For decades, the Mumbai monsoon has been a subject of everyday conversation around romanticised chai dates, gruelling local train delays, and city-wide flooding.
But for India’s active trading community, the monsoon can now be an asset class.
Giving India its first weather derivative instrument, the National Commodity & Derivatives Exchange Limited (NCDEX) has introduced an exchange-traded weather derivative contract, appropriately ticketed as RAINMUMBAI.
NCDEX's RAINMUMBAI contract is based on the Monsoon Cumulative Deviation Rainfall (CDR) - a daily measure of how much Mumbai's actual monsoon rainfall deviates from its 30-year historical average (Long Period Average or LPA of 2,206.7 mm). Contracts are available for each of the four monsoon months - June, July, August, and September.
NCDEX said that the purpose of these contracts is risk management, allowing participants to hedge their financial exposure to rainfall variability, not to speculate on weather forecasts. The exchange does not promise any specific settlement outcome.
Just like any other commodity, futures on NCDEX, retail investors will be able to trade these weather derivatives. “RAINMUMBAI is designed primarily as a risk management (hedging) instrument for entities with genuine weather-linked economic exposure. However, like all exchange-traded futures contracts, it can also be accessed by market participants — including financial institutions and proprietary traders — who act as liquidity providers and market makers. Speculation without underlying exposure carries its own risks and should be approached with caution,” the exchange said.
https://m.economictimes.com/markets/stocks/news/forget-stocks-you-can-now-profit-from-mumbai-rains-heres-how-ncdexs-unique-weather-futures-work/articleshow/131244073.cms
