India's Agri Wall Street - NCDEX

Summary

Have you ever heard of derivatives not in stocks, but in grains?
Yes - wheat, chana, mustard, sugar, pulses the very staples of your kitchen can be traded like financial instruments. Sounds unusual?
But in India there’s a platform where this is not just possible, it’s the core of its identity.
Meet NCDEX - the National Commodity & Derivatives Exchange.
India’s one and only exchange entirely dedicated to agricultural commodity derivatives.
A silent force in the background operating as the Agri Wall Street of India.
On this platform, farmers, FPOs, traders and agri processors come together not to sell their harvest immediately but to lock in prices before harvest, to hedge against risk and to plan more efficiently in a market full of uncertainty.
While others focus on metals and energy, NCDEX stands alone holding a monopoly-like space with nearly 90% market share in agri-commodity derivatives.

LET'S UNDERSTAND HOW NCDEX EARNS

NCDEX (National Commodity & Derivatives Exchange) is not a buyer or seller of crops, it's a regulated platform where farmers, traders, processors and institutions trade agri-commodity futures and options. NCDEX earns money by facilitating these trades and related services.

Let’s break it down:

 1. Transaction Fees

• NCDEX earns a fee every time someone buys or sells a commodity contract (futures/options) on its platform.

• This is its core income and depends on volume traded; think of it like a toll on a highway: more traffic = more earnings.

2. Clearing and Settlement Charges (via NCCL)

• NCDEX uses NCDEX Clearing Corporation Ltd (NCCL) to:

• Clear trades

• Manage margin money

• Handle default risk

It earns clearing fees, late payment penalties and margin-related interest through NCCL.

 3. Delivery Charges

• If a contract ends in physical delivery, NCDEX charges:

• Warehouse usage fees (via NERL)

• Delivery handling fees

• Settlement charges for e-NWRs (electronic receipts)

  More deliveries = more fees.

 4. Membership Fees

• Brokers, institutions, and traders must become members of NCDEX to access the platform.

• They pay:

• One time registration

• Annual renewal charges

• Technology & connectivity fees

Like gym membership for commodity trading.

 5. Subsidiary Revenue

NCDEX earns through its group companies:

• NeML : Runs e-mandis, e-auctions and state procurement platforms earns through service and tech fees from states and FPOs.

• NICR : Provides training, certifications and consulting.

• NERL : Facilitates warehousing and e-NWRs for delivery-based trades.

• N-Square Fintech : Offers tech support and platforms (internal revenue loop).

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What's Coming Next?

NCDEX is planning to introduce trading on the basis of rainfall, transport rates or even carbon emissions, Yes you heard right . To strengthen its position as India’s leading agri-commodity exchange and expand beyond traditional futures, NCDEX is preparing to introduce a new wave of innovative products. These forward looking initiatives are designed to attract a broader set of participants, unlock untapped markets and build lasting value in the evolving markets of India.

1. Weather Derivatives

Contracts linked to weather events like rainfall or temperature levels.

These derivatives let farmers or insurance companies trade on weather directly. For instance, a farmer expecting poor rainfall can buy a weather derivative contract that pays out if rainfall drops below a certain level. On the other side, someone like an insurance firm or trader sells that contract, taking the opposite position, hoping the rainfall stays normal and they keep the premium.

For Example - A soybean farmer in Madhya Pradesh expects a dry monsoon. He buys a weather derivative contract on NCDEX that pays ₹10,000 if rainfall in his district goes below 80 mm in July. An insurer or speculator sells that contract. July sees only 60 mm rainfall so the farmer will receive ₹10,000 from the seller. If it had rained normally, the seller would’ve kept the money.

 

2. Freight Rate Futures

Contracts based on the cost of transporting goods (by truck, rail or ship).

These are helpful for exporters and food processors who depend on moving large volumes. If freight charges go up suddenly, it affects their profits. With these futures, they can fix the price of transport in advance. NCDEX is working on creating a reliable freight index that reflects real transportation costs.

For example - A rice exporter plans to ship goods three months from now but fears fuel prices may rise. He locks in today’s freight rate using a futures contract. If fuel prices shoot up later, his shipping cost stays fixed, saving him money.

 

3.Carbon credit trading

Contracts based on carbon emmision.

It allows companies that reduce carbon emissions through green projects to earn tradable credits, which they can sell to other businesses looking to offset their environmental impact. These credits represent one ton of carbon dioxide reduced or avoided. NCDEX plans to create a platform where such credits especially from sectors like renewable energy, waste management or sustainable manufacturing can be transparently bought and sold.

For Example - Company A (Power Plant): A coal-fired power plant is allocated permits for 100,000 tons of CO2 emissions. However due to increased demand  they need to emit 120,000 tons.Company B (Wind Farm): A wind farm generates electricity without producing CO2 emissions. They have excess permits from their reduced emissions.

The Transaction: The power plant buys 20,000 carbon credits from the wind farm, effectively "buying" the right to emit the extra 20,000 tons. This allows the power plant to continue operating while the wind farm is rewarded for its clean energy production. 

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Financials

Financial Data (in cr.)
-	FY20	FY21	FY22	FY23	FY24
Net Sales	131.8	112.8	115.3	103.9	95.7
Total Income	174.6	148.9	154.4	135.6	136
Net Profit	-7.3	-14.6	-12.3	-42.4	-27.7
Shareholder Funds	529.9	527.7	526	493	476
Total Assets	985.2	1077.3	931.3	876	840.9
EPS	-1.05	-2.1	-1.76	-6.08	-3.98

 

Valuation Ratios
Price to Earnings (P/E)	-83.5
Price to Book (P/B)	4.9
Market Cap to Sales	19.82

 

Solvency Ratios
Debt to Equity	0
Debt to Assets	0.2

Lets talk about financials - The company is in monopoly type space don't have any debt neither assets are financed by debt means the company have negligible debt cost but it is still in losses but we cannot ignore that in this case also the company's valuation is high means people are still investing in the company by giving premium prices of share.

In short, if the company is not making big profits and has low capital cost then why are investors still valuing it so high and what's stopping it from getting profitable? That's the big question that arises in the mind of every investor.

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Let’s uncover the real reason behind NCDEX’s valuation 

A story that goes beyond current profits and into the promise of future dominance.

NCDEX’s low trading volumes despite its monopoly-like position is not inefficiency, but regulation. Over 70% of its agri-derivatives volume comes from contracts like chana, wheat, mustard seed, and soybean, which have been suspended by SEBI since late 2021, with the ban repeatedly extended.
The official reason given by the government for suspension is to control food inflation. The government fears that speculative trading in these essential commodities might be driving up retail prices, so it puts a stop on trading especially when the elections are close and this isn’t new for the government when price control becomes a headline issue.

Since agri-derivatives were first introduced in 2003, such bans have occurred multiple times-

2007
  Banned: Wheat, Rice, Tur (Pigeon Pea), Urad (Black Gram)
  Why: Rising food inflation and political pressure

2008
  Ban extended on same items from 2007

2010
  Discussion on curbing speculation, especially in onions and pulses

2011
  Banned: Onion
  Why: Sudden price spike blamed on futures market

2014 
  No new bans, but speculation and regulatory restrictions re-emerged as an issue

2017 (Price volatility phase)
  No direct bans, but stricter limits imposed on open interest in key agri contracts

2021 (December 20)
  Banned:

• Chana (Gram)

• Mustard Seed

• Soya Bean

• Soya Oil

• Wheat

• Crude Palm Oil

• Moong

2022 - 2024
SEBI continued to extend the ban, every 6 months

This is often timed just before key elections. It creates the illusion of control, but the real causes of inflation can be -
-poor monsoons
-global supply disruptions
-export bans
-or logistic breakdowns

And every time, derivatives are blamed for this.It’s like blaming the thermometer for a fever.

In fact, a 2013 study by the National Institute of Public Finance and Policy (NIPFP) clearly concluded that futures prices don’t cause inflation because spot prices lead futures, not the other way around.  

But here’s where the story shifts: NCDEX isn’t sitting idle. Through its educational arm, NICR (National Institute of Commodity Markets and Research), it actively educates farmers, traders and stakeholders about how derivatives actually work as risk management tools.

Even while the core contracts are suspended, NCDEX is building its future laying the groundwork for new age products like weather derivatives, freight rate futures and carbon credit trading. The exchange is evolving and it’s quietly preparing for a much larger role in India’s agri-finance ecosystem.

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Final insight and Analyst talk

So far, we’ve seen how NCDEX works, why agri-derivative contracts keep getting banned in India and how these restrictions have affected its business. But here’s the key thing to understand: this kind of ban happens only in India. In developed countries like the USA, UK or even in tightly controlled markets like China agri-commodity futures trading continues smoothly without such interruptions.

And here’s what’s even more interesting: despite these bans, NCDEX’s valuation remains high. Why? Because investors today are more informed. They understand the real reasons behind food inflation things like poor harvests, global supply issues and not speculative trading. As a result, many investors still believe in NCDEX’s long-term potential and are ready to invest even when profits are currently low.

At the same time, NCDEX isn’t sitting still. It’s stepping into new markets that have no such restrictions and in fact they have government support. These include:

• Weather derivatives (to hedge weather risks)
  
  

• Freight rate futures (to manage transport cost volatility)
  
  

• Carbon credit trading (to tap into the green economy)
  
  

These are all futuristic and scalable markets with strong long term demand and NCDEX is preparing to lead in all of them.

What Should You Do?

As an Analyst, the view is clear:
Keep a close eye on policy changes, investor education and the volumes on the exchange. If the regulatory environment begins to ease and if market participation grows steadily the NCDEX could transform from a niche player into a mainstream investment story.For investors looking ahead this could be one of those stories that reward you for being early. To explore investment opportunities in unlisted gems like NCDEX, visit www.sharescart.com  where India’s next big stories begin.