Multi Commodity Exchange of India Ltd (MCX) has entered into an MoU with the Northern India Textiles Mills’ Association (NITMA) for educating NITMA’s members and other relevant stakeholders on the use and benefits of cotton derivatives.
Cotton constitutes about 59 percent in the raw material basket of the Indian textile industry. The global cotton market has been marked by high price volatility and uncertainties, largely on account of factors beyond the control of any stakeholder group or even government. Anannualized volatility of about 13 percent in cotton prices during 2017-18 is much more than the margins of most textile mills. These exemplify the dire need for them to hedge the price risk in order to protect their bottom lines. Textile millers also have a perceived need to access appropriate cotton prices which have been discovered in a transparent and regulated exchange platform with large and diverse participation.
MCX not only provides a robust and efficient platform for price discovery and risk management in cotton but also undertakes several educational and awareness activities to sensitize stakeholders about the modalities of using the derivatives platform. All the large textile mills in the Northern part of India are associated with NITMA and the combined turnover of its members is approx. Rs. 33,000 crores in Domestic market and 3400 crores of exports. The MoU with NITMA will enable the Exchange to reach out to a large stakeholder group, representing more than 100 members and their stakeholders in the cotton value chain across North India – one of the most prominent cotton growing, processing and textiles regions of the country.
Speaking on the occasion, Mr. Mrugank Paranjape, MD & CEO, MCX said “For more than six and half years now, MCX cotton futures has proven to be one of the most useful instruments for price discovery and risk management for multiple stakeholder groups across the cotton value chain, including cotton textile mills. India’s textiles and clothing (T&C) exports exceeded $36 billion in 2016-17, constituting about 14 percent in the overall Indian export basket. The preponderance of cotton as raw material in the textiles industry and continuing high volatility in cotton prices mean that it is imperative for the managers of cotton mills to create appropriate risk management strategies for ensuring business sustenance. In this context, we are happy to partner with the Northern Indian Textiles Mills’ Association. Given the long history and prominence of cotton textile industry in North India in terms of production, employment and exports, as also the active presence of NITMA in this region, I am sure we shall be able to effectively propagate and educate our common stakeholders about the benefit they can derive from cotton derivatives.”
Mr. Rajiv Garg, President, NITMA said, “We are very happy to partner with MCX, India’s leading exchange that provides a deliverable and most liquid cotton futures contract. The MoU with MCX will enable our members to effectively participate in the Exchange’s knowledge-sharing initiatives to understand the benefits, techniques and strategies of risk management using derivative contracts. The cotton consumption by our members is approximately 25% of the total cotton produced by India. As such, we appreciate the criticality of risk management not only for the business enterprises of our members but also the textiles sector in North India and country’s cotton economy in general. Towards this end, we shall be able to leverage the MoU to gain relevant knowledge from MCX about participating in the cotton derivatives market and reap the benefits from such participation.”
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Via:: Economic Times – Stocks