India, to curb speculations across various markets and bring about further transparency in the price discovery mechanism, is planning to launch a cotton price index of its own for which it will be taking into account benchmark rates from four different sources.
A sub-committee of Cotton Advisory Board (CAB) has suggested that the index be made up of prices of cotton on the Multi-Commodity Exchange of India (MCX) and those of the Cotton Association of India (CAI), the Indian Cotton Federation (ICF) and the Cotlook Index. The prices can be used as a benchmark by all stakeholders, including ginners, traders and even international trading agencies.
While the CAI and the ICF provide data on daily cotton prices across various physical markets in the country, MCX offers futures prices of cotton. The Cotlook Index, which tracks the delivered price of American cotton in China, will be included in the index to factor in the movement of prices in the world’s largest exporter (the US) and the biggest consumer (China). Cotlook is already widely tracked across the globe by various stakeholders in the cotton and textile sector.
The exact composition of the index and the weight attached to prices of different sources would be finalised soon.
Mrugank Paranjape, managing director and chief executive of MCX, said that the cotton index would serve as a barometer for cotton prices movement in India, and it would prove to be a valuable, and ready reference tool, giving the cotton stakeholders a composite index. He added that the MCX cotton contract with almost 100 per cent market share (in futures) has been seamlessly providing an effective risk-management tool to the cotton value chain participants.