nonetheless, the NCDEX expanded its market share in agri derivatives trading to 97% in FY 2022-23 and forayed into the non-agri sector by launching India’s largest metal steel contract.
Notable Commodities on the NCDEX
The NCDEX trades key agricultural commodities like barley, wheat, and soybeans. It also features globally recognized benchmark contracts for commodities like coriander and manages contracts for steel, cotton, palm oil, and guar extracts.
The exchange operates three agricultural commodity indexes focused on soybeans, guar, and a composite of various agricultural products, positioning itself as a primary source of information and trading for spices and other agricultural goods.
Comparing NCDEX and MCX
Both the NCDEX and Multi Commodity Exchange (MCX) are electronic commodities exchanges in India, though they serve different market needs. The NCDEX is specialized in agricultural commodities, while MCX is known for metals and energy products.
How to Trade on the NCDEX
To trade on the NCDEX, you need an account with an authorized broker that is connected to the exchange in India. Examples include Angel One and Edelweiss. Note that Zerodha, a major Indian broker, only facilitates trades on the MCX, not the NCDEX.
Active Listings on NCDEX
The most actively traded products on the NCDEX currently include contracts for guar seed, guar gum, and castor oil.
The Bottom Line
The National Commodity & Derivatives Exchange Limited is a leading platform for trading various agricultural and non-agricultural commodities. Since its establishment in 2003, the NCDEX has been a cornerstone for market participants and has significantly influenced India’s commodity markets, both in terms of practices and economic impact.
Related Terms: MCX, futures contracts, options, hedging, price discovery.
References
- National Commodity and Derivatives Exchange. “NCDEX Overview”.
- Multi Commodity Exchange of India. “About Us”.
- National Commodity and Derivatives Exchange. “Annual Report 2022-23”. Pages 8-9.
- The India Forum. “India’s Biggest Challenge: The Future of Farming”.
- National Commodity and Derivatives Exchange. “Board of Directors”.
- Kushankur Dey, Vasant P. Gandhi, and Kanish Debnath. “Farmers’ Participation in India’s Futures Markets: Potential, Experience, and Constraints”. Springer Nature Singapore, 2021.
- National Commodity and Derivatives Exchange. “Home: Products”.
- National Commodity and Derivatives Exchange. “SOYDEX”.
- National Commodity and Derivatives Exchange. “GUAREX”.
- National Commodity and Derivatives Exchange. “AGRIDEX”.
- Food and Agriculture Organization of the United Nations. “FAOSTAT: Crops and Livestock Products: Visualize Data”.
- Helgi Library. “Which Country Eats the Most Spice?”
- Chittorgarh. “Does Zerodha Offer NCDEX Trading?”
- moneycontrol. “Most Active Commodity on NCDEX (Volume)”.
