Are the Indian Commodity Futures a Good Hedge against Inflation

Using the commodity futures contracts which trade on National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX), this study examines the effectiveness of commodity futures as an inflation hedge for investors in India over the period January 2004 to December 2014. Commodity futures contracts such as the ATF, CFI (Carbon Credits), Coriander, Heating Oil, Maize, Refined Soy Oil, Rubber, Thermal Coal, and Tin which trade on MCX and Aluminium, Castor Seed, Copper, Medium Staple Cotton, Cashew, Furnace Oil, Mentha Oil, Pepper, and Yellow Peas which trade on NCDEX are perfectly hedged against inflation, expected and unexpected inflation. On the other hand, Turmeric which trades on MCX, and Nickle which trades on NCDEX are perfectly hedged against inflation and unexpected inflation only. Most of the commodity futures which are perfectly hedgable against inflation are belonging to agriculture sector.