National Commodity and Derivatives Exchange (NCDEX) has partnered with Noida-based agritech startup Skymet Weather Services to launch a weather index and facilitate derivatives trading on the index.
According to a report by The Hindu, NCDEX and Skymet Weather Services will seek approval for launching derivatives on the weather index from SEBI. The upcoming exchange platform will use the India Meteorological Department (IMD) definitions on rain predictions. These predictions, which include three options — normal, above normal and deficit, will be compared with actual rain on a daily basis. This mechanism will help in arriving at the right value of the index.
Kapil Dev, head of agriculture business at NCDEX, said that investors can take a call on their investments in the futures trading of the weather index after the exchange starts sharing historical data. “The value of the index will be useful to people across the agriculture value chain as it will not only help them to plan their business but also keep track of the actual rainfall on a daily basis,” he added.
The platform is expected to launch two different exchanges — the Annual Rainfall Index and the Monsoon Index. Meanwhile, all the transactions are going to be cash-settled on the index. Due to the cash-settlement feature, NCDEX is expecting the index will attract institutional investors and mutual funds.
Founded by Jatin Singh in 2003, Skymet offers weather-based business solutions to media, power, shipping and telecom. The company also provides risk management services to power, renewable energy (wind and solar) aviation, construction and the food and beverage industry in India.
The startup, which is backed by investors like the German government’s InsuResilience Investment Fund, Omnivore Partners and DMGT, operates Automated Weather Stations (AWS) network. AWS is an automated version of the traditional weather station which provides weather-related data.
The announcement has come after NCDEX, earlier in 2020, launched return based agricultural futures Index Agridex. Dev said that the platform has attracted an average daily turnover of INR 15 Cr despite minimal publicity and restricted awareness programme due to the lockdown.
As of now, 10 liquid commodities are traded on the return-based Agridex index. Meanwhile, the index was launched with commodity-wise and sector-wise floors and caps to prevent any single commodity or sector from dominating the index.