Commodities have become a cornerstone of global trade and investment. Commodities include raw materials such as agricultural produce, metals, and energy resources that are essential to industrial processes and everyday life. Unlike manufactured goods, commodities are standardized and interchangeable, which allows them to be traded on organized exchanges. The prices of these raw materials fluctuate based on supply and demand, weather conditions, geopolitical events, and macroeconomic trends. For instance, a poor monsoon can drive up the price of wheat, while disruptions in oil supply can send shockwaves through energy markets.
Some view commodities as a hedge against inflation, while others see them as a means to diversify portfolios away from traditional asset classes like equities and bonds. Over the years, commodity markets have evolved significantly. This evolution has paved the way for specialized commodity exchanges like National Commodity & Derivatives Exchange Limited (NCDEX), which play a crucial role in facilitating these transactions.
NCDEX provides the platform and infrastructure for trading commodity derivatives,like Futures and Options, which simply are instruments that act as contracts, allowing market participants to benefit from potential rises or falls in the price of commodities. NCDEX is widely recognized for its dominance in the agri-commodity derivatives segment, where it holds a commanding 97% market share. This leadership is supported by a suite of services that extend beyond simple trade execution. Its ecosystem includes a range of business segments that work in tandem to facilitate everything from trade clearing and settlement to the digitization of warehouse receipts and financial education.
Additionally, recent regulatory actions, such as the extended ban on futures trading in seven key agricultural commodities imposed by SEBI to curb excessive speculation and stabilize food prices, have significantly impacted the market. Henceforth, to adapt to these challenges, NCDEX has forayed into equity derivatives, opening up new avenues for growth and diversification.
On 12th February, 2025, the board of NCDEX approved a plan to start trading equities and equity derivatives. This means NCDEX is adding stocks and stock options to its usual range of products. They plan to invest between ₹400 and ₹600 crore in this new segment.
The Commodity Exchange Services segment is the core of NCDEX’s operations which provides a platform for market participants to trade commodity derivatives such as futures and options contracts. This platform is essential for price discovery, as it allows buyers and sellers to come together and determine the fair market value of commodities. For agricultural commodities, where seasonal and supply-side variations are common, having a reliable platform for hedging and risk management is vital.
The process of clearing and settlement is essential because it confirms trade details and guarantees that both buyers and sellers meet their contractual obligations. This function is carried out by National Commodity Clearing Limited (NCCL), a wholly-owned subsidiary of NCDEX. Acting as a central counterparty, NCCL interposes itself between trade participants, becoming the buyer to every seller and the seller to every buyer, which reduces counterparty risk. This arrangement not only enhances market stability but also boosts investor confidence.
The clearing process at NCCL involves two primary settlement methods. First is the Mark-to-Market (MTM) Settlement, which is a daily process that adjusts the value of open positions based on price fluctuations. For FY 2023-24, the MTM settlement value was ₹2,575.96 Crores. The second method is Physical Settlement, which involves the actual delivery of commodities. During the same period, the physical settlement value reached ₹1,228.64 Crores.
Collateral management is another key responsibility which manages various collateral instruments such as bank guarantees and fixed deposit receipts, ensuring that the financial transactions associated with commodity trades are secure.
Repository Services have modernized a once very paper-based process. Traditionally, warehouse receipts were physical documents that served as proof that a commodity was stored safely. Now, the National E-Repository (NERL) transforms these paper receipts into electronic Negotiable Warehouse Receipts (eNWRs). This digital upgrade makes trading much easier and allows these receipts to be used as collateral.
The E-Market Services segment, operated by NCDEX e-Markets, represents the digital conversion of agricultural procurement and disposal. It provides a technology-driven platform that connects farmers directly with buyers, particularly government agencies, thereby modernizing the procurement process and making it more transparent and efficient.
A key project under this segment is the eSamridhi portal, which integrates data from various sources to enable the government to procure produce at prices that often exceed the Minimum Support Price (MSP), which is the price at which the government guarantees to buy a crop from farmers, ensuring they receive a fair return even if market prices fall. By ensuring that farmers receive fair prices for their produce, this portal helps boost rural incomes and strengthens the agricultural supply chain
The Corporate Buying/Trade Finance service helps companies buy agricultural products more easily. Here's how it works: NCDEX buys the products and pays the suppliers in full right away. Then, the company only needs to pay a 25% advance, which makes managing their cash flow simpler. The rest of the payment is collected with monthly interest, and companies also cover extra costs like storage and insurance. Although NCDEX takes ownership of the products to protect against problems, it adjusts for price changes every day so it isn’t hurt by sudden market swings. This service combines buying and financing into one easy package, making the process simpler and safer for everyone involve
NCDEX’s growth is fueled by a set of unique drivers that not only distinguish it from its competitors but also enhance its long-term potential in the commodity investment space. These growth drivers reflect the exchange’s commitment to innovation, inclusivity, and sustainability, and are critical to understanding the future trajectory of NCDEX unlisted shares.
Focus on Farmer Producer Organisations and Rural Financial Inclusion
Farmer Producer Organisations, or FPOs, are groups where small farmers come together to pool their resources, share knowledge, and negotiate better prices for their produce. NCDEX’s innovative approach involves integrating these FPOs into the commodity derivatives market. This means that FPOs can use financial tools—like futures and options—to protect themselves from sudden price drops or spikes (a process called hedging).
By giving FPOs access to these markets, it not only helps them secure better prices for their crops but also brings them into the formal financial system, which is a key part of rural financial inclusion. Additionally, NCDEX collaborates with institutions to reduce the cost of financial products (such as subsidizing premium payments for put options), further supporting FPOs. In simple terms, by empowering FPOs, NCDEX helps small farmers stabilize their incomes and contributes to a stronger, more resilient agricultural sector.
Development of Niche Commodity Contracts
Product innovation is another cornerstone of NCDEX’s strategy. The launch of niche commodity contracts, such as Crude Sunflower Oil futures (the only edible oil contract available for domestic hedging) and Jeera Mini futures, addresses specific market needs. These tailored contracts offer smaller market participants a viable means of hedging against price fluctuations, providing a benchmark for the industry. Even during periods when broader commodity contracts face suspension or regulatory challenges, these niche products help maintain market engagement and drive growth.
Emphasis on Weather Derivatives and Sustainability
In response to growing climate uncertainty, NCDEX is exploring derivative products in the weather segment. Weather derivatives enable market participants to hedge against adverse weather conditions that can impact crop yields and commodity prices. In addition, the initiatives such as spot polling, which means that NCDEX is regularly checking and collecting real-time data on the current prices of carbon credits, which are certificates that represent reductions in greenhouse gas emissions. By addressing climate-related risks through innovative financial instruments, it not only meets emerging market needs but also positions itself as a leader in sustainable commodity trading.
➢ Strategic Research and Advocacy
Research and advocacy are integral to NCDEX’s long-term strategy. The exchange conducts extensive research projects, engages with policymakers, and offers consultancy services. These efforts help shape market practices, drive product innovation, and promote effective regulatory policies. Initiatives like the promotion of subsidized put options in 2020, where SEBI helped cover part of the cost of these options, exemplify how strategic research can lead to tangible market improvements.
These growth drivers highlight a strategy that moves beyond just trading volumes. NCDEX is working to integrate the entire agricultural ecosystem, including the primary producers (farmers, FPOs) as well as the institutions involved in the agricultural sector, thereby creating long-term sustainable growth by leveraging technology, targeted products, and research-driven policy advocacy.
➢ Revenue and Bottom Line: Core revenue from operations declined from ₹103.93 Crores in FY 2023 to ₹95.73 Crores in FY 2024, reflecting challenges in the exchange’s primary business activities. However, exceptional items of ₹9.89 Crores, mainly from stake sales, helped offset some losses. Additionally, a refund of ₹6.05 Crores from the Core Settlement Guarantee Fund (SGF) further improved results. Despite these positives, high operating expenses of ₹187.16 Crores continued to weigh on profitability, though they were 5% lower than the previous year. Employee benefits remained a significant cost, accounting for ₹91 Crores. As a result, NCDEX reported a net loss of ₹27.70 Crores for FY 2023-24, an improvement from the ₹42.37 Crores loss in the previous year.
➢ Asset Quality: While NCDEX holds substantial assets in bank deposits and investments, its return on net worth remains negative at 2.5%, though an improvement from -15.8% in the previous year. This indicates that despite strong asset holdings, profitability remains a challenge.
Turnover: The Average Daily Turnover (ADTV) is the total value of all trades made on the platform each day. An increase to ₹848 Crores means that, while the platform's usage is modest, there is steady trading activity. Meanwhile, the Average Daily Open Interest (ADOI) measures the number of active contracts that remain open. A 10% increase in ADOI year-over-year suggests that more traders are involved.
An important, yet often underappreciated, aspect of NCDEX’s financial position is its contingent liabilities. These liabilities pose considerable risks and could have a material impact on the exchange’s financial health. Significant contingent liabilities include tax-related issues, amounting to ₹15.74 Crores, and legal claims totaling ₹1.85 Crores. The sheer scale of these liabilities is alarming and could exacerbate the existing financial challenges if not managed effectively. These potential liabilities serve as a stark reminder that operational and legal risks are as critical as the primary revenue and expense figures when assessing overall financial health.
Amid the various financial pressures, one positive aspect is the existence of a Core Settlement Guarantee Fund (SGF). With a balance of ₹199.41 Crores, the SGF is considered part of the company’s equity and provides a layer of financial security. This fund is designed to ensure that, even in the event of a default by any trading member, there is a financial buffer to facilitate smooth settlements. The presence of a robust SGF indicates that, at least from a risk management perspective, NCDEX is taking proactive measures to protect its operational integrity.
The expansive ecosystem of NCDEX unlisted shares offers a unique window into the evolving world of commodity investments in India. Each business segment—from Commodity Exchange Services to Corporate Buying/Trade Finance, and now the venture into equity derivatives, contributes to a dynamic and integrated marketplace that supports efficient trading, risk management, and financial innovation. While challenges such as market volatility, regulatory suspensions, and operational inefficiencies persist, NCDEX’s forward-thinking initiatives and growth drivers provide a foundation for future progress.
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