With Kapas prices dropping over seven percent in a fortnight, National Commodities and Derivatives Exchange (NCDEX) has imposed special margins. NCDEX has taken the measure to prevent further fall in Kapas contracts. Cotton production in India is projected to be lowest this year in 10 years.  

Special margin money of five percent has been imposed on short side of Kapas contracts from 22 March onwards. Market rumors about China's decision to offload cotton stocks had also negative effect on cotton markets.  

The Economic Times reports that cotton production in India may be lower in 2016 and global developments are impacting future prices in more negative way. Cotton yields in Gujarat state, which is largest cotton producer in India, is likely to be lowest in 10 years. Cotton Association of India (CAI) has also projected drop in production this year.

Pallavi Munnankar, a Research Analyst at Geofin Comtradem said: "From a high of Rs 803.5/20 kg on March 7, kapas prices hit a low of Rs 741.5/20 kg on March 21. The special margin will help to curb the downfall in prices." Recently, National Commodities and Derivatives Exchange had also imposed special margins on soya oil and sugar contracts. 

With an objective of preventing further bets, National Commodities and Derivatives Exchange had imposed additional margins of five percent on sugar and 2.5 percent soya oil contracts. These additional margins have been effective from 11 March 2016, according to a circular issued by National Commodities and Derivatives Exchange. Additional margins of five percent are being charged on both buying and selling in sugar contracts, as reported by Market Times.

Among other commodities, sugar is expected to gain momentum in the days to come. Crushing season is completing and summer season is likely to be robust for sugar contracts. This will further push sugar exports up.

The additional margins are expected to check further fall in Kapas contracts. Global factors are influencing Kapas trading on NCDEX. 

In its latest circular, National Commodities and Derivatives Exchange has informed trading and clearing members about bye-laws, rules and regulations of the exchange. As per the regulatory approval, a special margin of five percent on short side is being imposed on running contracts in Kapas, according to Commodity Online.

However, some market analysts feel that increasing margin money will have negative impact on trading. But, as far as sugar contracts National Commodities and Derivatives Exchange are concerned, there wouldn't be much negative impact because of additional margins. Fundamentals on sugar are bullish, hence there may not be adverse impact of additional margins.