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A STUDY ON WORKING OF COMMODITIES
MARKET
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CONTENTS
TITLE PG.NO.
CHAPTER-1 04
INTRODUCTION
NEED OF THE STUDY
OBJECTIVES OF THE STUDY
SCOPE OF THE STUDY
RESEARCH METHODOLOGY
LIMITATIONS OF THE STUDY
CHAPTER-2 20
INDUSTRY PROFILE
COMPANY PROFILE
CHAPTER-3 43
REVIEW OF LITERATURE
CHAPTER-4 50
DATA ANALYSIS AND INTERPRETATION
CHAPTER-5 64
FINDINGS
SUGGESTIONS
CONCLUSIONS
BIBLIOGRAPHY 67
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ABSTRACT
A study has been conducted on the STUDY ON WORKING OF
COMMODITIES MARKET in the ANAND RATHI SECURITIES LTD, Hyderabad
Branch.
As we have stated earlier in the Executive summary the AnandRathi (AR)
set up in 1994, is one of Indias fastest growing full-service securities firm with a presence
in more than 300 locations across India and has offices in Dubai & Bangkok.
AR provides wealth management services, investment banking, brokerage &
distribution services in the areas of equities, commodities, mutual funds and insurance. The
group caters to the financial needs of diversified group of clients, which include the well-
reputed Corporate Groups, Institutions, Foreign Investors, Individuals as well as wealthy
families and was recently ranked by an Asia Money 2009 poll amongst South Asias top 5
wealth managers for the ultra-rich.
The firm's philosophy is entirely client centric, with a clear focus on providing long
term value addition to clients, while maintaining the highest standards of excellence, ethics
and professionalism. The entire firm activities are divided across distinct client groups:
Individuals, Private Clients, Corporates and Institutions.
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The basic objective of the study is the how much investors are preferred to invest in
the commodities market and to understand what are the reasons behind investing in the
commodities market.
The scope of the study is limited to preparing questionnaire, analysis survey and
survey is limited to Hyderabad city and even existing clients, who are investing in the
commodities market to understand the preferences towards commodities market.
This project report includes profile of the Anand Rathi securities ltd, it contains
brief introduction, nature of the business, and product profile .
This report includes the findings and conclusions of the study done in order
to give the better suggestions.
This study has done by conducting and analyzing the survey of the target clients in
the Hyderabad city.
For the analysis of data the SPSS package is used and using the simple bar graphs
shows the data.
Finally the study is helped to me in many ways to acquire the knowledge about the
trading in the stock exchanges and also customer behavior in doing the survey.
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CHAPTER-1
INTRODUCTION
Introduction:
Commodity Futures are contracts to buy specific quantity of a particular
commodity at a future date. It is similar to the index futures and stock futures but the
underlying happens to be commodities instead of stocks and indices.
Commodity futures market has been in existence in India for centuries. The
Government of India banned futures trading in certain commodities in 70s.However trading
in commodity futures has banned permitted again by the government in order to help the
commodity products ,traders, and investors. World-wide , commodity exchanges originated
before the other financial ex\changes. Infact most of the derivatives instruments had their
birth in commodity exchanges. Commodity markets are markets where raw or primary
products are exchanged.
These raw commodities are traded on regulated exchanges, in which they
are bought and sold in standardized Contracts. Commodity Future is a Derivative
instrument where the underlying asset is a commodity. Commodity future are exchanges
traded contracts to sell or buy standardized futures contract.
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Participants of Commodities Market:
The participants who trade in the commodity derivatives markets can be classified
as follows;
(a) Hedgers:
Hedgers are participants who use commodity derivative instruments to hedge
/ eliminate the price risk associated with the underlying commodity asset held them.
Hedgers are those who protect themselves from the risk associated with the price of an
asset by using derivatives. A person keeps a close watch upon the prices discovered in
trading and when the comfortable price is reflected according to his wants, he sells futures
contracts. In this way he gets an assured fixed price of his produce.
In general, hedgers use futures for protection against adverse future price
movements in the underlying cash commodity. Hedgers are often businesses, or
individuals, who at one point or another deal in the underlying cash commodity.
Take an example: A Hedger pay more to the farmer or dealer of a produce if its prices go
up. For protection against higher prices of the produce, he hedge the risk exposure by
buying enough future contracts of the produce to cover the amount of produce he expects to
buy. Since cash and futures prices do tend to move in tandem, the futures position will
profit if the price of the produce rise enough to offset cash loss on the produce.
(b) Speculators :
Speculators are participants who bet on future movements in the price of an asset
i.e. I commodity to make short term gain from the price movements. Commodity future s
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give theme the leverage so to take risks on nominal margin payments and thereby
increasing for bigger gains or losses.
Speculators are some what like a middle man. They are never interested in actual
owing the commodity. They will just buy from one end and sell it to the other in
anticipation of future price movements. They actually bet on the future movement in the
price of an asset.
They are the second major group of futures players. These participants include
independent floor traders and investors. They handle trades for their personal clients or
brokerage firms.
Buying a futures contract in anticipation of price increases is known as going long.
Selling a futures contract in anticipation of a price decrease is known as going short.
Speculative participation in futures trading has increased with the availability of alternative
methods of participation.
Speculators have certain advantages over other investments they are as follows:
If the traders judgement is good, he can make more money in the futures market
faster because prices tend, on average, to change more quickly than real estate or
stock prices.
Futures are highly leveraged investments. The trader puts up a small fraction of the
value of the underlying contract as margin, yet he can ride on the full value of the
contract as it moves up and down. The money he puts up is not a down payment on
the underlying contract, but a performance bond. The actual value of the contract is
only exchanged on those rare occasions when delivery takes place.
(c) Arbitrageurs:
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Arbitrageurs work at making profits by taking advantaged of existence of
difference in prices of the same product across different markets (MCX and NCDEX).
(d) Investors :
Investors are participants having a a longer term view as compared to speculators
when they enter into trade in the commodes market. Eg Farmers, Producers, consumers
,etc.
Commodity Derivatives:
A commodity derivative derives its value from an underlying asset which is
necessarily a commodity. To understand the commodity derivatives markets its necessary
to clear about commodities.
Commodities, in simple words are any goods that are common and unbranded.
Gold, silver, rubber, pepper, jute, wheat, sugar, cotton etc., are some of the common
commodities. For e.g. apple juice can be a commodity whereas the Real apple juice
cannot be called a commodity. You may be surprised to know that in the US commodities
markets there are futures available even on cattle. Another feature of commodities is that
they are commonly available.
Commodity markets represent the formal system for the interplay of demand for
and supply of commodities. These markets can be broadly classified into spot market and
futures market. Commodities for immediate delivery are traded through the spot market.
The players in the spot market are the actual producers and the consumers of the
commodities.
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The other type of market called the Futures market is for facilitating contracts for
future delivery. (Please go through the material on Futures and Options to understand
about futures) These markets make available for trading, the various derivatives based on
commodities. Usually traded ones are the futures and options. However in India options on
commodities are not available and are expected to be introduced soon. The players in the
futures markets are Hedgers, Arbitragers and investors.
Hedgers are those who hold simultaneous positions in the spot market also. These
are generally the actual consumers or the producers of the commodities. For eg: A wheat
farmer who expects his harvest to be over in 3 months time may sell a futures contract with
an expiry of three months, so that even if the prices happen to fall after three months, he
can still manage to sell at the price at which the contract was struck.
The large scale consumers of the products can also make use of the futures to secure
their purchase. For eg: A cold drinks can manufacturing company may buy tin futures, so
that even if the prices happen to rise later, thy can be assured of the supply of raw materials
at the pre-determined price.
The other major group of participants in the commodity futures market are the
importers and the exporters. Since they have confirmed obligations to export/import fixed
quantity of commodities at a particular period of time, they can take opposite positions in
the futures market.
Arbitrage is a process of making profits using the price differences between two
markets without exposing oneself to any risk. Arbitraging is a very profitable business. It is
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possible to arbitrage between two different futures markets or between the futures market
and the spot market. However in an efficient market arbitraging is not possible, because
any price gap is closed immediately as soon the arbitragers enter the market.
Investors are those who participate in the market for profits and are ready to face
the risk involved in the market. An investor can be anyone from an individual who has a
small surplus income to the treasury desks of banks and corporate.
Most commonly traded derivatives around the world are futures, options and option
futures. Some of the most popular commodity exchanges in the world are listed below:
London Metals Exchange, London
New York Mercantile Exchange, New York
Chicago Mercantile Exchange, Chicago
Chicago Board of Trade, Chicago
London International Financial Futures and Options Exchange (LIFFE), London
Tokyo Commodity Exchange, Tokyo
Winnipeg Commodity Exchange, Canada
Major Commodity Exchanges:
The Government of India permitted establishment of National-level Multi-
Commodity exchanges in the year 2002 and accordingly three exchanges have come into
picture.
Multi-Commodity Exchange of India Ltd, Mumbai.(MCX).
National Commodity and Derivative Exchange of India, Mumbai(NCDEX).
National Multi Commodity Exchange, Ahemdabad(NMCE).
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However there are regional commodity exchanges functioning all over the
country. AR commodities Broking Pvt.Ltd has got membership of both the premier
commodity exchanges i.e. MCX and NCDEX.
The two exchanges (NCEDX&MCX) have seen tremendous growth in less than
two years. The daily average on these two exchanges put together has now grown to a
healthy Rs.7800 Crores. It has been believed by experts that the volumes on these
exchanges would the stock market in the days to come.
Commodity exchanges are regulated by Forwards Market Commission (FMC);
Forwards Market Commission works under the purview of the ministry of Food,
Agriculture and Public Distribution.
At NCDEX the contracts expire on 20th day of each month .if 20th happens to be a
holiday the expiry day will be the previous working day.
At MCX the expiry day is 15th of every month .if 15th happens to be a holiday the
expiry day will be the previous day. The expiry day differs for different commodities in
both the exchanges.
Generally commodity futures require an initial margin between 5-10% of the
contract value. The exchanges levy higher additional margin in case of excess volatility.
The margin amount varies between exchanges and commodities.therfore they provide great
benefits of leverage in comparison to the stock and index futures trade on the stock
exchanges. The exchange also requires the daily profits and losses to be paid in/out on open
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positions (mark to Market or MTM) so that the buyers and sellers do not carry a risk of
not more than one day.
Advantages of commodity trading:
Leverage
Commodity futures operate on margin, meaning that to take a position only a
fraction of the total value needs to be available in cash in the trading account.
Commission Costs. It is a lot cheaper to buy/sell one futures contract than to
buy/sell the underlying instrument. For example, one full size S&P500 contract is currently
worth in excess off $250,000 and could be bought/sold for as little as $20. The expense of
buying/selling $250,000 could be $2,500+.
Liquidity
The involvement of speculators means that futures contracts are reasonably liquid.
However, how liquid depends on the actual contract being traded. Electronically traded
contracts, such as the e-mini's tend to be the most liquid whereas the pit traded
commodities like corn, orange juice etc are not so readily available to the retail trader and
are more expensive to trade in terms of commission and spread.
Ability to go short
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Futures contracts can be sold as easily as they are bought enabling a speculator to
profit from falling markets as well as rising ones. There is no 'uptick rule' for example like
there is with stocks.
No 'Time Decay'
Options suffer from time decay because the closer they come to expiry the less time
there is for the option to come into the money. Commodity futures do not suffer from this
as they are not anticipating a particular strike price at expiry.
Disadvantages of commodity trading:
Leverage
Can be a double edged sword. Low margin requirements can encourage poor money
management, leading to excessive risk taking. Not only are profits enhanced but so are
losses!
Speed of trading
Traditionally commodities are pit traded and in order to trade a speculator would
need to contact a broker by telephone to place the order who then transmits that order to the
pit to be executed. Once the trade is filled the pit trader informs the broker who then then
informs his client. This can take some take and the risk of slippage occurring can be high.
Online futures trading can help to reduce this time by providing the client with a direct link
to an electronic exchange.
You might find a truck of corn on your doorstep! Actually, most futures contracts
are not deliverable and are cash settled at expiry. However some, like corn, are deliverable
although you will get plenty of warning and opportunity to close out a position before the
truck turns up.
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Commodities traded in MCX.
Gold, Gold M, Gold HNI, Silver, Silver M, Silver HNI
Castor Seeds, Soy Seeds, Castor Oil, Refined Soy Oil, Soymeal, RBD Palmolein,
Crude Palm Oil, Groundnut Oil, Mustard Seed, Mustard Seed Oil, Cottonseed
Oilcake, Cottonseed
Pepper, Red Chilli, Jeera, Turmeric
Steel Long, Steel Flat, Copper, Nickel, Tin
Kapas, Long Staple Cotton, Medium Staple Cotton
Chana, Urad, Yellow Peas, Tur
Rice, Basmati Rice, Wheat, Maize, Sarbati Rice
Crude Oil
Rubber, Guar Seed, Gur, Guargum Bandhani, Guargum, Cashew Kernel, Guarseed
Bandhani
Commodities traded in NCDEX.
Agro Products
Arabica Coffee Cashew
Castor Seed Chana
Chilli Common Raw Rice
Common Parboiled Rice Crude Palm Oil
Cotton Seed Oilcake Expeller Mustard Oil
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Grade A Parboiled Rice Grade A Raw Rice
Guar gum Guar Seeds
Gur Jeera
Jute sacking bags Lemon Tur
Long Staple Cotton Maharashtra Lal Tur
Medium Staple Cotton Mulberry Green Cocoons
Mulberry Raw Silk Mustard Seed
Pepper Raw Jute
RBD Palmolein Refined Soy Oil
Robusta Coffee Rubber
Sesame Seeds Soyabean
Yellow Soybean Meal Sugar
Turmeric Urad
Wheat Yellow Peas
Yellow Red Maize
Base Metals
Mild Steel Ingots
Precious Metals
Gold
Silver
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NEED FOR THE STUDY
The project report on STUDY ON WORKING OF
COMMODITIES MARKET at Anand Rathi Securities, Hyderabad Branch for as a
Major concurrent project.
The AnandRathi (AR) set up in 1994, is one of Indias fastest growing full-service
securities firm with a presence in more than 300 locations across India and has offices in
Dubai & Bangkok. AR provides wealth management services, investment banking,
brokerage & distribution services in the areas of equities, commodities, mutual funds and
insurance. The group caters to the financial needs of diversified group of clients, which
include the well-reputed Corporate Groups, Institutions, Foreign Investors, Individuals as
well as wealthy families.
The AR is customer focused stock broking unit, which is continuously strive to
provide researched information and good services to meet its clients. The main goal of the
company is to give full satisfaction by providing good service, researched information and
efficiency being competitive.
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STATEMENT OF PROBLEM
This project deals with the study about Working of the Commodities
market and Investors preferences towards it in stock broking concern.
OBJECTIVES OF THE STUDY
To understand the workings of the commodities market.
To study the investors preference towards commodities market.
To identify the investment patterns of investors.
To know the how much people preferred to invest in the commodities
market
To know whether the investors opinion about international commodities
market
affects the national trading activity.
To identify the source of information about commodities market.
To profile the commodities investors.
To know reasons beyond the investors investing in the commodities
market
SCOPE OF THE STUDY
It is the study entitled Working of the Commodities market and Investors
preferences towards it in the Anand Rathi Securities Ltd, Hyderabad Branch
The firm is entirely client centric, with a clear focus on providing long term value
addition to clients, while maintaining the highest standards of excellence, ethics and
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professionalism. The entire firm activities are divided across distinct client groups:
Individuals, Private Clients, Corporates and Institutions.
The scopes of the study are:
Analysis of activities of the commodities market
Analysis of survey and this survey is limited to only Hyderabad city.
Analysis questionnaire and suggestions for improvement.
RESEARCH METHODOLOGY
The methodology of data collection pertains to information to how the
data is collected i.e. either from primary sources or secondary sources. It explains the
methods utilized and the instruments used in data collection.
SOURCES OF DATA
The sources of data can be classified in two categories:
Primary sources
Secondary sources
PRIMARY SOURCES
The primary data are collected by the detailed discussion was
conducted with the Branch Manager of AR Ltd and Intractions was carried with the
Commodities investors (customers).
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And the discussion was carried out with the college internal guide, who
helped in developing the objectives and validating their conformance to the ethical
framework of the project.
SECONDARY SOURCESI used secondary sources also for collecting the data. They are:
Information from the text sources
Information form the internet sources
Information from the materials provided by the concern
SAMPLING DESIGN
Sampling unit :Questionnaire
Sampling Size :50 units
Sampling procedure : Direct
STATISTICAL TOOLS AND TECHNIQUES
To analysis the data we used bar graphs periodically.
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LIMITATIONS OF THE STUDY
The all commodities investors were not easily available for the conducting the
survey.
Some of them they were not ready to fill the questionnaire.
The scope of the survey is limited to Hyderabad city only.
The given time for the project is not sufficient.
Due to the busy work schedules getting the information was difficult.
The suggestion is based on the study on Fundamental and Technical Analysis such as
price movement, Relationship of gold with other factors, Volumes and Open Interest (OI).
This analysis will be holding good for a limited time period that is based on present
scenario and study conducted, future movement on gold price may or may not be similar
The investors in Hyderabad are not much aware of commodity market
and the commodities being traded in the commodity market. So, awareness about the
commodity market and the commodities being traded.
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CHAPTER-2
INDUSTRY PROFILE
Indian Commodit ies Market:
In India commodity markets have been in existence for decades. However in
1975 the Government banned forward contracts on commodities. Later in 2003 the
Government of India again allowed forward contracts in commodities. There have been
over 20 exchanges existing for commodities all over the country. However these exchanges
are commodity specific and have a strong regional focus. The Government, in order to
make the commodities market more transparent and efficient, accorded approval for setting
up of national level multi commodity exchanges. Accordingly three exchanges are there
which deal in a wide variety of commodities and which allow nation-wide trading.
The MCX is Mumbai-based and is promoted by Financial Technologies Pvt
Ltd. MCX allows trading on a host of commodities ranging from bullion to grains. Please
check the Commodities traded menu. MCX has become the first exchange in the world
to launch futures on steel. Recently on 11th August 2004,MCX crossed a peak daily
turnover of Rs.950 Crores.
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National Commodity & Derivatives Exchange Limited (NCDX)
Regulations for Spot and Derivatives Market
1 TITLE, EXTENT AND COMMENCEMENT
The Regulations framed hereunder shall be known as National Commodity &
Derivatives Exchange Limited, Regulations, 2003 (herein referred to as Regulations) and
shall come into effect immediately on approval by the Forward Market Commission or any
other authority appointed under the Forward Contracts (Regulation) Act, 1952 or any other
applicable law. These Regulations shall be in addition to the provisions of the Forward
Contracts (Regulation) Act 1952 and Rules framed there under and Rules and Byelaws of
National Commodity & Derivatives Exchange Limited (herein referred to as NCDEX or
Exchange), as in force and any other applicable laws of India. The Regulations have been
divided into two main divisions pertaining to Trading and Clearing for sake of convenience
only and both the divisions shall be read together wherever and whenever the context
requires.
The titles of the clauses are only for convenience and may not read as subject for
the contents of clauses.
National Commodity & Derivatives Exchange Limited Regulations for Spot and
Derivatives Market 10 / 152
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2 JURISDICTION
Unless specifically mentioned otherwise in these Regulations, Bye Laws or Rules
of the Exchange, any matter arising out of or pertaining to these Regulations shall be
Clearing Member subject to jurisdiction of the Courts of Mumbai irrespective of the place
of business of Trading or Clearing Members and irrespective of place from where the
transaction is entered Into National Commodity & Derivatives Exchange Limited
Regulations for Spot and Derivatives Market
3 DEFINITIONS
Unless in the context it is explicitly stated otherwise, all words and expressions
used herein but not defined, and defined in the following, shall have the meanings
respectively assigned to them therein in the following order of priority:
(i) Forward Contracts (Regulation) Act 1952 and Rules framed thereunder.
(ii) Companies Act, 1956
(iii) Rules of National Commodity & Derivatives Exchange Ltd
(iv) Byelaws of National Commodity & Derivatives Exchange Limited
Commodity futures and option contracts
A futures contract is a legally binding agreement between two parties to buy or sell
in the future, on a designated exchange, a specific quantity of a commodity at a specific
price. The buyer and seller of a futures contract agree now on a price for a product to be
delivered, or paid, for at a set time in the future, known as the "settlement date." Although
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actual delivery of the commodity can take place in fulfillment of the contract, most futures
contracts are actually closed out or "offset" prior to delivery.
An option on a commodity futures contract is a legally binding agreement between
two parties that gives the buyer, who pays a market determined price known as a
"premium," the right (but not the obligation), within a specific time period, to exercise his
option. Exercise of the option will result in the person being deemed to have entered into a
futures contract at a specified price known as the "strike price." In some cases, an option
may confer the right to buy or sell the underlying asset directly, and these options are
known as options on the physical asset.
Cash and Forward Markets
In the days before credit was readily accessible, some stores carried the sign, "cash
and carry," meaning: pay your cash and carry away the merchandise you purchased. That,
in its simplest form, is the cash market. The buyer finds the precise commodity that suits
him--perhaps an orange that has ripened to the proper degree--pays his money and becomes
the owner of the merchandise. It's a time-tested market system, and the one most widely
used in all forms of business to transfer title to goods.
Sometimes, cash markets can be modified and improved to serve a particular
purpose. For example, a person who goes to the newsstand to buy a magazine may find it is
more convenient to contract with the publisher for delivery at home. This modification is
called a forward contract, and such contracts are widely used in many types of business.
The buyer and the seller agree today on a description of the product that will be delivered
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in satisfaction of the contract. The buyer makes payments as agreed, and the seller will
deliver the asset at a designated site on a specified date.
The system works quite well when the cost of producing the commodity is known
and the selling price is presently acceptable to a buyer. However, with commodities that
compete in world or national markets, such as coffee, there are many relatively small
producers scattered over a wide geographic area. These widely dispersed producers find it
difficult to know what prices are available, and the opportunity for producer, processor, and
merchandiser to ascertain their likely cost for coffee and develop long range plans is
limited. Futures trading, used in the Midwest for grains and similar farm commodities since
1859, and adapted for coffee in 1955, provides the industry with a guide to what coffee is
worth now as well as today's best estimate for the future.
Prices and Price Factors
In a competitive market system, buyers and sellers determine prices for
commodities through their transactions in the marketplace. The prices at which sellers offer
to sell their goods and buyers bid to buy them are based on their best current assessments of
the supply and demand for the commodity.
Usually, no one knows the exact total supply of a commodity. For example, in the
United States most commodities are produced by many firms. Storage and ownership also
are fragmented. The total supply available usually is an estimate, as is new production, and
inventory figures are not precise. In addition, the quality of the commodity frequently is not
known. Thus contributing to the complexity of determining an appropriate price.
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Even with its problems, the U.S. commodity price reporting system generally is
better and reports are more available publicly than commodity reports from many other
countries. Since most commodities trade internationally and are affected by incompletely
reported situations in other countries, U.S. markets must cope with such unknowns.
Demand is even more difficult to measure, based as it is on what people may decide
they wish to buy. Changing prices may alter consumers' intentions regarding the quantity of
a close substitute commodity they want--or whether they want it at all. The availability of a
substitute may change the demand picture for the original product as well as for the related
one. However, prices for goods in the marketplace play a vital role in our economic system
and help to efficiently allocate scarce resources.
Markets and prices play vital roles in our economy system and help to determine
our standard of living. Markets are the nerve system of our decentralized economic system;
prices are the impulses conveyed throughout the system, enabling us to respond stimuli and
produce goods and services efficiently and changing prices force to adjust and moderate
our consumption pattering. In other words, price influences production and consumption.
Price is a rational; if the price is right, the supply of a commodity should balance the
demand for it--production should match use.
If the price is too high, some who may have planned to use a product may decide to
use less, go without, or they may select a substitute--eat chicken instead of beef, for
example. If enough users are priced out of the market, price may turn down which may
encourage more use and discourage production.
If the price is too low, users will deplete existing supply and a shortage may
develop. Subsequently, prices may rise, which will tend to discourage marginal buying.
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Should price remain relatively high this would likely promote production or attract
additional supply of good.
Processors and merchandisers are guided by the prices that people are willing to pay
for their goods. Their marketing decisions are made independently, based on estimates of
what consumers are willing to buy and how much they are willing to pay. Once in the
marketing system, goods are channeled from point of production to processor and
distributor and on to the consumer. Futures trading does not enter directly into these
channels; it supplies information on price which reflects buyers' and sellers' current view
on a commodity's value and provides a means to transfer the price risk of holding these
items in inventory for later sale.
Transferring Risk: Hedging
Commodity production and marketing involve sizable price risks, and risk
represents a cost which affects the value of a commodity. While there is no way to
eliminate uncertainty, futures markets provide a competitive way for commodity producers,
merchandisers, processors, and others who may own the actual commodity to transfer some
price risk to speculators who will willingly assume such risk in hopes of making a profit.
The process of hedging involves the concurrent use of both cash and futures
markets. Since futures and cash prices tend to move together (that is, parallel to each
other), and at contract expiration converge to one price, it is possible for a cotton merchant,
for example, to hedge an unsold inventory of cotton with a sale of an equivalent amount of
futures contracts. Since the merchant owns the commodity, he would have a loss if prices
fell. To hedge, the merchant would sell futures contracts. Now if prices drop, the cash
market loss will be at least partially offset by a gain on the futures contract. When the
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merchant sells his inventory at the lower cash market price, he will simultaneously lift his
hedge by buying back his futures contracts at the lower price. The gain on his futures
contracts should roughly equal the merchant's loss in the cash market.
Conversely, a cotton mill owner who wanted to sell a customer a quantity of cloth
for delivery some months from now, but does not own enough cotton to produce the cloth,
could hedge by buying enough futures contracts to cover the forward sale of cloth. He now
has a price for raw material to which operating and production costs can be added to arrive
at a base price for cloth. Quoting such a price before buying the cotton would make him
vulnerable to a price rise, but having bought futures in a quantity equivalent to his needs,
he has some assurance that a rise in futures prices would lessen the impact of a rise in the
cost of the actual cotton.
Here are three examples of how hedging helps the cash market work better:
Hedging stretches the marketing period. For instance, a livestock feeder does not
have to wait until his cattle are ready to market before he can sell them. The futures market
permits him to sell futures contracts to establish the approximate sale price at any time
between the time he buys his calves for feeding and the time the fed cattle are ready to
market, some four to six months later. He can take advantage of good prices even though
the cattle are not ready for market.
Hedging protects inventory values. A merchandiser with a large, unsold inventory
can sell futures contracts that will protect the value of the inventory, even if the price of the
commodity drops.
Hedging permits forward pricing of products. A jewelry manufacturer can
determine the cost for gold, silver or platinum by buying a futures contract, translate that to
a price for the finished products, and make forward sales to stores at firm prices. Having
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made the forward sales, the manufacturer can use its capital to acquire only as much gold,
silver, or platinum as may be needed to make the products that will fill its orders.
These are just a few ways that futures markets are used by commodity owners.
Adapting basic principles to individual situations tests the ingenuity of hedgers and
demonstrates the management flexibility provided by futures trading. But market users
should be forewarned that hedging is not an academic exercise. It requires skill and
knowledge acquired only by study and experience.
Finally, while a hedge transfers price risk, it also denies the opportunity to gain
from favorable price movements in the cash market. For this reason, options on the actual
commodity and/or options on futures contracts are popular among people who seek price
protection, but who do not wish to miss a favorable price movement. With the payment of a
premium, the buyer of an option can acquire the right, but not the obligation, to buy or sell
a futures contract at a specified price within a specified period of time (as stated in the
option contract). In this way, for example, the holder of a put option can protect against a
drop in the value of that inventory, but remain free to gain from an increase in the price of
the commodity held in inventory.
There are many factors to consider in deciding whether to hedge with futures, buy
or sell an option on a futures contract, or simply forward contract in the cash market. A
detailed discussion of this topic goes beyond the scope of this brief publication. For more
information, consult your library or contact the exchange which trades the commodity of
interest.
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PROFILE OF THE COMPANY
Introduction:
AnandRathi (AR) is a leading full service securities firm providing the entire gamut
of financial services. The firm, founded in 1994 by Mr. AnandRathi, today has a pan India
presence as well as an international presence through offices in Dubai and Bangkok. AR
provides a breadth of financial and advisory services including wealth management,
investment banking, corporate advisory, brokerage & distribution of equities, commodities,
mutual funds and insurance - all of which are supported by powerful research teams.
The firm's philosophy is entirely client centric, with a clear focus on providing long
term value addition to clients, while maintaining the highest standards of excellence, ethics
and professionalism. The entire firm activities are divided across distinct client groups:
Individuals, Private Clients, Corporates and Institutions.
The company is also maintaining an excellent relationship with the clients, the
brokers, the employees, and the bankers.
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PROFILE
COMPANY HISTORY OF THE PLACE
The Anand Rathi Securities LTD was established in the year of 1994 in Mumbai,
Maharastra state.
REGD.OFFICE (Head Office)
3rd Floor, J K Somani Building
British Hotel Lane
Mumbai Samachar Marg
Mumbai - 400 023, India.
Tel: 91-22-6637 7000
Fax: 91-22-6637 7070
MANAGEMENT TEAM OF THE COMPANY
Mr. AnandRathi
Group Chairman
Mr. Pradeep GuptaVice Chairman
Mr. Amit Rathi
Managing Director
BRANCH OFFICE
Sri Krishna Towers,2nd Floor, CTS NO. 14
Khanapur Road, Tilakwadi,
Hyderabad
AP
Pin : 590006
Tel : 0831-4207300/ 3098234
FINANCIAL AND ADVISORY SERVICES
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Wealth management
Investment banking
Corporate Advisory
Brokerage and Distribution of Equities, Commodities, Mutual Funds and Insurance
CLIENTS OR CUSTOMERS
Individuals
Private clients
Corporates and
Institutions
AR Core Strengths
Breadth of Services
In line with its client-centric philosophy, the firm offers to its clients the entire
spectrum of financial services ranging from brokerage services in equities and
commodities, distribution of mutual funds, IPOs and insurance products, real estate,
investment banking, merger and acquisitions, corporate finance and corporate advisory.
Clients deal with a relationship manager who leverages and brings together the product
specialists from across the firm to create an optimum solution to the client needs.
Management Team
AR brings together a highly professional core management team that comprises
of individuals with extensive business as well as industry experience.
In-Depth Research
ARs research expertise is at the core of the value proposition that we offer to our
clients. Research teams across the firm continuously track various markets and products.
The aim is however common - to go far deeper than others, to deliver incisive insights and
ideas and be accountable for results.
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Management TeamFirms senior Management comprises a diverse talent pool that brings together
rich experience from across industry as well as financial services.
The products/services of the Anand Rathi are as follows:
1. Individuals
(a) Private wealth management
Introduction:
Affluent individuals need sophisticated advice and strategic guidance to capitalize
on opportunities to preserve, grow and transfer their wealth. In addition, a desire exists
within wealthy families to simplify the management of multigenerational needs and lessenthe profound emotional impact of wealth on family members.AR offers the most extensive
platform of customized servicing, individual strategies and products to help meet the
requirements of the affluent private investor. We provide comprehensive, integrated
investment strategies to address your wealth management needs. Working closely with
specialists across firm PWM offers an array of products & services, which includes AR's
highly rated research.
Philosophy:
The Anand Rathi tries and understands clients financial needs; to offer them
personal advice and expert analysis that they need to make their assets go the Extra mile.
Firms ability to think far ahead and formulate a long-term strategy, coupled with long
hours of practice and research are the key drivers, which make investors wealth work
harder for them. The company believes that the key to build wealth lies in allocating assets
across various markets, financial instruments and industry sectors. Keeping this in mind the
firm leverage its expertise in scientific asset allocation, to help maximize returns and
minimize risks.
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Process:
The firm realize the need to simplify the complexities of the investment strategies
and it achieve this by offering highly customized private wealth management .The firms
Personalized Relationship Managers along with the expert team of analysts and advisors
will assist to investors in analyzing all their investment needs and advice them on
specialized solutions created exclusively for them.
The firm has excellent research team, who constantly screens the market for
investment prospects. The team provides support in fine-tuning the investment strategy &
suggests how to capitalize on these opportunities.
Products:
Equity & Derivatives
Mutual Funds
Depository Services
Commodities
Insurance Broking
IPOs
Research:
Its research expertise is at the core of the value proposition that they offer to its
clients. Research teams across the firm continuously track various markets and products.
The aim is however common - to go far deeper than others, to deliver incisive insights and
ideas and be accountable for results. AR research processes incorporate quantitative areas
well as qualitative analyses. This multi-pronged approach helps us to provide superior risk-
adjusted returns for our clients.
http://opt/scribd/conversion/tmp/scratch21991/equity&derivatives.asp?pageOpt=1http://opt/scribd/conversion/tmp/scratch21991/mutualfunds.asp?pageOpt=2http://opt/scribd/conversion/tmp/scratch21991/depositoryservices.asp?pageOpt=3http://opt/scribd/conversion/tmp/scratch21991/commodities.asp?pageOpt=4http://opt/scribd/conversion/tmp/scratch21991/insurance.asp?pageOpt=5http://opt/scribd/conversion/tmp/scratch21991/ipos.asp?pageOpt=6http://opt/scribd/conversion/tmp/scratch21991/equity&derivatives.asp?pageOpt=1http://opt/scribd/conversion/tmp/scratch21991/mutualfunds.asp?pageOpt=2http://opt/scribd/conversion/tmp/scratch21991/depositoryservices.asp?pageOpt=3http://opt/scribd/conversion/tmp/scratch21991/commodities.asp?pageOpt=4http://opt/scribd/conversion/tmp/scratch21991/insurance.asp?pageOpt=5http://opt/scribd/conversion/tmp/scratch21991/ipos.asp?pageOpt=6 -
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AR analysts provide objective and decisive research that is designed to enable
clients to make informed investment decisions. The team covers entire spectrum of
financial markets from equities, fixed income, and commodities to currencies. They also
cover the global markets, to give clients an unparalleled macro-view of the investment
opportunities across the globe.
b) Brokerage and distribution
Equity & Derivatives Brokerage:
AnandRathi provides end-to-end equity solutions to institutional and individual
investors. Consistent delivery of high quality advice on individual stocks, sector trends and
investment strategy has established us a competent and reliable research unit across the
country.
Clients can trade through us online on BSE and NSE for both equities and
derivatives. They are supported by dedicated sales & trading teams in its trading desks
across the country. Research and investment ideas can be accessed by clients either through
their designated dealers, email, web or SMS
Mutual Funds:
AR is one of India's top mutual fund distribution houses. Its success lies in the firm
philosophy of providing consistently superior, independent and unbiased advice to their
clients backed by in-depth research. The AR team firmly believe in the importance of
selecting appropriate asset allocations based on the client's risk profile.
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Depository Services:
AR Depository Services provides to investors with a secure and convenient way for
holding their securities on both CDSL and NSDL.The firms depository services include
settlement, clearing and custody of securities, registration of shares and dematerialization.
It offer to the investors daily updated internet access to their holding statement and
transaction summary.
Commodities:
Commodities broking - a whole new opportunity to hedge business risk and an
attractive investment opportunity to deliver superior returns for investors.
The firms commodities broking services include online futures trading through
NCDEX and MCX and depository services through CDSL. Commodities broking is
supported by a dedicated research cell that provides both technical as well as fundamental
research. Its research covers a broad range of traded commodities including precious and
base metals, Oils and Oilseeds, agri-commodities such as wheat, chana, guar, guar gum and
spices such as sugar, jeera and cotton.
In addition to transaction execution, the firm provides customized advice on
hedging strategies, investment ideas and arbitrage opportunities to clients.
Insurance Broking:
As an insurance broker, AR provide to its clients comprehensive risk management
techniques, both within the business as well as on the personal front. Risk management
includes identification, measurement and assessment of the risk and handling of the risk, of
which insurance is an integral part. The firm deals with both life insurance and general
insurance products across all insurance companies. ARs guiding philosophy is to manage
the clients' entire risk set by providing the optimal level of cover at the least possible cost.
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The entire sales process and product selection is research oriented and customized to the
client's needs. We lay strong emphasis on timely claim settlement and post sales services.
AR services:
Risk Management
Due diligence and research on policies available
Recommendation on a comprehensive insurance cover based on clients.
Maintain proper records of client policies
Assist client in paying premiums
Continuous monitoring of client account
Assist client in claim negotiation and settlement
IPOs:
The firm is a leading primary market distributor across the country. Its strong
performance in IPOs has been a result of its vast experience in the Primary Market, a wide
network of branches across India, strong distribution capabilities and a dedicated research
team
The firm has been consistently ranked among the top 10 distributors of IPOs on all
major offerings. Its IPO research team provides clients with in-depth overviews of
forthcoming IPOs as well as investment recommendations. Online filling of forms is also
available.
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( c) NRIs
Introduction:
AR is the perfect gateway to the wealth of investment opportunities in India for
Non-Resident Indians. With it will dedicated NRI desk in India and Relationship Managers
investors own country, investors get the best of both worlds - real understanding of their
investment needs as well on-the-ground expertise.
It provides the following services for NRIs.
Superior understanding of the Indian economy & markets
Ability to structure and manage your tax and regulatory compliances
Dedicated relationship team
Unparalleled product range - Indian and Global
2. Institutions
(a) Institutional Equities
Introduction:
The Institutional sales and trading team provides cutting edge market information
and investment advice to clients, coupled with excellent execution capabilities. A highly
experienced and reputed team of equity analysts supports the sales team. There is an
extensive focus on research on companies, sectors and macro-economy. The institutional
equity team tracks nearly 250 large and mid-sized companies to give clients an unparalleled
breadth of ideas.
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It also provide Investment Advisory Services for institutional clients in India and
overseas for investment in the Indian equity markets
(b) Managed Investment services
Portfolio Management Services (PMS):
AR Portfolio Management Service is a discretionary investment service created to
meet the demand for more targeted investment styles and opportunities. It offers a range of
specialized investment strategies designed to capture opportunities across the market
spectrum. The range of products varies from the highly defensive, capital-protected to the
most aggressive strategies in the equities and derivatives markets.
The firms investment process ensures that investors strategy and portfolio are built
on solid foundations. Together clients and their relationship manager select the strategy in
line with their individual goals. AR investment specialists then construct and manage clints
portfolio in accordance with the chosen investment strategy.
Real Estate Opportunities Fund:
AR Real Estate Opportunities Fund is a private equity fund for high net-worth
individuals, corporate and institutions, to invest in equity-linked instruments in the Indian
real estate and infrastructure sectors.
As part of the structural reforms to further boost India's economic growth, the
government has recognized the need for institutional finance in the real estate sector. In
early 2005, the government has relaxed the FDI guidelines in real estate and also allowed
the setting up of real estate investment funds under SEBI guidelines. These developments
are expected to provide much needed capital to provide for the increasing demand for
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quality real estate in major urban centers across the country.To capture this opportunity,
AR has brought together a team of specialists and advisors to guide the fund's investments
who bring together expertise in the areas of real estate consulting, development, legal and
financial structuring.
3. Corporate
(a)Institutional wealth management
Introduction:
Corporate and Institutional treasuries need ever more sophisticated advice that is
backed by serious and credible research. AR IWM provides its institutional clients
integrated wealth management solutions across global markets, which are backed by
proprietary global economic & investment research.
(b) Investment banking and corporate Finance
Introduction
Investment Banking:
AR Investment Banking provides comprehensive services to clients including
raising money in the equity capital markets to identifying strategic alliances, mergers and
acquisition opportunities and debt financing & restructuring advisory.
Corporate Finance:
The AR Corporate Finance team helps clients manage their debt-financing needs by
profiling business and cash-flow risks, defining the alternative sources of funding , building
in multiple variables such as currencies, fixed-floating, tenure, collateral etc. in a
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comprehensive manner and finally negotiating with the prospective lenders / buyers.
The team has also built an impressive track-record in debt restructuring based on its
superior understanding of business needs and relationships with key lenders.
The Corporate Finance team has handled assignments in businesses like paper, hospitality,
telecom, textiles and sugar.
Services
Investment Banking:
Merchant Banking:
A highly experienced equity capital markets team, a pan-India distribution presence
and a high level of quality and integrity in executing client's transactions has enabled us to
provide tangible value to the firms clients' businesses.
the firm bring quality independent advice and excellent execution capabilities to create
landmark transactions for clients. The firms track record of successfully lead managed
IPOs includes Tips Industries, Emami, HCL Infosystems and Provogue.
M&A, Private Equity:
The firms Mergers & Acquisition team works with clients in creating lasting
stakeholder value through advice on mergers, acquisitions, divestitures and private equity
financing. The team leverages on the firm's superior understanding of businesses and tax
and regulatory environments as well as a deep network of relationships across the
professional and corporate world.
the firm has been worked extensively with clients in industries like cement, sugar,
chemicals, power and textiles for mergers and acquisition deals, valuation and business
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restructuring.
(c) Corporate Advisory services
Introduction:
AnandRathi Advisors assists companies in realizing tangible improvements in
various facets of their businesses by providing a range of corporate advisory services that
includes the entire gamut from financial, organisational and operational restructuring, to
profit improvement and business turnaround strategies.
Highly qualified and thoroughly professional, its specialists, experts and associates
assist to clients in conceptualising problems and devising effective solutions, whatever be
clients need.
Successful assignments undertaken for leading organisations in India as well as
overseas bear ample testimony to our wide-ranging capabilities, utilising firms
unparalleled business know-how to give you the competitive edge.
Services
Performance Improvement and Cost Reduction
Business Strategy and Re-engineering
Financial, Business & Organizational restructuring
Business Turn-around Strategies
Management Systems: MIS, Review & Control Mechanism
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(d) Cross-Border Advisory
Introduction:
Dynamic Orbits is the international interface of Anand Rathi Group, inter alia
Dynamic Orbits is engaged in building strategic alliances, outsourcing contracts, contract
manufacturing alliances, cross border joint ventures and cross border acquisitions.
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CHAPTER-3
REVIEW OF LITERATURE
Indian Commodities Market
In India commodity markets have been in existence for decades. However in 1975
the Government banned forward contracts on commodities. Later in 2003 the Government
of India again allowed forward contracts in commodities. There have been over 20
exchanges existing for commodities all over the country. However these exchanges are
commodity specific and have a strong regional focus. The Government, in order to make
the commodities market more transparent and efficient, accorded approval for setting up of
national level multi commodity exchanges. Accordingly three exchanges are there which
deal in a wide variety of commodities and which allow nation-wide trading. They are
Multi Commodity Exchange (MCX)
National Commodities Derivatives Exchange (NCDEX)
National Multi Commodity Exchange (NMCE)
The MCX is Mumbai-based and is promoted by Financial Technologies Pvt Ltd.
MCX allows trading on a host of commodities ranging from bullion to grains. Please check
the Commodities traded menu. MCX has become the first exchange in the world to
launch futures on steel. Recently on 11th August 2004, MCX crossed a peak daily turnover
of Rs.950 Crores.
NCDEX is promoted by an elite group of financial institutions including NSE, LIC,
SBI, UBI etc., NCDEX also allows trading of futures on a host of commodities.
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National Commodities and Derivatives Exchange, NCDEX At Karvy Commodities,
we are focused on taking commodities trading to new dimensions of reliability and
profitability. We have made commodities trading, an essentially age-old practice, into a
sophisticated and scientific investment option.
Here we enable trade in all goods and products of agricultural and mineral origin
that include lucrative commodities like gold and silver and popular items like oil, pulses
and cotton through a well-systematized trading platform.
Our technological and infrastructural strengths and especially our street-smart skills
make us an ideal broker. Our service matrix is holistic with a gamut of advantages, the first
and foremost being our legacy of human resources, technology and infrastructure that
comes from being part of the AR Group.
Our wide national network, spanning the length and breadth of India, further
supports these advantages. Regular trading workshops and seminars are conducted to hone
trading strategies to perfection. Every move made is a calculated one, based on reliable
research that is converted into valuable information through daily, weekly and monthly
newsletters, calls and intraday alerts. Further, personalized service is provided here by a
dedicated team committed to giving hassle-free service while the brokerage rates offered
are extremely competitive.
Our commitment to excel in this sector stems from the immense importance that
commodities broking has to a cross-section of investors farmers, exporters,
importers, manufacturers and the Government of India itself.
Commodities market essentially represents another kind of organised market just
like the stock market and the debt market. However, commodities market, because of its
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unique nature lends to the benefits of a wide spectrum of people like investors, importers,
exporters, producers, corporate etc.
What can commodity market offer ?
If you are an investor, commodities futures represent a good form of investment
because of the following reasons..
High Leverage The margins in the commodity futures market are less
than the F&O section of the equity market.
Less Manipulations - Commodities markets, as they are governed by
international price movements are less prone to rigging or price manipulations.
Diversification The returns from commodities market are free from the
direct influence of the equity and debt market, which means that they are capable of being
used as effective hedging instruments providing better diversification.
If you are an importer or an exporter, commodities futures can help you in the
following ways
Hedge against price fluctuations Wide fluctuations in the prices of
import or export products can directly affect your bottom-line as the price at which you
import/export is fixed before-hand. Commodity futures help you to procure or sell the
commodities at a price decided months before the actual transaction, thereby ironing out
any change in prices that happen subsequently.
If you are aproducerof a commodity, futures can help you as follows:
Lock-in the price for your produce If you are a farmer, there is every
chance that the price of your produce may come down drastically at the time of harvest. By
taking positions in commodity futures you can effectively lock-in the price at which you
wish to sell your produce
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Assured demand Any glut in the market can make you wait unendingly
for a buyer. Selling commodity futures contract can give you assured demand at the time of
harvest.
If you are a large scale consumer of a product, here is how this market can help
you:
Control your cost If you are an industrialist, the raw material cost dictates
the final price of your output. Any sudden rise in the price of raw materials can compel you
to pass on the hike to your customers and make your products unattractive in the market.
By buying commodity futures, you can fix the price of your raw material.
Ensure continuous supply Any shortfall in the supply of raw materials
can stall your production and make you default on your sale obligations. You can avoid this
risk by buying a commodity futures contract by which you are assured of supply of a fixed
quantity of materials at a pre-decided price at the appointed time.
The effective mechanism of settlement and delivery procedures adopted and
employed by MCX has once again undergone rigorous tests and have come out extremely
successful. This is signified with the surging trading volume in bullion contracts and high
open interest entering the settlement period resulting in healthy quantities getting
physically delivered. This whole process underscores the efficacy & transparency of the
complete trading, settlement and delivery process employed by MCX.
The complete delivery procedure right from getting the possession of the precious
metal from the sellers, necessary quality certifications, consignment movement, handing
over the precious metal to the buyers, etc was completed in flat 5 days period. The
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complete process has been worked out at a very optimal cost and on an average each
participant involved in the delivery process had incurred only Rs. 350/- per transaction.
In all the previous settlements also MCX platform has always seen appropriate
percentage of open interest position resulting in physical delivery. Gold has seen a
cumulative physical delivery of 245 kgs and Silver 2190 kgs across all the settlements
completed before the current settlement.
Gold & silver futures contracts are getting recognized as the most reliable &
dependable investment options that are today available to traders and investors who are
looking to widen their portfolio beyond equity instruments. This is because of the
credibility that these commodities have enjoyed globally and the technical & fundamental
analysis that has gone in arriving at various trading strategies.
India is the largest importer for Gold in the world, around 800 tons per year,
realizing this potential of Gold, Government of India has set up a committee to examine the
regulatory structure of the gold industry to make India a gold trading hub. This committee
is constituted under the Chairmanship of Secretary, Department of Commerce, Ministry of
Commerce & Industry. MCX is a member of the committee and looks forward to
contributing suggestions on the role that Futures market can play in making India a global
gold trading hub.
The first meeting for the Gold Committee is being held under the Chairmanship of
Commerce Secretary on 10th December 2004.
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About Multi Commodity Exchange of India Ltd. (MCX)
Multi Commodity Exchange of India Ltd, (MCX) an independent and de-
mutualised multi commodity exchange, has permanent recognition from the Government of
India. MCX, a state-of-the-art nationwide, digital exchange facilitates online trading,
clearing and settlement operations for a commodities futures trading. Key shareholders of
MCX are Financial Technologies (India) Ltd, State Bank of India, Union Bank of India,
Bank of India, Corporation Bank & Canara Bank. Headquartered in Mumbai, MCX is led
by an expert management team with deep domain knowledge of the commodity futures
markets and has successfully established a thriving digital market for trading in Gold,
Silver, Steel, Kapas, Cotton, Rubber, Black Pepper, Oil & Oil Seeds, Wheat and Rice,
Ferrous and Non-Ferrous Metals, Agri Commodities, Pulses and Soft commodities.
The collapse of equity markets and the arrival of low interest rates have increased the
investor presence in alternative investments such as gold. In India, gold has traditionally played a
multi-faceted role. Apart from being used for adornment purpose, it has also served as an asset of
the last resort and a hedge against inflation and currency depreciation. But most importantly, it
has most often been treated as an investment.
Gold supply primarily comes from mine production, official sector sales of global central
banks, old gold scrap and net disinvestments of invested gold. Out of the total supply of 3870
tons last year, 66% was from mine production, 20 % from old gold scrap and 14% from official
sector sales. Demand globally emanates from fabrication (jewellery and other fabrication), Bar
hoarding, Net producer hedging and Implied investment.
Gold continues to occupy a prominent part in rural Indian economy and a significant part
of the rural credit market revolves around bullion as security. India is the largest consumer of
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gold in the world accounting for more than 23% of the total world demand annually. According
to unofficial estimates, India has more than 13,000 tonnes of hoarded gold, which translates to
around Rs 6,50,000 crore. Inspite of its predominant position, especially in the gold market
where India is the largest importer, India has traditionally been a price seeker in the global
bullion market.
Bullion trading in India received a major fillip. Following the changes in the Gold Policy
announced by the Government of India, in 1997 under export-import Policy 1997-2002. As per
the policy, scheduled commercial banks are authorized by the Reserve Bank of India (RBI) to
import gold and silver for sale in domestic market without an Import license or surrendering the
Special Import License (SIL). Bullion is imported into India by banks and four designated
trading agencies acting as canalizing agents and consignees for overseas suppliers, who in turn
sell to domestic wholesale traders, fabricators, etc. The price risk is borne either by the fabricator
or the retail consumer. The wholesale traders, fabricators and investors do not have any effective
tool to hedge their price risk in gold / silver.
NCDEX is promoted by an elite group of financial institutions including NSE, LIC,
SBI, UBI etc., NCDEX also allows trading of futures on a host of commodities.
The following tables indicate the various commodities traded in both exchanges and also
the critical information regarding the various contracts.
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CHAPTER-4
INTERPRETATION OF THE DATA
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Analysis & Interpretation of gold -I
Date
Commodity
Symbol Close(Rs) returns
1-Dec-10 GOLD 18695 _
2-Dec-10 GOLD 18663 -0.002
3-Dec-10 GOLD 18691 0.002
5-Dec-10 GOLD 18651 -0.002
6-Dec-10 GOLD 18479 -0.009
7-Dec-10 GOLD 18501 0.001
8-Dec-10 GOLD 18481 -0.001
9-Dec-10 GOLD 18560 0.00410-Dec-
10 GOLD 18571 0.00112-Dec-
10 GOLD 18518 -0.00313-Dec-
10 GOLD 18629 0.00614-Dec-
10 GOLD 18531 -0.00515-Dec-
10 GOLD 18565 0.00216-Dec-
10 GOLD 18479 -0.005total 260014
avg 18572.42857 sd 0.004
Commodity Channel Index analysis:
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CCI = price-MA
0.15*D
Price = Closing price
MA = Moving avg of the security
D = Mean Deviation of moving avg
.015 =constant
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Gold: Analysis of 14 days From Ist DECEMBER TO 6th DECEMBER.
Price MA
CCI = _________________
0.015*D
= ___(260014-18571.43)_
(0.015*18602.36)
= 2414242.57
279.0354
= 865.2757
GRAPHICAL REPRESENTATION OF GOLD
GOLDS
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INTREPRETATION
o The above graph shows the Analysis of Gold for 14 days.
o Deviation is constant compared to moving avg.
o On DECEMBER 1st the closing price high compared with other dates.
o The lowest price is DECEMBER 6th
GOLD
18350184001845018500185501860018650
1870018750
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
1-
Dec
2-
Jul-
3-
Dec
5-
Jul-
6-
Dec
7-
Dec
8-
Dec
9-
Jul-
10-
Dec
12-
Jul-
13-
Dec
14-
Jul-
15-
Dec
16-
Dec
DATE
RET
URNS
Close(Rs)
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ANALYSIS AND INTERPRETATION OF GOLD- II
DATE
COMMODITY
SYMBOL CLOSE(RS) RETURNS17-Dec-
10 GOLD 18495 0.00086584819-Dec-
10 GOLD 18419 -0.00410921920-Dec-
10 GOLD 18504 0.004614821-Dec-
10 GOLD 18516 0.00064850822-Dec-
10 GOLD 18452 -0.0034564723-Dec-
10 GOLD 18419 -0.00178842424-Dec-
10 GOLD 18404 -0.00081437626-Dec-
10 GOLD 18322 -0.00445555327-Dec-
10 GOLD 17948 -0.02041261928-Dec-
10 GOLD 17938 -0.00055716529-Dec-
10 GOLD 17929 -0.000501728
30-Dec-
10 GOLD 18049 0.00669306731-Dec-
10 GOLD 18025 -0.0013297142-Jan-11 GOLD 17952 -0.004049931
total 255372
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avg 18240.85714 sd
0.0061
8
Gold : Analysis of 14 days From 17th December to 2nd January.
Price MACCI = _________________
0.015*D
255372 18240.85714= _____________________
0.015 * 18602.36
237131.1428= _________________
279.0354
= 849.8245
Interpretation:
GOLD
176001780018000182001840018600
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
17-
Dec
19-
Dec
20-
Dec
21-
Dec
22-
Dec
23-
Dec
24-
Dec
26-
Dec
27-
Dec
28-
Dec
29-
Dec
30-
Dec
31-
Dec
2-
Jan
date
re
turns
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o The above graph shows the Analysis of Gold for 14 days.
o Based on same Deviation the CCI value was decreased.
o Compared to above 1st & 2nd.
o The highest Closing price is 21st & lowest is 29th December.
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ANALYSIS AND INTERPRETATION OF GOLD III.
DATECOMMODITY
SYMBOL CLOSE(RS) RETURNS
6-Jan-11 GOLD 18287 0.0186608737-Jan-11 GOLD 18283 -0.000218735
9-Jan-11 GOLD 18256 -0.00147678210-Jan-11 GOLD 18293 0.002026731
11-Jan-11 GOLD 18475 0.009949161
12-Jan-11 GOLD 18647 0.009309878
13-Jan-11 GOLD 18650 0.000160884
14-Jan-11 GOLD 18662 0.000643432
16-Jan-11 GOLD 18773 0.00594791617-Jan-
11 GOLD 18759 -0.00074575218-Jan-
11 GOLD 18787 0.00149261719-Jan-
11 GOLD 18884 0.00516314520-Jan-
11 GOLD 18834 -0.00264774421-Jan-
11 GOLD 18843 0.000477859total 260433
avg 18602.35714 Sd
0.00583
8
Gold : Analysis of 14 days From 6TH aug to 21st January.
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Price MACCI = _________________
0.015*D
260433-18602.35714= _____________________
0.015 * 18602.36
237131.1429= ________________
279.0354
= 849.8245742
GOLD
17800180001820018400186001880019000
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
6-Jan
7-Jan
9-Jan
10-Jan
11-Jan
12-Jan
13-Jan
14-Jan
16-Jan
17-Jan
18-Jan
19-Jan
20-Jan
21-Jan
date
re
turn
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Interpretation:
o The above graph shows the Analysis of Gold for 14 days.
o Based on same Deviation the CCI value was decreased.
o Compared to above 2nd & 3rd.
o The highest Closing price is 18TH January & lowest is 9th January.
ANALYSIS AND INTERPRETATION OF GOLD IV.
DATE
COMMODITY
SYMBOL CLOSE(RS) RETURNS
Gold :
Analysis of 14
days From
23-Jan-11 GOLD 18823 -0.00106140224-Jan-
11 GOLD 18929 0.00563140825-Jan-11 GOLD 19078 0.0078715226-Jan-11 GOLD 18988 -0.00471747627-Jan-11 GOLD 18989 5.26648E-0528-Jan-11 GOLD 19008 0.00100057929-Jan-11 GOLD 19042 0.001788721
30-Jan-11 GOLD 19236 0.01018800531-Jan-11 GOLD 19090 -0.007589936
1-Feb-11 GOLD 19133 0.002252488
2-Feb-11 GOLD 19057 -0.003972195
3-Feb-11 GOLD 19065 0.000419793
4-Feb-11 GOLD 19124 0.003094676
5-Feb-11 GOLD 19260 0.007111483
total 266822
avg 19058.71429 sd
0.00503
1
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23rd aug to 5th February..
Price MACCI = _________________
0.015*D
266822-19058.71429= _____________________
0.015*18602.36
247763.28571= _________________
279.0354 = 887.924
GOLD
1860018700188001890019000191001920019300
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
23-
Jan
24-
Jan
25-
Jan
26-
Jan
27-
Jan
28-
Aug-
30-
Jan
31-
Jan
1-
Feb
2-
Feb
3-
Feb
4-
Sep-
6-
Feb
7-
Feb
date
re
turns
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Interpretation:
o The above graph shows the Analysis of Gold for 14 days.
o Based on same Deviation the CCI value was increased.
o Compared to above 3rd& 4th.
o The highest Closing price is 7TH February & lowest is 23rd January.
ANALYSIS AND INTERPRETATION OF GOLD V.
DATE
COMMODITY
SYMBOL CLOSE(RS) RETURNS
8-Feb-11 GOLD 19205 -0.0028556599-Feb-11 GOLD 19075 -0.00676907110-Feb-11 GOLD 18967 -0.005661861
13-Feb-11 GOLD 18963 -0.00021089314-Feb-11 GOLD 19284 0.00411351215-Feb-11 GOLD 19232 0.00823066816-Feb-11 GOLD 19263 0.01560605317-Feb-11 GOLD 19246 0.01492379918-Feb-
11 GOLD 19251 -0.00171126320-Feb-11 GOLD 19206 -0.00135191321-Feb-11 GOLD 19134 -0.00669677622-Feb-11 GOLD 19303 0.00296165423-Feb-11 GOLD 19309 0.00301283124-Feb-11 GOLD 19258 0.002707487
total 268696 sd 0.007138
avg 19192.57143
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Gold : Analysis of 14 days From 8TH February to 24th February.
Price MACCI = _________________
0.015*D
268696-19192.57= _____________________
0.015 * 18062.36
249503.4286= ________________
279.0354
= 894.1640738
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Interpretation:
o The above graph shows the Analysis of Gold for 14 days.
o Based on same Deviation the CCI value was increased.
o Compared to above 4th
& 5th
.
o The highest Closing price is 23rd February & lowest is 13th February.
Analysis of silver
ANALYSIS AND INTERPRETATION OF SILVER I.
DATE COMMODITY CLOSING(RS) returns1-Dec-10 SILVER 28926 _ 2-Dec-10 SILVER 28798 -0.0044250853-Dec-10 SILVER 28900 0.0035419135-Dec-10 SILVER 28834 -0.002283737
GOLD
187001880018900190001910019200
1930019400
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
GO
LD
8-
Feb
9-
Feb
10-
Feb
13-
Feb
14-
Feb
15-
Feb
16-
Feb
17-
Feb
18-
Feb
20-
Feb
21-
Feb
22-
Feb
23-
Feb
24-
Feb
date
returns
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6-Dec-10 SILVER 28883 0.0016993837-Dec-10 SILVER 29014 0.004535548-Dec-10 SILVER 28847 -0.005755842
9-Dec-10 SILVER 28941 0.00325857110-Dec-10 SILVER 29013 0.0024878212-Dec-10 SILVER 28930 -0.00286078713-Dec-10 SILVER 29156 0.0078119614-Dec-10 SILVER 29234 0.00267526415-
Dec-10 SILVER 29272 0.00129985616-Dec-10 SILVER 28902 -0.012640066
total 405650
avg 28975 sd
0.00538
9
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Commodity Channel Index analysis :
Price-MACCI = ___________________
0.15*D
Price = Closing priceMA = Moving avg of the securityD = Mean Deviation of moving avg.015 =constant
Silver : Analysis From 1ST DECEMBER to 16th December.
Price MA
CCI = _________________0.015*D
(405650-28975)= _____________________
0.015 * 29227.29
376675= _________________
438.4093
= 859.185599
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Interpretation:
o The above graph shows the Analysis of Silver 14 days.
o Deviation is constant compared to moving avg.
o On 15th December the closing price high compared with other dates.
o The lowest price is 2nd December.
SILVER
28500286002870028800289002900029100292002930029400
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
1-Dec
2-Dec
3-Dec
5-Dec
6-Dec
7-Dec
8-Dec
9-Dec
10-Dec
12-Dec
13-Dec
14-Dec
15-Dec
16-Dec
DATE
RETURNS
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ANALYSIS AND INTERPRETATION OF SILVER I.
DATE
COMMODITY
SYMBOL CLOSE(RS) RETURNS
17-Dec-10 SILVER 28904 6.91994E-0519-Dec-10 SILVER 28689 -0.00743841720-Dec-10 SILVER 28744 0.00191711121-Dec-10 SILVER 28906 0.00563595922-Dec-10 SILVER 29128 0.007680066
23-Dec-10 SILVER 29218 0.0030898124-Dec-10 SILVER 29239 0.00071873526-Dec-10 SILVER 29260 0.00071821927-Dec-10 SILVER 28588 -0.02296650728-Dec-10 SILVER 28395 -0.00675108429-
Dec-10 SILVER 28404 0.00031695730-Dec-10 SILVER 28764 0.01267427131-Dec-10 SILVER 28750 -0.000486722-Jan-11 SILVER 29088 0.011756522
total 404077
avg 28862.64 Sd 0.008897
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Silver : Analysis of 14 days From 17th December to 2nd January.
Price MACCI = _________________
0.015*D
(404077-28862.64)= _____________________
0.015 * 29227.29
376675= _________________
438.4093= 859.185599
Interpretation:o The above graph shows the Analysis of Silver for 14 days.
o Based on same Deviation the CCI value was decreased.
o Compared to above 1st & 2nd.
o The highest Closing price is 26th December & lowest is 28th December.
ANALYSIS AND INTERPRETATION OF SILVER III.
siver
278002800028200284002860028800290002920029400
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
17-Dec
19-Dec
20-Dec
21-Dec
22-Dec
23-Dec
24-Dec
26-Dec
27-Dec
28-Dec
29-Dec
30-Dec
31-Dec
2-Jan
date
re
turns
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DATE COMMODITY CLOSING(RS) returns
3-Jan-11 SILVER 292470.005466172
4-Jan-11 SILVER 29085 -0.00553903
5-Jan-11 SILVER 291330.001650335
6-Jan-11 SILVER 292400.003672811
7-Jan-11 SILVER 29241 3.41997E-05
9-Jan-11 SILVER 29084
-0.005369173
10-Jan-11 SILVER 29122 0.00130656
11-Jan-11 SILVER 28982
-0.004807362
12-Jan-11 SILVER 291010.004105997
13-Jan-11 SILVER 291690.002336689
14-Jan-11 SILVER 291940.000857074
16-Jan-11 SILVER 295050.010652874
17-Jan-11 SILVER 296470.004812744
18-Jan-11 SILVER 29432
-0.007251999
total 409182
avg 29227.29 sd 0.005058
Silver : Analysis of 14 days From 3rd January to 18th January.Price MA
CCI = _________________0.015*D
409182 - 29227.29= _____________________
0.015 *29227.29
379954.71
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= _________________438.4093
= 866.6665396
Interpretation:
o The above graph shows the Analysis of Silver for 14 days.
o Based on same Deviation the CCI value was decreased.
o Compared to above 2nd & 3rd.
o The highest Closing price is 17th January and lowest is 17th January.
SIVER
28600288002900029200294002960029800
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
SILVER
3-Jan
4-Jan
5-Jan
6-Jan
7-Jan
9-Jan
10-Jan
11-Jan
12-Jan
13-Jan
14-Jan
16-Jan
17-Jan
18-Jan
DATE
RETURNS
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ANALYSIS AND INTERPRETATION OF SILVER IVDATE COMMODITY CLOSING(RS) returns19-Jan-11 SILVER 29405 -0.00091736920-Jan-11 SILVER 29033 -0.0126509121-Jan-11 SILVER 29070 0.001274412
23-Jan-11 SILVER 29033 -0.0012727924-Jan-11 SILVER 29557 0.01804842825-Jan-11 SILVER 30285 0.02463037526-Jan-11 SILVER 30232 -0.00175004127-Jan-11 SILVER 30344 0.00370468428-Jan-11 SILVER 30435 0.00299894530-Ja
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