A call for change: Thats how the year 2013 will go down in history. Undoubtedly, it was the year that brought people around the globe to the streets rooting for change in political equations, in economic realities, and in societal convictions. Akin to that fight for change, somewhere in the corridors of Indias second largest commodities ExchangeNational Commodities and Derivatives (NCDEX)Samir Shah, MD & CEO, NCDEX, was stirring up a small revolution. When Shah took over the Exchange in the summer of 2013, markets were down and growth prospects bleak. The Exchange itself was stuck in a time warp and needed a fresh coat of paint.
CIO: You took charge of NCDEX last year. What challenges did you face?
Samir Shah, MD & CEO: When I joined NCDEX, the Exchange was facing a drop in volumes and a reduction in trading participants. Concurrently, the commodity cycle worldwide was in a bearish mode. Commodities Transaction Tax (CTT) had been announced in the budget and that had adversely impacted market sentiments and investor confidence in the commodities market. Then the NSEL crisis happened. Although we were not affected by the crisis because it happened at another Exchange, but it affected the agriculture sector and NCDEX is the largest agriculture Exchange in the country. The crisis shook the confidence of stocks in warehouses and the credibility associated with warehouses and commodity trading. The crisis was the last straw. The series of unpalatable events unfolded one after another. I took the reins of NCDEX in such trying times. How did you tackle these challenges? There is a tremendous growth opportunity in the commodity markets in India. I firmly believe that commodity markets in India should be significantly larger than equity markets. There are three segments in the commodity market: Agriculture, metals, and energy. Lets look at agriculture. Worldwide, a significant portion of agricultural production actually gets traded and churned on commodity Exchanges. If you were to value last years crop production, in terms of rupees, it was about Rs 9 lakh crore. But only a fraction of that amount actually got traded at the commodity Exchange. I realized that there is a huge untapped opportunity in the commodities market. To tap into that, we needed to refresh some of our old contracts. For example, our key contracts like gram and castor needed a refresh. We had to develop a slightly different way of looking at these contracts. So we introduced a smaller size contract for gram and castor. With this, we targeted a specific segment of the market place which hadnt been tapped into: The financial and retail investors. They had been excluded from participating in the market because they did not have a fit-for-purpose contract. This experiment is still in its initial stages. Once it gains traction we want to replicate it for other contracts as well. In the non-agriculture sector, we re-launched the steel contract. I am very bullish about steel contracts. We made an attempt at launching steel contracts a couple of years ago but there were changes in BIS (Bureau of Indian Standards) laws, hence steel contracts did not perform well. So we had to retire our contract and re-launch it. Its gaining traction in the market now. We re-launched the crude palm oil contract (CPO). Despite being the largest agriculture Exchange in the country, it was a bit strange that we never had an active CPO contract. So I thought it necessary to focus on one. We launched more contracts in the last one year than the Exchange has done in the last five years. And the idea was that if we have to tap into the potential of the market place then we need to have contracts that are designed to suit the different needs of the customer. You cant have a one size fits all. The market is quite complex. You have arbitragers, real hedgers, farmers, mandi traders, large corporates, and retail investors. And each investor has a different way of looking at the market. We also launched a very unique design called the gold hedge and the silver hedge contract. Earlier, gold and silver contracts were physical delivery-based contracts. The government is now discouraging investment in gold in the physical form because it creates current account deficits and leads to higher amount of imports. So we needed to convert the physical holding to a financial form. Keeping that need in mind, we launched a financial version of gold and silver contracts. The contract is a month-and-a-half old now but it brings in almost Rs 200 crore a day. This shows that there was an appetite for this kind of a contract. Therefore, designing products that are customized to suit different segments of the market was one of my focus areas.
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