What Is the National Commodity and Derivatives Exchange (NCDEX)?

The National Commodity and Derivatives Exchange (NCDEX) is a commodities exchange dealing primarily in agricultural commodities in India. The NCDEX was established in 2003, and its headquarters are in Mumbai.

Many of India’s leading financial institutions have a stake in the NCDEX. As of 2024, significant shareholders included Life Insurance Corp. of India (LIC), the National Stock Exchange of India Ltd. (NSE), and the National Bank for Agriculture and Rural Development (NABARD).

Understanding the NCDEX

The NCDEX is one of the top commodity exchanges in India based on value and the number of contracts. It is comparable to Multi Commodity Exchange (MCX), though that exchange is focused on energy and metals as opposed to commodities. The NCDEX is located in Mumbai but has offices across the country to facilitate trade.

According to the 2023 annual report, the NCDEX featured futures contracts on 23 agricultural commodities and one non-agricultural product as well as options on six agricultural commodities. It also offers clearing services for derivatives contracts traded on the exchange.

India is a world power in terms of agriculture. It is one of the largest producers of wheat, rice, milk, and many types of fruits and vegetables. The size of India’s agriculture sector is somewhat hidden internationally because the populous nation consumes much of what it produces. However, increasing farm-level productivity is making India’s strength in agriculture more apparent. The NCDEX plays a critical role in India’s growing agriculture sector.

Benefits of the NCDEX

In establishing and maintaining an online futures market for crops, the NCDEX has helped increase market transparency. The exchange assists Indian farmers in the price discovery process. The NCDEX enables them to price their goods more accurately even if they are not active in the futures market.

Intermediaries, who are known as commission agents, previously controlled much of the market information in India. The introduction of online commodity exchanges like the NCDEX reduces the cost of price data for farmers by cutting out the middlemen.

Exchanges like the NCDEX have also played a key role in improving Indian agricultural practices. By standardizing the quality specifications of various products through contracts, the NCDEX has raised quality awareness. Farmers in India increasingly focus on testing requirements and enacting farming practices that result in consistently high-quality crops.

The NCDEX is still young by some standards, but traders and large market participants are already using contracts to hedge and speculate. This trend is likely to continue as India’s agricultural sector grows in terms of productivity and exports.

NCDEX Financial Performance

The recent financial performance of the National Commodity & Derivatives Exchange Limited for the fiscal year 2022-23 depicted less than stellar results. On a standalone basis, the exchange experienced a significant decrease in total income to ₹4,884 Lakhs. This was mainly driven by lower average daily traded value. Total expenses increased slightly to ₹10,302 Lakhs, meaning the exchange on its own experienced an operating loss before tax of ₹5,905 Lakhs. On a consolidated basis, including the broader NCDEX Group, it wasn't much better. Total income decreased by 12% to ₹13,557 Lakhs, with expenses rising to ₹19,624 Lakhs. This lead to a loss after tax of ₹4,237 Lakhs.

Despite challenges such as the suspension of key commodity derivatives contracts, NCDEX continued to expand its market share. Its agri derivatives trading reached 97% in FY 2022-23. The exchange also ventured into the non-agri sector, activating India's largest metal steel contract.

Examples of Commodities on the NCDEX

Barley, wheat, and soybeans are some of the leading agricultural commodities traded on the NCDEX. The exchange also hosts some contracts that are global benchmarks for commodities like coriander, as well as commodities such as steel, cotton, palm oil, and guar. The NCDEX also manages three agricultural commodities indexes: one based on soybeans, one on guar, and one a composite of several agricultural products.

NCDEX is seen as a significant source of information on spices, as India is the leading producer and consumer of spices in the world.

The Bottom Line

The National Commodity & Derivatives Exchange Limited is one of India's leading commodity exchanges, facilitating trading in a wide range of agricultural and non-agricultural commodities. Established in 2003, NCDEX provides a platform for market participants and significantly contributes to India's commodity markets.