Agridex's rally likely to continue on bullish demand for food items

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SME Times News Bureau | 29 Oct, 2020
Agridex, Indias first agricultural index comprising 10 liquid commodities traded on NCDEX, the countrys largest commodity future-trading platform, has gained nearly 20 per cent since its launch on May 25, 2020 amid changing fundamentals for the agriculture commodities during the Covid-19 pandemic.

With ease in transportation, economic activities have improved in the country since June 1 during the first phase of Unlock. This boosted the demand for agricultural commodities for industrial purposes and direct consumption as well, and the prices of the different commodities gradually improved.

The NCDEX's Agridex on Wednesday crossed the 1,200-level mark registering a 20 per cent gain since its inception as the fundamentals changed dramatically since May and unfavourable weather conditions also supported rallies in agri-commodities, besides a bullish demand for essential commodities.

The Agridex Index, which tracks the spot and future of soybean, chana, coriander, cottonseed oilcake, guar gum, guar seed, mustard seed, refined soy oil, castor seed and jeera, gained nearly 5.49 per cent in October with positive returns on its constituents. Soybean and Guar gum prices rose sharply by 11.90 per cent and 10.76 per cent, respectively. Cottonseed oilcake gained 3.16 per cent during October as demand is expected to increase on account of the upcoming festive season.

Late monsoon rains in the southern part of India caused damage to the cotton crop. Apart from the weather's fury, the threat of pest attacks is one of the reasons which supported rallies of some agriculture commodities grown mostly in the western part of the country where locusts are the major threat to kharif crops.

The threat of locust attack in Rajasthan and adjoining areas has supported the prices of the agri-commodities. However, excess supply concerns could prevail in the market as prices of some other commodities in the edible oil complex continue to increase, shifting the demand to cotton oil which increases the production of cake.

Chana on the other hand witnessed consolidation of 3.16 per cent after a steep rally before the festive season. Castor prices gained 4.45 per cent mainly due to a fall in acreage compared to 2019. Gujarat, one of the major producers of castor, saw the castor sowing area drop to 6.07 hectares compared to 7.18 hectares during 2019.

After a lagging start, Guar seed and Guar gum gained nearly 10.76 per cent and 9.07 per cent, respectively during October. This major spike was due to the opening up of economies thus increasing industrialisation. Increasing crude supply also supported the price rise as guar gum is used as a stabilising agent on oil rigs.

Among spices, Jeera prices rose 3.17 per cent in October ahead of strong festive demand. Export demand for cumin seed also witnessed an increase as rival suppliers of India, at present are facing geopolitical tension in the Middle East. As economies continue to unlock, industrial demand is expected to increase.

Mustard prices gained nearly 8.76 per cent in October rising from 5,468 to 5,947 levels on October 27. Mustard prices rose sharply due to good local festive demand and exports as well for mustard oil.

Rising coronavirus cases in Europe and North America has forced many countries to increase restrictions hampering supply of commodities from those countries. Soybean and refined soy oil gained 11.9 per cent and 7.96 per cent, respectively due to festive demand for oil.

Agridex has a low correlation with other asset classes and indices, and ensuring diversification, no group of related commodities may comprise more than 40 per cent of the weightage in the index, said Ajay Kedia, Director, Kedia Advisory.

"Agridex seeks to provide a holistic view on sundry commodities traded on the exchange. It has a low correlation with other asset classes and indices making this index more alluring for investment. Since Agridex future contracts provide a diversified cash-settled instrument, it will avail of widening participation on the exchange from both institutional and retail investors," he added.

A bullish trend will likely perpetuate in Agridex amid festive demand for several of these commodities, ergo, buying in Agridex in case of any drop would be propitious, as per the commodity analysts.