By AltG Investment Research Lab On Behalf Of Poornima Vardhan & Taponeel Mukherjee
India needs to work towards deregulating and growing its commodity derivatives market to help unleash growth, boost market access to Capital and build robust agri-businesses.
But why does the commodity derivatives market matter? They matter because they provide access to Risk Management solutions to create significant consumer and corporate value.
Of the 4 Levers of Value Creation as per the APEXX Formula below, Indian corporations have generally focused on the first one of "Operational Value Creation" to achieve scale. Commodity derivatives help them tap into the 2nd one. For India to unleash the next level of GDP growth, Indian businesses and investors need to start focusing on the last three levers.
Our APEXX Formula Recommends Following Levers Of Value Creation:
1. Operational Value Creation - Operations, Strategy, & Sales driven focus on scaling revenues and achieving cost efficiencies.
2. The Risk Management Decision - Can we use financial instruments to stabilise the business, fix margins, and get more predictable cash flows? Essentially, how can we make the NOPAT of "better quality"? -
3. The Investment Decision - How Should We allocate Capital?
4. The Capital Structure Decision - What is the best way to finance the business?
As India looks to further boost economic growth, a look at the financial markets will be non-negotiable. A significant number of businesses will hit maturity, even as new sectors develop through hyper-growth. However, for mature businesses, much value creation is possible via the last three levers stated above. The Risk Management decision to utilise commodity derivatives is a crucial one.
Disclaimer: In the article "The Cocoa Rally & Indian Commodity Derivatives: Time For Deregulation" above - Any views, comments or communication (above or in the past) should not be construed to be investment advice by Alternative Growth (hereafter referred to as “AltG”) in any form whatsoever. AltG does not make an offer to sell or solicit to buy any securities.