MUMBAI (Commoditiescontrol) - Volume in commodity has fallen significantly after government's move to demonetize higher value currency of Rs 500 and Rs 1,000.
Volume on the National Commodity & Derivatives Exchange has dropped sharply by over 59 percent at Rs 1021 crore on November 16 from 2503 crore on November 8.
"The drop in volume was mainly due to closure of spot markets in the country amid liquidity crunch," said Samir Shah, CEO, NCDEX.
Shah said "No one knows when liquidity will come back in to the market, so trader are reluctant to take large positions. Market participants don't want to hedge positions on our platform."
"Secondly with negligible trade in the spot market, there is no reference market for derivatives trade to happen," he noted.
Similarly volume on the Multi Commodity Exchange Of India Ltd (MCX) also dwindled due to government's sudden move. Volume on the MCX fell by nearly 33 percent.
According to a trader from Indore, volume has dipped in last one week as participants are facing payment crisis to carry-on forward or build up additional position in futures trading by paying additional margin.
Further, hedging is reduced due to low arrivals of commodity in spot market, which also pressured total trading volume.
The trader said, after the announcement of demonetization, trading activity in spot market was mute due to low liquidity, due to which direction is not clear and kept futures market clueless about demand and supply in spot market.
Amit Mantri from Adinath Commodities based in Jalna said, "Since there is huge liquidity crunch in the market, no body wants to take position on futures as they are giving first preference to handle their daily essential necessities rather than trade."
He said "Trade volume has dropped substantially over the week and expected to remain so until the liquidity crisis get resolved. He welcome government decision as it would also stop 'Dabba Trade' (illegal trade) as transactions in such trade are done through cash," he added.
(By Commoditiescontrol Bureau; +91-22-40015533)