NCDEX Enters Five-Year Partnership With Cotton Association of India for Cotton Derivatives

NCDEX has signed a five-year agreement with the Cotton Association of India (CAI) to increase participation in cotton derivatives and improve price discovery in the domestic cotton market, as per an Economic Times news report.  

The two organisations will work with participants across the cotton trade on futures contracts and price-risk management. 

India’s Share of Global Cotton 

India accounts for 20-23% of global cotton production and nearly 38% of the world’s cotton-growing area. However, fragmented physical markets and limited participation in derivatives have kept India’s role in global cotton price discovery relatively small. 

The partnership will seek to increase the use of futures among farmers, ginners, spinners, exporters, and traders. NCDEX and CAI will also work on the gap between prices in physical markets and those in futures trading. 

Existing Cotton Contracts 

NCDEX’s cotton derivatives platform currently has contracts for Kapas, Cottonseed Oil Cake and Cotton Wash Oil. The exchange and CAI will conduct awareness and stakeholder programmes to increase understanding and use of these contracts. 

Maharashtra and Gujarat will be key focus markets, along with Punjab, Andhra Pradesh, and Telangana. These states are major cotton-producing and processing centres and will be covered under the awareness and adoption programmes. 

Hedging and Product Design 

CAI President Vinay Kotak said the cotton trade has not developed a strong hedging culture because of limited awareness and products that were not aligned with global standards. The partnership will therefore include work on awareness and product design. 

The organisations will engage with farmers and other participants to promote the use of futures for managing price movements. The wider objective is to increase participation in the derivatives market and improve the link between physical cotton trading and futures prices. 

Agreement Signed in Mumbai 

The Letter of Engagement was signed in Mumbai by NCDEX Managing Director and CEO Vikas Goel and CAI President Vinay Kotak.  

Cotton Corporation of India Chairman-cum-Managing Director Lalit Kumar Gupta and senior representatives from both organisations were present. 

Goel said India’s derivatives market has not reflected the scale of its cotton production and that the agreement would focus on developing the market and providing price-risk management tools. 

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Conclusion 

NCDEX and CAI will work on increasing the use of cotton futures and participation in derivatives. The five-year programme will focus on awareness, product design, and price-risk management across major cotton markets. 

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