fm ppt_commodities mkt

8/7/2019 Fm Ppt_commodities Mkt

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COMMODITIES MARKET IN INDIA

BY Learning group 1 (Finance Major)


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INTRODUCTION

India, a commodity based economy, surprisingly has an

underdeveloped commodity market

A commodity may be defined as an article, product or material that

is bought and sold

A commodity market is the market where a wide range of products,

viz., precious metals, base metals, crude oil, energy and soft

commodities like palm oil, coffee etc. are traded

Different segments in commodities market:

- Over The Counter (OTC) Market

- Exchange Based Market


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HISTORY OF COMMODITY MARKET

Bombay Cotton Trade Association Ltd., set up in 1875, was the first

organized futures market

The Futures trading in oilseeds started in 1900 with the

establishment of the Gujarati Vyapari Mandali, which carried on

futures trading in groundnut, castor seed and cotton

The most notable futures exchange for wheat was chamber of

commerce at Hapur set up in 1913

Calcutta Hessian Exchange Ltd. was established in 1919 for futurestrading in raw jute and jute goods


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DIFFERENT TYPES OF COMMODITIES TRADED

Precious Metals: Gold, Silver, Platinum etc

Other Metals: Nickel, Aluminum, Copper etc

Agro-Based Commodities:W

heat, Corn, Cotton, Oils, Oilseeds. Soft Commodities: Coffee, Cocoa, Sugar etc

Live-Stock: Live Cattle, Pork Bellies etc

Energy: Crude Oil, Natural Gas, Gasoline etc


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STRUCTURE OF COMMODITY MARKET


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LEADING COMMODITY MARKETS

Leading commodity markets of world:

York Mercantile Exchange (NYMEX)

London Metal Exchange (LME)

Chicago Board of Trade (CBOT) Leading commodity markets of India:

Multi Commodity Exchange (MCX) located at Mumbai

National Commodity and Derivatives Exchange Ltd (NCDEX)

located at Mumbai National Board of Trade (NBOT) located at Indore

National Multi Commodity Exchange (NMCE) located at

Ahmedabad


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MAJOR PLAYERS IN THE FUTURES MARKET

The players in the futures market fall into two categories:

a) Hedgers

b) Speculators

LONG HOLDER SHORT HOLDER

HEDGER

Secure a price now to

protect against future

rising prices

Secure a price now to

protect against future

declining prices

SPECULATOR

Secure a price now in

anticipation of rising

prices

Secure a price now in

anticipation of

declining prices


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COMMODITIES ECOSYSTEM


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ADVANTAGES OF COMMODITIES TRADING

A good low risk portfolio diversifier.

A highly liquid asset class, acting as counterweight to stocks, bonds

and real estate.

Less volatile compared with equities and bonds.

Investors can leverage their investment and multiply potential

earnings.

High co-relation with changes in inflation.

You no longer need to put the whole amount for trading; only the

margin is required.

Traders can short sell and profit from falling prices.

Huge potential for the participants to earn profit.

Extended trading hours.


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RECENT TRENDS IN COMMODITY MARKET

The 2008 global boom in commodity prices for everything from

coal to corn was fueled by heated demand from the likes of China

and India.

Speculation in forward markets.

The maximum quantum of business has come from the futures trade

in farm items such as guar seed, soyabean, soy oil and mustard seed

as well as commodities such as energy and crude oil

The turnover of 23 commodity exchanges surged by over 50% to

Rs69.70 lakh crore till February of the current fiscal due to a sharprise in participation of agricultural and other commodities, the

Forward Markets Commission (FMC) has said.

The turnover of commodity bourses had stood at Rs46.40 lakh crore

in the same period last year, it said.


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The country's leading exchange Multi Commodity Exchange (MCX)'s

turnover soared by 42% to Rs57.70 lakh crore during April-February

of FY10, against Rs40.60 lakh crore in the same period last year.

The business of the leading agri-commodity bourse National Commodity

& Derivatives Exchange (NCDEX) rose significantly by 69% to Rs8.30lakh crore from Rs4.90 lakh crore

National Multi-Commodity Exchange of India Limited (NMCE)'s turnover

scaled up by five-folds to Rs1.90 lakh crore from Rs39,625 crore.

The new entrant, Indian Commodity Exchange (ICEX), made business of

Rs1 lakh crore since the launch of the exchange on 21 November 2009.

The turnover of regional exchange National Board of Trade has risen

sharply to over Rs25,000 crore so far this fiscal.


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INDUSTRY GROWTH

India is among the top-3 producers of most of the commodities, in

addition to being a major consumer of bullion and energy products.

50 times increases in last 3 year (source :- business standard)

Consumption increases 30 times

From Rs. 66,000 crore in 2002 to Rs. 33lakhs crore in 2007, is now

expected to grow at a steady speed of about 30% by 2010 and

touch a volume of Rs. 74lakhs crore ( ASSOCHAM)

ASSOCHAM has predicted that commodity market will see a growth

of 252% by end of 2011 and would generate about 10lakhemployment opportunities a huge industry which is new untapped ,

and as a replacement of equity market in the coming future .

Its has touched 3 times the volume of equity market globally with

proven track record of growing constantly


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TRADING OF COMMODITIES : AN EXAMPLE

Price of gold per gram : 1900

Price of gold per Kg (1900*1000) : 19,00,000

Suppose there is increase of Rs 20 per gram of gold

Then price of gold per gram is Rs 1920

Price of gold per Kg (1920*1000) : Rs19,20,000

The difference between previous price of gold with current price is Rs

20000

By 19 lakhs of investment earning is 20000.


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COMMODITY DERIVATIVES

India is among the top 5 producer of the most of the commodities in

addition to being a major consumer of bullion and energy products.

Agriculture contributes more than 23% to be GDP of Indian

economy.

It employees around 57% of the labour force on a total of 185

million hectares of land.

Agriculture sector is an important factor to achieving a GDP growth

of 8.10. All this indicates that India can be promoted as a major

centre for trading of commodity derivatives.


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It is important to understand why commodity derivatives are

required and the role they can play in risk management.

It is common knowledge that prices of commodities, metals, shares

and currencies fluctuate over time.

The possibilities of adverse price change in future creates risk for

business.

Derivatives are used to reduce or eliminate price risk arising from

unforeseen price change.


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TWO IMPORTANT DERIVATIVES

1. COMMODITY FUTURE CONTRACT

A future contract is an agreement for buying or selling a commodity

for a predetermined delivery price at a specific future time.

2. COMMODITY OPTION CONTRACT

Like futures, option are also financial instruments used for hedging

and speculation. The commodity option holder has the right, but not

the obligation to buy (or sell) a specified quantity of a commodity

at specified price on or before a specified date


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ROLE OF COMMODITY FUTURES IN INDIAS

ECONOMY (FUTURE PROSPECTS)

We could have major benefits from liberalization of the agricultural

sector

A system of futures markets will improve cropping patterns

Commodity futures markets are a part and parcel of a program for

agricultural liberalization.


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fm ppt_commodities mkt

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