NCDEX pilots derivative based on Mumbai monsoon

FILE PHOTO: School children play on a flooded street during heavy monsoon rains in Mumbai

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The National Commodity & Derivatives Exchange (NCDEX), in partnership with the India Meteorological Department and the Indian Institute of Technology Bombay, has launched a pilot futures contract tied to Mumbai’s monsoon rainfall.The exchange on Wednesday introduced RAINMUMBAI, a rainfall index that measures deviations from the city’s 30-year long-period average (LPA) rainfall. Four monthly futures contracts beginning May 29 will be available for trading, allowing market participants to take positions based on expectations of excess or deficient rainfall during the monsoon season.The index will debut at a base value of 2,206 points, derived from historical rainfall data. Rainfall above the long-period average will push the index higher, while a rainfall deficit will drag it lower.“Like all derivative contracts RAINMUMBAI is available for trade for any market participant,’ said Kedar Deshpande, Chief Business Officer at NCDEX. “Monsoon arrives first in Mumbai and then spreads across central and western India. Farmers can take RAINMUMBAI as a reference to hedge their financial risk arising on account of excess or reduced rainfall estimate. For a farmer anywhere in India, a correlation or reference hedge can be used to establish the hedge position.”Globally, this is the first derivatives contract based on the monsoon; the Chicago Mercantile Exchange (CME Group) offers standardised temperature and snowfall contracts for cities worldwide.SpecificationsEach contract will have a lot size linked to ₹50 per millimetre of rainfall, translating into an initial contract value of about ₹1.10 lakh. With margins fixed at 10-12 per cent, traders would need to set aside roughly ₹12,000 per lot. The contracts will be cash settled on expiry.The exchange will introduce a liquidity enhancement scheme to ensure liquidity at the initial stage.The product will be useful for wide range of investors including power utilities, banks with agriculture loan portfolio, and taxi aggregators as powerful risk management.Arun Raste, MD & CEO, NCDEX said the exchange is working on the easterly monsoon and a move is on to launch other heat products to complete its offerings in the weather basket.The exchange will also introduce a liquidity enhancement scheme to boost volumes in the initial phase, he said.RAINCHENNAI soonNCDEX will introduce a product on the easterly monsoon under RAINCHENNAI, he said. This will be built using daily rainfall data provided by IMD.Under other insurance products, the weather derivatives are settled purely on observed data, eliminating the need for loss assessment and a faster settlement cycle, besides greater operational efficiency.Bikram Singh, head-regional meteorological centre, Mumbai, said RAINMUMBAI serves as a broad ecosystem of participants across India’s weather sensitive sectors including agriculture and allied sectors, power and energy, financial institutions, logistics and transport.As reliable and standardised weather data is critical for the development of this financial product and IMD’s long-term datasets provide a credible and transparent rainfall index, he said.Naveen Mathur, Director - Commodities, Currencies and International Business, Anand Rathi said though farmers in rural regions may not be impacted by the rains in Mumbai, the contract can act as a hedge because their business is dependent on rains.Similarly, cab aggregators in Mumbai can also use this contract to protect their revenue by taking buy positions in futures contracts and benefit if their predictions come true, he said.The contract has multiple use cases for logistics and shipping companies to protect their business as a sort of insurance without triggering a loss in business, said Mathur.Published on May 20, 2026