MUMBAI: In what market stakeholders see as the government’s bid to rein in potential inflationary pressures in key consumables like edible oils, pulses, and foodgrains, stock market watchdog Securities and Exchange Board of India (SEBI), in consultation with it, banned futures trading in seven farm items and their derivatives on December 20. The ban will remain in force for a year.
Accordingly, traders will not be able to punch in any fresh futures trades on soyabean and mustard and their derivatives, crude palm oil (CPO), wheat, paddy (non-basmati ), chana and moong for one year from December 20. They will only be allowed to square off or reverse their existing positions. Sebi did not assign any reason for the suspension in its circular dated December 20.
A futures contract facilitates the purchase or sale of an underlying commodity for delivery at a later date.
NCDEX runs the country’s largest farm derivatives segment while energy and metals bourse MCX offers trading mainly on CPO as part of its much smaller agri bouquet. NCDEX will be the hardest hit by the ban as the soya complex accounted for 36% of its average daily turnover so far this fiscal year. MCX will witness only marginal impact.
Queries to NCDEX and MCX on the reasons for and impact of the ban went unanswered till press time.
Traders and an economist view the latest regulatory move as a measure to pre-empt inflationary expectations primarily in soyabean and CPO.
“It looks like a proactive move to curb potential inflationary pressures in the soya complex and in CPO,” said Naveen Mathur, director (commodities & currencies), Anand Rathi Share And Stock Brokers. Agreed Madan Sabnavis, chief economist, CareEdge Ratings. “Growth in consumer prices of edible oils in November ’21 remained high at 29.7% against 17.9% in the corresponding month of the previous year. Inflation of the other domestically produced items remains mostly under control. Given that chana and mustard were banned earlier, the (RBI and government’s) point of concern seems to be edible oils.”
Food and beverages have a 45.86% weight in the CPI, whose price growth has slowed to 4.9% this November from 6.9% in the same month last year. Analysts feel the government and regulators might not want to leave anything to chance in an environment where inflationary expectations could scuttle the recent recovery in an economy ravaged by the pandemic.
Harish Galipelli, head -strategy, ILA Commodities, said that while the merits of the ban were yet to be seen, trader sentiment in the farm commodity derivatives segment would be adversely impacted.
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