Prices of chana, which fell in the last two weeks of October and were threatening to collapse, had a surprisingly sharp rally last week. The chana futures contract traded on the National Commodity and Derivatives Exchange (NCDEX) surged over 7 per cent. This surge has attracted fresh regulatory action, with the exchange tightening margin requirements on the contract.  Last month, chana prices fell after the government’s move to check speculative surges in the price of pulses. It had imposed stock limits and decided to import pulses that were in short supply. Regulators also raided stockists and seized hoarded stocks. This triggered a correction in the commodity price, but that did not last more than two weeks.

With the NCDEX-Chana futures contract rising again last week, the exchange has increased the special margin on long trades from 20per cent to 45 per cent effective from today. This is the third time the exchange is increasing the margin on this contract since September. With this, the total margin for the November contract will be at over 75 per cent, including the pre-expiry margin that increases on a daily basis, according to the statement released by the NCDEX. In September, when the exchange had effected its previous increase in margins, the contract fell sharply for a week, only to reverse higher later and recover the losses. So, there could be a short-term correction in prices for sure but whether it will last is open to doubt.

 Experts say that although the action taken by the government is good, it is not enough to bring down chana prices sharply. Seizure of stocks, for instance, does not help supply as the seized stocks are not actually brought back into the market. They also say that the quantum of imports announced by the government will not be sufficient to meet domestic demand. Adding to the supply worry is the fact that imports from Australia, which usually begin from October every year to meet festival demand, are yet to arrive at Indian ports.

 While the entire country looked towards Bihar and the election outcome, in the State the chana market will be waiting for rains in this region. Poor rains in the next couple of weeks there could result in the yield falling 20 to 30 per cent compared to last year. This, in turn, could boost chana prices further over the medium term, according to analysts.

Technical outlook   Short-term view : The contract has immediate resistance in the ₹5,200-₹5,300 region. This resistance region is likely to hold following the NCDEX’s move on Friday to increase margins. A fall below ₹5,000 to test ₹4,800 is possible. A further break below ₹4,800 can drag the contract lower to its key technical support at ₹4,645 — the 100-day moving average. Whether the contract extends its fall below this crucial support or reverses higher from there will decide the next leg of move for it. A strong break below the 100-day moving average will strengthen the case for a trend reversal. In such a scenario, the contract can fall to ₹4,400 and even ₹4,300 thereafter.

On the other hand, a reversal from ₹4,645 will keep the overall uptrend alive. The contract can then move higher back to ₹5,000 and ₹5,200 levels. In that case there is a possibility for the contract to remain sideways between ₹4,600 and ₹5,300 for some time.

Only a strong break above ₹5,300 will bring in fresh momentum for the contract to rise to ₹5,500 levels.  But with continuous measures from both the government and the exchange, the contract could find it difficult to witness a strong break above ₹5,300 immediately.

Medium-term view: The key medium-term supports are at ₹4,300 — the 200-day moving average and then at ₹4,250. A strong break below ₹4,250 will confirm a trend reversal and drag the contract lower to ₹4,000 and ₹3,800. The medium-term resistance for the contract is in the ₹5,500-₹5,600 zone.  The chances for a rally to test this resistance zone will remain alive if the contract manages to reverse higher from its ₹4,300-₹4,250 support zone.

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