Every cloud has a silver lining. The delay in monsoon arrival in Mumbai may have dampened the initial enthusiasm for India’s first exchange-traded weather derivative, but the steady showers is now driving renewed interest in the rainfall-linked contract. It is now seeing a trade of ₹20 crore daily.
The National Commodity & Derivatives Exchange (NCDEX) had launched RAINMUMBAI, India’s first exchange traded rainfall futures contract last month, which has already witnessed around 20,000 lots being traded. Exchange officials expect participation to accelerate as the monsoon makes a progress and retail investors warm up to the idea.
“The initial response was not as per our expectation because there were no rains, but now it should pick up since the rains have come. It is an exact match with what is happening now,” said Arun Raste, CEO, NCDEX.
Drizzles to dividends
The contract, which is a rainfall index based on Mumbai’s monsoon precipitation, has already started reflecting changing weather expectations. During the dry spell, prices softened as traders anticipated below-normal rainfall. With monsoon now establishing over the city, the sentiment is reversing.
With trading activity steadily improving, Raste said the contract is currently recording a turnover of ₹20 crore on a daily basis and RAINMUMBAI has an open interest of about ₹600 crore.
The turnover, Raste said, should improve going forward as rainfall continues and more investors become familiar with the product. Presently, institutional participants including the farmer producer organisations are trading in the weather derivative contract.
Further, Raste said NCDEX is looking to introduce two more weather derivative products — one for the North East Monsoon and another for temperature, some time later this year.
Hedging the heavens
RAINMUMBAI, unlike traditional commodity futures, is linked to the rainfall index derived from Indian Meterological Department weather data rather than the price of a physical commodity.
As rainfall expectations evolve through the season, the contract’s price adjusts accordingly, offering businesses exposed to weather risk such as agriculture, logistics, construction and power, as well as investors, an opportunity to hedge or trade views on the progress of the monsoon.