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A

REPORT ON THE

“STUDY OF COMMODITIES MARKET IN INDIA”

AT

ANGEL BROKING, BHUBANESWAR, ODISHA, PIN- 756182

A report Submitted in partial fulfillment of the requirement for the


Award of the degree of
Master of Business Administration

SUBMITTED BY

CHANDRAKANT PANIGRAHI
MBA (BA), TRI- VI
ROLL NO- 07

UNDER THE GUIDANCE OF

PROF. Dr. KIRTI GUPTA

INSTITUTE OF MANAGEMENT AND ENTREPRENEURSHIP


DEVELOPMENT
BHARATI VIDYAPEETH UNIVERSITY
PUNE

*2008-2010*
A

REPORT ON THE

“STUDY OF COMMODITIES MARKET IN INDIA”

AT

ANGEL BROKING, BHUBANESWAR, ODISHA, PIN- 756182

A report Submitted in partial fulfillment of the requirement for the


Award of the degree of
Master of Business Administration

SUBMITTED BY

CHANDRAKANT PANIGRAHI
MBA (BA), TRI- VI
ROLL NO- 07

UNDER THE GUIDANCE OF

PROF. Dr. KIRTI GUPTA

INSTITUTE OF MANAGEMENT AND ENTREPRENEURSHIP


DEVELOPMENT
BHARATI VIDYAPEETH UNIVERSITY
PUNE

*2008-2010*
BHARTI VIDYAPEETH UNIVERSITY, PUNE

INSTITUTE OF MANAGEMENT AND ENTREPRENUERSHIP DEVELOPMENT,


PAUD ROAD, ERANDWANE
PUNE-38

CERTIFICATE OF COMPLETION

This is to certify that Mr. Chandrakanta Panigrahi is a bonafide student of MBA (BA) program of the
university in this institute for the year 2008-10. As a part of the University curriculum, the student has
completed the project report titled “STUDY OF COMMODITIES MARKET IN INDIA” at ANGEL
BROKING.

The project report is prepared by the student under the guidance of Dr. Kirti Gupta.

(Teacher Guide) Program Co-ordinator Director

Date:

Place:
ACKNOWLEDGEMENT

Before I get into the depth of the thing, I would like to add a few heartfelt
words for the people who at various stages of the project development helped me
by their valuable guidance.

First and foremost I would like to pay my sincere gratitude which I owe to
HEMA MIRZI , and KIRTI GUPTA project guide, for their valued help and
guidance which they gave me when I needed it the most. It was only due to their
sincere help and efforts that I was able to end up with this project.

I owe special thanks to Dr.Nitin Naik, director of “INSTITUTE OF


MANAGEMENT & ENTREPRENEURSHIP DEVLOPMENT,”, Pune for his valuable co-
operation and guidance in completing the project work.

Last but not the least; I would like to pay our gratitude to my parents,
without their help and blessing I can’t take a single step in right direction.

C
handrakanta Panigrahi
Se
at no. :-104410005, MBA (BA)
DECLARATION

I Chandrakanta Panigrahi, a student of INSTITUTE OF MANAGEMENT &


ENTREPRENEURSHIP DEVLOPMENT, Pune, session (2008-10) bearing Seat no.:–
104410005 and University PRN no.:- 800001258, hereby declare that the project report entitled
“Study of commodities market In INDIA (ANGEL BROKING PVT. LTD.) Is the outcome of my
own work and the same has not been submitted to any college for the award.

Date:

Place:
(Chandrakanta Panigrahi)
CONTENTS

Chapter No. Title Page No.

I Introduction 7

2 Company profile 22

3 Objective & Methodology 27

4 Data analysis & interpretation 30

5 Finding 52

6 Conclusion 54

7 Bibliography 56
Commodity-
Definition
“A physical substance, such as food, grains, and metals, which is interchangeable with another
product of the same type, and which investors buy or sell, usually through futures contracts.”. The
price of the commodity is subject to supply and demand. Risk is actually the reason exchange
trading of the basic agricultural products began.

For example- A farmer risks the cost of producing a product ready for market at sometime in the
future because he doesn't know what the selling price will be.
More generally, a product which trades on a commodity exchange; this would also include
foreign currencies and financial instruments and indexes.
A commodity exchange is a place where various commodities and derivatives are bought and
sold. Commodities exchanges usually trade on commodity futures. Now here we are giving a set
of questions to understand the basic concepts of the commodity markets. This will be useful for
the people who are doing trading for the first time in commodity market. The exchanges are
regulated by the Forward Markets Commission. Unlike the equity markets, brokers don't need to
register themselves with the regulator. The FMC deals with exchange administration and will
seek to inspect the books of brokers only if foul practices are suspected or if the exchanges
themselves fail to take action. In a sense, therefore, the commodity exchanges are more self-
regulating than stock exchanges.

1) Where do I need to go to trade in commodity futures?

You have three options - the “National Commodity and Derivative Exchange”, the “Multi
Commodity Exchange of India Ltd” and The “National Multi Commodity Exchange of
India Ltd”. All three have electronic trading and settlement systems and a national presence.

2) What is the minimum investment needed?

You can have an amount as low as Rs 500. All you need is money for margins payable upfront to
exchanges through brokers. The margins range from 10 per cent of the value of the commodity
contract

For trading in bullion, that is, gold and silver, the percentage remain same but the total amount
changes according to the change in market price

The prices and trading lots in agricultural commodities vary from exchange to exchange (in kg,
quintals or tones), but again the minimum funds required to begin will be approximately Rs 500.
3)Do I have to give delivery or settle in cash?

You can do both. All the exchanges have both systems - cash and delivery mechanisms. The
choice is yours. If you want your contract to be cash settled, you have to indicate at the time of
placing the order that you don't intend to deliver the item.

If you plan to take or make delivery, you need to have the required warehouse receipts. More
over if you want to take delivery you have to tell at least before 5 or 6 days before the expiry date
so that the proper money can be sent and the required adjustment can be made at the warehouse.
For taking the delivery the “TIN NO” and “GIR NO” is required. Moreover in delivery the
commission increases and sales tax is also applicable.

4) What do I need to start trading in commodity futures?

As of now you will need only one bank account. You will need a separate commodity demat
account from the Multi-commodity exchange to trade on the MCX just like in stocks.

5) What are the other requirements at broker level?

You will have to enter into a normal account agreements with the broker. These include the
procedure of the Know Your Client format that exist in equity trading and terms of conditions of
the exchanges and broker. Besides you will need to give you details such as PAN no., bank
account no, etc.

6) What are the brokerage and transaction charges?

The brokerage charges is 0.5 Ps per100 Rs for intraday trading and if you want to take the
delivery then you have to pay 0.50 Ps per 100 Rs..The transaction charges are 0.1% and it is same
for all commodities.

7) Where do I look for information on commodities?

Daily financial newspapers carry spot prices and relevant news and articles on most commodities.
Besides, there are specialized magazines on agricultural commodities and metals available for
subscription. Brokers also provide research and analysis support.

But the information easiest to access is from websites. Though many websites are subscription-
based, a few also offer information for free. You can surf the web and narrow down you search.
8) Who is the regulator?

The exchanges are regulated by the Forward Markets Commission. Unlike the equity markets,
brokers don't need to register themselves with the regulator.The FMC deals with exchange
administration and will seek to inspect the books of brokers only if foul practices are suspected or
if the exchanges themselves fail to take action. In a sense, therefore, the commodity exchanges
are more self-regulating than stock exchanges.

9) Who are the players in commodity derivatives?

The commodities market will have three broad categories of market participants apart from
brokers and the exchange administration - hedgers, speculators and arbitrageurs. Brokers will
intermediate, facilitating hedgers and speculators.

Hedgers are essentially players with an underlying risk in a commodity - they may be either
producers or consumers who want to transfer the price-risk onto the market.

Producer-hedgers are those who want to mitigate the risk of prices declining by the time they
actually produce their commodity for sale in the market. consumer hedgers would want to do the
opposite.

Speculators are the highest risk taking person. They are those who want to take the advantages of
the differences in prices of commodity by doing fluctuation in market.

Arbitrageurs are the person who is taking advantage of prices by working in two market. These
can be explained by a example-

e.g.-suppose a person is working in both markets MCX and NCDEX then he can take the
advantage of pricing difference in both the markets and earn his profit.

10) In which commodities can I trade?

Though the government has essentially made almost all commodities eligible for futures trading,
the nationwide exchanges have earmarked only a select few for starters. While the NMCE has
most major agricultural commodities and metals under its fold, the NCDEX, has a large number
of agriculture, metal and energy commodities. MCX also offers many commodities for futures
trading.
11) Do I have to pay sales tax on all trades? Is registration mandatory?

No. If the trade is squared off no sales tax is applicable. The sales tax is applicable only in case of
trade resulting into delivery. The sales tax is applicable at the place of delivery. Those who are
willing to take physical delivery need to have sales tax registration number.

12) What happens if there is any default?

Both the exchanges, NCDEX and MCX, maintain settlement guarantee funds. The exchanges
have a penalty clause in case of any default by any member..Moreover once you open an account
you have to do some trading otherwise the demat charges will be applicable that is normally 320
RS.

13) Are any additional margin/brokerage/charges imposed in case I want to take delivery of
goods?

Yes. Normally the broking charges is 0.5 Ps per 100 Rs. but if it results into delivery then the
broking charges is 0.50 Ps per 100 Rs

14) Is stamp duty levied in commodity contracts? What are the stamp duty rates?

In case of delivery, the stamp duty will be applicable according to the prescribed laws of the state
the investor trades in. This is applicable in similar fashion as in stock market.

15)How much margin is applicable in the commodities market?

The margin money is generally 10% of contract valve. margin is different for each commodity.
Just like in equities, in commodities also there is a system of initial margin and mark-to-market
margin. The margin keeps changing depending on the change in price and volatility.

16) Are there circuit filters?

Yes the exchanges have circuit filters in place. The filters vary from commodity to commodity
but the maximum individual commodity circuit filter is 5 %. The price of any commodity that
fluctuates either way beyond its limit will mimed
COMMODITIES EXCHANGES IN INDIA-
A commodity exchange is a place where various commodities and derivatives are bought and
sold. Commodities exchanges usually trade on commodity futures.

Reasons for trading in Commodity Exchanges:

Hedging: Commodities are subject to constant and extreme price fluctuations. Traders are the
worst sufferers of the price risk. Forward contracts have come to their rescue.

A forward contract requires a buyer and a seller to take and make a delivery of a definite quantity
of a particular commodity at a future specified date. Such contracts are traded on an exchange,
which provides guarantee for all futures dealings, and parties can "hedge" at suitable levels.
Hedging lessens risk since it involves the purchase or sale of a commodity with the intention of
counterbalancing the profit or loss of another investment. Therefore, any loss on the previous
investment will be hedged, or compensated, by a matching profit from the hedging instrument.

Speculating: Speculators are people who are prepared to bear risks in anticipation of earning
profits. Markets are granted liquidity by speculators and it is hard to conceive of a futures market
devoid of speculators.

Arbitrage: Arbitrage involves buying a commodity at a low price and instantly selling it for a
higher price in another market. Thus, traders can profit from arbitrage opportunities occurring due
to price differences between two exchanges.

Shifting of Risk: The minute a trader finalizes a deal and secures a price, he is no longer
concerned by unfavorable price shifts. For example, if a seller trades a specific contract for $ 450
and soon after the price comes down to $440, there has been an unfavorable price shift but the
seller has made a profit of $10. At this point, the risk has been transferred to the buyer of the
contract. Speculators trade on commodities and derivatives by undertaking risks in order to
maximize profits.

Information: Exchanges produce huge volumes of data that are intensely scrutinized and
monitored by a wide cross-section of people as the data provides gainful insights about the
prevailing economic conditions.

List of Exchanges in India-

1. Bhatinda Om & Oil Exchange Ltd., Bhatinda.

2. The Bombay Commodity Exchange Ltd., Mumbai


3. The Rajkot Seeds oil & Bullion Merchants` Association Ltd

4. The Kanpur Commodity Exchange Ltd., Kanpur

5. The Meerut Agro Commodities Exchange Co. Ltd., Meerut

6. The Spices and Oilseeds Exchange Ltd.

7. Ahmadabad Commodity Exchange Ltd.

8. Vijay Beopar Chamber Ltd., Muzaffarnagar

9. India Pepper & Spice Trade Association, Kochi

10. Rajdhani Oils and Oilseeds Exchange Ltd., Delhi

11. National Board of Trade, Indore

12. The Chamber Of Commerce, Hapur

13. The East India Cotton Association, Mumbai

14. The Central India Commercial Exchange Ltd., Gwalior

15. The East India Jute & Hessian Exchange Ltd.

16. First Commodity Exchange of India Ltd, Kochi

17. Bikaner Commodity Exchange Ltd., Bikaner

18. The Coffee Futures Exchange India Ltd, Bangalore

19. Esugarindia Limited

20. National Multi Commodity Exchange of India Limited

21. Surendranagar Cotton oil & Oilseeds Association Ltd

22. Multi Commodity Exchange of India Ltd

23. National Commodity & Derivatives Exchange Ltd


24. Haryana Commodities Ltd., Hissar

25. e-Commodities Ltd

Of these 25 commodities exchanges the MCX, NCDEX and NMCEIL are the major
Commodity Exchanges.
Multi commodity exchange of India Ltd - MCX is an independent and de-mutualised exchange
based in Mumbai. Established on 10 November, 2003, it is the third largest bullion exchange and
fourth largest energy exchange in the world. Recognized by the Government of India it deals in
numerous commodities and carries out online trading, clearing and settlement processes for
commodities future market countrywide.

MCX COMDEX is India's foremost and sole composite commodity futures price index National
Commodity & Derivatives Exchange of India Ltd (NCDEX) located in Mumbai, is a public
limited company incorporated on 23rd April 2003. Promoted by national level establishments it is
run by professional management. Regulated by the Forward Market Commission with reference
to futures trading in commodities, it trades in various commodities online. The NCDEX is
covered under:

 Companies Act
 Stamp Act
 Contracts Act
 Forward Commission (Regulation) Act
National Multi-Commodity Exchange of India Limited (NMCEIL) is considered the first de-
metalized, online exchange dealing in numerous commodities. Incorporated on 20th December
2001, it is promoted and run by:
 Central Warehousing Corporation
 National Agricultural Cooperative Marketing Federation of India Limited
 Gujarat Agro Industries Corporation Limited
 National Institute of Agricultural Marketing
 Gujarat State Agricultural Marketing Board
 Neptune Overseas Limited

The Commodity Exchanges with their extensive reach embrace new participants, resulting in a
powerful price discovery process.
1.5 Commodity-
Definition
”A physical substance, such as food, grains, and metals, which is interchangeable with another
product of the same type, and which investors buy or sell, usually through futures contracts.”. The
price of the commodity is subject to supply and demand. Risk is actually the reason exchange
trading of the basic agricultural products began.

A farmer risks the cost of producing a product ready for market at sometime in
For example-
the future because he doesn't know what the selling price will be.
More generally, a product which trades on a commodity exchange; this would also include
foreign currencies and financial instruments and indexes.
Why invest in commodities?

Leverage is very important to the commodities markets. Unlike the stock market, where
you might have to invest 10,000 dollars to leverage 10,000 dollars. A commodity trader can
leverage tens of thousands of dollars worth of a commodity for pennies on the dollar. Also
unlike stocks, commodities have intrinsic value and will not go bankrupt. The futures
markets are so crucial to the well being of our nation, that the government established the
Commodity Futures Trading Commission (CFTC) to oversee the industry.
There is also a self-regulatory body, the National Futures Association (NFA) who monitor
the activities of all futures market to ensure the integrity of the futures markets.
Commodities also give the investor the ability to participate in virtually all sectors of the
world economy and have the potential to produce returns that tend to be independent of
other markets. In fact portfolios that add commodity investments can actually lower the
overall portfolio risk by diversification.

Who sets the price of commodities?


Commodities are traded constantly on commodity exchanges around the world such as the
Chicago Mercantile Exchange, Winnipeg Commodities Exchange (WCE) and the New York
Mercantile Exchange (NYMEX).Since commodities are traded on exchanges, their prices
are not set by a single individual or entity. On the exchanges, commodities are traded via
futures contracts. These contracts obligate the holder to buy or sell a commodity at a
predetermined price on a delivery date in the future. Not all futures contracts are the same -
their specifics will differ depending on the respective commodity being traded.

The market price of a commodity that is quoted in the news is often the market futures
price for that respective commodity. As with equity securities, a commodities futures price
is determined primarily by the supply and demand for the commodity in the market.
For example, Let's look at oil. If the supply of oil increases, the price of one barrel of oil will
decrease. Conversely, if the demand for oil increases, which often happens during the
summer, the price of oil will increase. There are many economic factors that will have an
effect on the price of a commodity. Although commodities are traded using futures
contracts and futures prices, events that occur now will affect the futures prices. This can be
seen in the volatility of oil prices during the Gulf War in Iraq. The price of oil constantly
changed in respect to what was going on in the war, and was also affected by the likelihood
that Saddam Hussein would be able to retain control of Iraq.
For other commodities such as crops, weather plays an extremely significant
role in price changes. If the weather in a certain region is going to affect the supply of a
commodity, the price of that commodity will be affected directly. As with other securities,
many traders use commodity futures to speculate on future price movements. These
investors analyze various events in the market to speculate on future supply and demand.
They subsequently enter long or short futures positions depending on which direction they
believe supply and demand will move.

Charts:
Most traders when asked say that they generally use Daily Commodity price charts. Maybe
out of habit, or because most end up trading at that time level that this has become popular.
Because most traders focus on the Daily or Intraday Commodity charts by a much larger
margin than the Weekly or higher time frames.

When you consider the word 'Mass' which has more of it? The Weekly chart of course If you find
yourself spending more time using the Daily charts to analyze the commodity markets for trading,
and you are not day trading, it is advisable that you consider seeing the bigger and more accurate
picture of market direction by using the Weekly commodity chart.

The Weekly chart is a much more concentrated look of mass psychology as


opposed to the Daily chart. For the sake of example only, say each day brings 100,000 traders to
the market and each only makes one trading act per day. That would mean that each price Daily
price bar represents the mass psychology of 100,000 minds making 100,000 market actions. In
contrast, a single Weekly price bar then would represent 500,000 minds making 500,000 market
actions. Now, if you consider that 1 inch of a price chart may hold about 10 price bars, that 1 inch
of market patterns is representing 1,000,000 minds and market actions for the Daily price pattern,
but 5,000,000 for the same amount of space on the Weekly chart.

Commodity Investment Strategies:-


Capturing the full benefits of commodity exposure has been a challenge in the past. Investing in
physical commodities such as a barrel of oil, a herd of cattle or a bushel of wheat is of course,
quite impractical, so investors have tended to look for commodity exposure either by purchasing
commodity related equities or through actively managed futures accounts.

The onset of investment vehicles that track commodity futures indices has provided investors
with another option for gaining exposure to commodities that may offer better potential to capture
the full benefits of the asset class. Investment vehicles that track commodity futures indices are
not the same as actively managed futures accounts. Instead, commodity index returns provide
passive exposure to a broad range of commodities. One advantage of commodity exposure that
tracks a broad index is that commodities are not highly correlated with each other and index
returns should be less volatile than the returns on an individual commodity. Another advantage is
that commodity indexes themselves have existed for decades, providing ample historic data for
asset allocation studies and research.

RISK INVOLVED IN COMMODITY MARKET:-

1. CREDIT RISK
2. MARKET RISK

Credit Risk:-

Credit risk means that risk in which obligators are disabling to meet with the financial obligations
on the due date. This is a largely factor of financial statement of the company and determined by
the parameters like net worth, leverage, liquidity, free cash flow and other related factors.

Market Risk:-

Market risk is the risk which is not diversifiable risk that affects the industry as whole. It is a not
controllable risk. Market risk involves the following risks;

 Price Risk:
Volatility in the price of the commodity could submit the lender to price risk in the event
receivable from the commodity sales are insufficient to cover the amount due to under the
financing.

 Quality Risk:
Quality of underlying assets is not represented by the obligator and presents insufficient
values as collateral to the facilities.

 Liquidity Risk
In case of default not finding enough ready buyers in the spot market, hence not being
able to realize the value of the underlying commodities.

Why commodities

• Commodities are in a bull run


• Commodities normally have trend/ cycle for medium/ long term.
• Commodity future volumes are soaring

Benefits:

• Additional Investment opportunity


• Diversification of Portfolio
• Low cost business:
• No Transportation, storage, insurance, security Charges
• Low Margins – High leverage
• Domain knowledge
Impact on economies:

The development of commodities market, particularly exports, has a positive impact on


the economies. Within developing countries there are two groups- oil exporting countries
and non oil exporting countries of Sub-Saharan Africa. While Oil constitutes 50 percent
of merchandise exports of the oil exporting countries, non oil primary products constitute
80 percent of exports of the non oil exporting countries. Hence price volatility in
commodity markets affects these countries very much.

Disadvantages of commodity markets:

Globally commodity markets are criticized for their part in indulging in speculation and thus
increasing the prices. Another major criticism is that the farm gate price is very low when
compared to the price paid by the consumer. Small producers have no say in the market and
traders dominate. That is why future trading is banned in food grains.

Advantages of commodity markets:

1) The commodity markets try to integrate the fragmented rural markets.

2)Multiple commodities can be procured at one centre.

3)Efficient spot price can be discovered and disseminated.


4)The bargaining power of the farmers would be increased.

5)Transportation and warehousing facilities would be increased.

6)There would be guarantees for trade and also payments.

Multi-Commodity Exchange of India Limited (MCX)-

MCX an independent and de-mutilated multi commodity exchange has permanent recognition
from Government of India for facilitating online trading, clearing and settlement operations for
commodity futures markets across the country. Key shareholders of MCX are Financial
Technologies (India) Ltd.,State Bank of India, NABARD, NSE, HDFC Bank, State Bank of
Indore, State Bank of Hyderabad, State Bank of Saurashtra, SBI Life Insurance Co. Ltd., Union
Bank of India, Bank Of India, Bank Of Baroda, Canara Bank, Corporation Bank .
Headquartered in Mumbai, MCX is led by an expert management team with deep domain
knowledge of the commodity futures markets. Through the integration of dedicated resources,
robust technology and scalable infrastructure, since inception MCX has recorded many first to its
credit. Inaugurated in November 2003 by Shri Mukesh Ambani, Chairman & Managing Director,
Reliance Industries Ltd, MCX offers futures trading in the following commodity categories: Agri
-Commodities, Bullion, Metals- Ferrous & Non-ferrous, Pulses, Oils & Oilseeds, Energy,
Plantations, Spices and other soft commodities.MCX has built strategic alliances with some of the
largest players in commodities eco-system, namely, Bombay Bullion Association, Bombay Metal
Exchange, Solvent Extractors' Association of India, Pulses Importers Association, Shetkari
Sanghatana, United Planters Association of India and India Pepper and Spice Trade Association
. Today MCX is offering spectacular growth opportunities and advantages to a large cross section
of the participants including Producers / Processors, Traders, Corporate, Regional Trading
Centers ,Importers, Exporters, Cooperatives, Industry Associations, amongst others MCX being
nation-wide commodity exchange, offering multiple commodities for trading with wide reach and
penetration and robust infrastructure, is well placed to tap this vast potential
National Commodity & Derivatives Exchange Limited (NCDEX)-

National Commodity & Derivatives Exchange Limited (NCDEX) is a professionally managed


online multi commodity exchange promoted by ICICI Bank Limited (ICICI Bank), Life
Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development
(NABARD) and National Stock Exchange of India Limited (NSE). Punjab National Bank (PNB),
CRISIL Limited (formerly the Credit Rating Information Services of India Limited), Indian
Farmers Fertilizer Cooperative Limited(IFFCO) and Canara Bank by subscribing to the equity
shares have joined the initial promoters as shareholders of the Exchange. NCDEX is the only
commodity exchange in the country promoted by national level institutions. This unique
parentage enables it to offer a bouquet of benefits, which are currently in short supply in the
commodity markets. The institutional promoters of NCDEX are prominent players in their
respective fields and bring with them institutional building experience, trust, nationwide reach,
technology and risk management skills.
NCDEX is a public limited company incorporated on April 23, 2003 under the Companies Act,
1956. It obtained its Certificate for Commencement of Business on May 9, 2003. It has
commenced its operations on December 15, 2003. NCDEX is a nation-level, technology driven
de-mutualized on-line commodity exchange with an independent Board of Directors and
professionals not having any vested interest in commodity markets. It is committed to provide a
world-class commodity exchange platform for market participants to trade in a wide spectrum of
commodity derivatives driven by best global practices, professionalism and transparency.
NCDEX is regulated by Forward Market Commission in respect of futures trading in
commodities. Besides, NCDEX is subjected to various laws of the land like the Companies Act,
Stamp Act, Contracts Act, Forward Commission (Regulation) Act and various other legislations,
which impinge on its working. NCDEX is located in Mumbai and offers facilities to its members
in more than 390 centers throughout India. The reach will gradually be expanded to more centers.
NCDEX currently facilitates trading of thirty six commodities - Cashew, Castor Seed, Chana,
Chilli, Coffee, Cotton, Cotton Seed Oilcake, Crude Palm Oil, Expeller Mustard Oil, Gold, Guar
gum, Guar Seeds, Gur, Jeera, Jute sacking bags, Mild Steel Ingot, Mulberry Green Cocoons,
Pepper, Rapeseed - Mustard Seed ,Raw Jute, RBD Palmolein, Refined Soy Oil, Rice, Rubber,
Sesame Seeds, Silk, Silver, Soy Bean, Sugar, Tur, Turmeric, Urad (Black Matpe), Wheat, Yellow
Peas, Yellow Red Maize & Yellow Soybean Meal. At subsequent phases trading in more
commodities would be facilitated.
1.1Company Profile-

Angel broking trust with customer relation since 1987.Today Angel has emerged as one of the
most respected stock broking and wealth management company in India. With its unique retail
focused stock trading business model angel is succeeded in providing real valve money to its
clients. The Angel group is the member of the Bombay stock Exchange,NSE,And the leading
commodity exchange in India(MCX & NCDEX)

Company Bussiness-

1)Equity trading.

2)Commodities.

3)Portfolio Management Services.

4)Mutual Funds.

5)Life Insurance.

6)Personal Loans.

7)IPO.

8)Depository Services.

9)Investment Advisory.

Company presences-
1)National-wide presences of 21 regional hubs present in 124 cities.
2)Over 7850 sub-brokers and business associates.
3)More than 6.5 lakh clients.

Angel Group

1)Angel Broking Ltd.


2)Angel capital & Debt Market Ltd.
3)Angel Commodities Broking Ltd.
4)Angel Securities Ltd.

Core Valves of Company-


1)Motto-
To have complete harmony between quality in process and continuous improvement to
deliver exceptional service that will delight our customer and client.

2)CRM Policy-Customer is king-


Customer is the most important person in our premises. He is not dependent on us but we are
dependent on him. He is not an interruption in our work but a part of it. We are not doing him
favors by serving it but he is doing favors on us by giving an oppournity to serve him.

3)Business Phisilophy –
1) Ethical practice & transparency in our all dealing.
2) Customer interest is above all.
3) Always deliver for what we have promise.
4) Effective cost management.

4)Quality Assurance Policy-


We are committed to provide the world-class services which exceed the expectation of our
customers achieved by team-work and by a process of continuous improvement.

Indian markets have recently thrown open a new avenue for retail investors and traders to
participate commodity derivatives. For those who want to diversify their portfolios beyond
shares, bonds and real estate, commodities are the best option.

Till some months ago, this wouldn't have made sense. For retail investors could have done very
little to actually invest in commodities such as gold and silver -- or oilseeds in the futures market.
This was nearly impossible in commodities except for gold and silver as there was practically no
retail avenue for putting in commodities.

However, with the setting up of three multi-commodity exchanges in the country, retail investors
can now trade in commodity futures without having physical stocks!

Commodities actually offer immense potential to become a separate asset class for market-savvy
investors, arbitrageurs and speculators. Retail investors, who claim to understand the equity
markets may find commodities an unreliable market. But commodities are easy to understand as
far as fundamentals of demand and supply are concerned. Retail investors should understand the
risks and advantages of trading in commodities futures before taking a leap. Historically, pricing
in commodities futures has been less volatile compared with equity and bonds, thus providing an
efficient portfolio diversification option.

In fact, the size of the commodities as a whole of the industry segment in India is also quite a
significant industry, which constitutes about 58 per cent of the GDP.

Like any other market, the one for commodity futures plays a valuable role in information
pooling and risk sharing. The market mediates between buyers and sellers of commodities, and
facilitates decisions related to storage and consumption of commodities. In the process, they
make the underlying market more liquid.

CONCEPT OF SHARE TRADING IN INDIA:-


Trading in shares is old phenomena its regulation had been started when securities contract act
had been formed in 1956. Transfer of resources from those with idle resources to others who have
a productive need for them is most efficiently achieved through the securities market. It provides
a channel for reallocation of savings to investments.

SEBI

The Securities and Exchange Board of India (SEBI) is the regulatory authority in India
established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of
Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the
interests of investors in securities (b) promoting the development of the securities market and (c)
regulating the securities market. Its regulatory jurisdiction extends over corporate in the issuance
of capital and transfer of securities, in addition to all intermediary rise and persons associated
with securities market. SEBI has been obligated to perform the aforesaid functions by such
measures as it thinks fit. In particular, it has powers for:

• Regulating the business in stock exchanges and any other securities markets
• Registering and regulating the working of stock brokers, sub–broker etc.
• Promoting and regulating self-regulatory organizations
• Prohibiting fraudulent and unfair trade practices
• Calling for information from, undertaking inspection, conducting
inquiries and audits of the stock exchanges, intermediaries, self –
regulatory organizations, mutual funds and other persons associated

with the securities market.


NSE
The National Stock Exchange of India Limited has genesis in the report of the High Powered
Study Group on Establishment of New Stock Exchanges. It recommended promotion of a
National Stock Exchange by financial institutions (FIs) to provide access to investors
from all across the country on an equal footing. Based on the recommendations, NSE was
promoted by leading Financial Institutions at the behest of the Government of India and
was incorporated in November 1992 as a tax-paying company unlike other stock
exchanges in the country. On its recognition as a stock exchange under the Securities
Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the
Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities)
segment commenced operations in November 1994 and operations in Derivatives segment
commenced in June 2000.
BSE
Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning
three centuries in its 133 years of existence. What is now popularly known as BSE was
established as "The Native Share & Stock Brokers' Association" in 1875.
BSE is the first stock exchange in the country which obtained permanent recognition (in 1956)
from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE
continues to innovate. In recent times, it has become the first national level stock exchange to
launch its website in Gujarati and Hindi.
Objective
The objective of my project is to bring awareness among the investors who are interested for
share market but don’t know the procedure to invest in share market.

Methodology
In order to achieve the objectives, the research method includes following steps:
1) SOURCES OF DATA.
2) DATA COLLECTION METHOD.
3) SAMPLING DESIGN.

SOURCES OF DATA: -

In this study I have collect both the primary and secondary data.

2.2 PRIMARY DATA:

Primary data is a first handed collected data. Primary data are obtained from the
opinion of the clients of commodity traders. I have collected this primary data here
by taking the opinion of the commodity trader.

2.3 SECONDARY DATA:

Secondary data are those data, which have been collected and compiled earlier for
some other purpose by various sources. I have collected the secondary data here in
following ways:

• Web resources
• Company journals
• Trade Magazines
2.4 DATA COLLECTION METHOD:
In marketing research, field survey is commonly is used to collect primary data from the
respondents.

I have taken a personal interview of commodity clients to collect the data to know the latest trend
prevailing in the commodity market.

I was able to meet 15 to 20 clients personally in my training period because they were the only
active clients for my firm. This itself involved extensive efforts.

2.5 METHODS OF DATA COLLECTION


There are two types of data -:

1) Primary data
2) Secondary data
Gold
Overview:-

India is the largest consumer of gold in the world. Liberalization in 1991 saw efforts to slowly
revive the gold market in the country with the other sectors of economy. Thus, since 1991,
demand for gold has been increasingly met by official imports. The results are obvious in the
form of reduced smuggling, unofficial premiums and enhanced government revenue, by way of
customs and sales tariffs. The increasing gold trade deserves an efficient bullion exchange in
India, for which there is a need to develop an efficient spot and forwards market, sufficient
liquidity, regular, safe and cheap supply system with good delivery standards are some of the
prerequisites for smooth functioning of a bullion exchange.

The recent decision of the International Monetary Fund & other central bankers against selling
gold for the next five years signifies the faith placed in this metal by the leading economies of the
world. Gold will continue to play a decisive role in world economy in the next millennium.

Why to invest in Gold:-

Gold responds when you need it most:-


Recent independent studies have revealed that traditional diversifiers often fall during times of
market stress or instability. On these occasions, most asset classes (including traditional
diversifiers such as bonds and alternative assets) all move together in the same direction. There is
no “cushioning” effect of a diversified portfolio — leaving investors disappointed. However, a
small allocation of gold has been proven to significantly improve the consistency of portfolio
performance, during both stable and unstable financial periods. Greater consistency of
performance leads to a desirable outcome — an investor whose expectations are met.
Gold is highly liquid:-

Gold can be readily bought or sold 24 hours a day, in large denominations and at narrow spreads.
This cannot be said of most other investments, including stocks of the world’s largest
corporations. Gold proved to be the most effective means of raising cash during the
1987 stock market crash, and again during the 1997/98 Asian debt crisis. So holding a
portion of portfolio in gold can be invaluable in moments when cash is essential,
whether for margin calls or other needs

Sanctuary :

In unstable times, investors look to safeguard their capital by shifting it into assets deemed to be a
reliable depository of value. Gold provides a security against the capricious nature of paper
currency.

Assorted Portfolio :

A portfolio that holds widely varied investments is protected against market decline. Portfolios
comprising gold are reliable and secure.

Avoiding Inflation:

Although the purchasing capability of various currencies has largely fallen due to price hikes that
of gold has stayed amazingly steady. So, gold is purchased to offset the consequences of price
increases and currency instability.

Combat Dollar Instability:

Gold is frequently used as a convenient flight against dollar fluctuations. A rise in dollar value
leads to a drop in the gold price and a decrease in the dollar value results in an increase in the
gold price. Therefore, gold is considered useful in guarding against dollar instability.

Handling Risk:

A portfolio containing assets with minimal instability reduces risk and has a positive bearing on
anticipated returns. Gold is less susceptible to change and is hence a good investment.

Demand and supply:

The demand for gold has constantly exceeded supply mainly due to extended lead times that
occur in gold mining and growing income levels in major gold markets. The future
gold scenario looks bright and positive.
Indian Gold Market:-
India was the worlds’ largest gold market with Mumbai as the main trading center prior to 1962.
The government enacted the Gold Control Act in 1962 prohibiting the citizens of India from
holding pure gold bars and coins due to loss of gold reserves during the Indo-China war in 1962.
Only licensed dealers were allowed to deal in pure gold bars and coins. It was this legislation,
which killed the official gold market and a large unofficial market for gold sprung up dealing in
cash only. The gold was smuggled in and sold through the unofficial channel wherein many
jewelers and bullion traders traded in smuggled gold leading to the development of huge black
market for gold. Gold was smuggled into India in the size of 10-tola bars (called a TT bar in
trade parlance). The traditional Indian measure for gold is “tola”; a name derived from the
Sanskrit word “tula” for scale or balance. One tola is equal to 11.664 grams. Hence a 10-tola bar
weighs 116.64 grams.
The important feature of this 10-tola bar is that they don’t have serial number, unlike almost all
other cast bars available on the international market. This made ten-tola bar the gold currency of
choice, especially from 1947-1992 when India strictly regulated gold imports, giving rise to a
massive black market.

During 50’s and 80’s, the government had a controlled economy wherein all the factors of
production and resources were controlled and licensed. This led to the corruption and shortages
resulting in profiteering by the businesses.

It was in 1990 when India had a major foreign exchange problem; the Indian government pledged
40 tons of gold from their gold reserves with the Bank of England to save the day. Subsequently
India embarked upon the path of economic liberalization.

SUPPLY AND DEMAND DYNAMICS:-


I. Production
II. Consumption
III. Investment
IV. Demand Supply factors
Demand for Gold:-
India is the largest consumer of gold in the world. The recent figures of World Gold Council
exhibit that Indian demand for gold in 2006 was 843.2 tons, which comprises 26.2 % of the total
world demand. Most of the demand for gold appears to be for jewellery fabrication, and the rest,
estimated at 10 to 15 percent, is possibly meant to meet demand on account of investment and
Industrial and dental processes. This is sure to surprise many whlen India is considered a very
poor country with one of the lowest per capita incomes in the world.
Demand for Gold:

Demand for Jewellery:


Rural India
India has highest demand for gold in the world and more than 90% of this gold is acquired in the
form of jewelers. The demand for jewelry mainly comes from rural sector; about 65-70% of the
gold purchases are from rural India, which live upon agriculture for their livelihood. Since
agriculture is highly dependent on the rains, the rural disposable income depends upon weather;
hence a good year for agriculture assures higher demand for gold. The bulk of the Indian jewelers
buying is still rooted in tradition and jewellerry is sold in traditional designs.

The main reason for such high rural demand for gold is non-taxation of agricultural income. If the
agricultural income were taxed, the disposal income would substantially reduce resulting in lower
gold demand. In the rural areas, the womenfolk especially have a low level of education. Hence
the middle-aged rural Male invests more of their savings in gold so that womenfolk can encase
their wealth without any legal hassles. In south India, consumers prefer new designs with the
change in fashion trends, hence they sell off their jewelry when they become out of fashion
exchange for new jewelry. In north India, new purchases are done only when the ornaments are
broken and in some extreme cases.

About 95% of purchases are done by women .The demand for gold in north India increases
during festivals (mainly Diwali) and marriage season. The months from October to January, April
and May constitute the main marriage season and also have a large number of festivals. Hence
demand for gold is very strong during these months.

In south India demand is more or less uniform throughout the year as salaried people form the
major chunk of purchasers who invest their savings regularly in gold purchases. The figures of
the past few years show that Indian demand for gold has consistently been hovering around 25%
of total world demand. Jewelers designs vary in different regions of India, making the style
unique to each region. In south India the designs are inspired by nature - paisley motif of the
mango, rice grains, melon and cucumber seeds, etc. while In northern and western designs are
inspired by the meenakari (enameling) and kundan (setting of precious and semi-precious stones
in gold) styles to just give a few examples.
Urban India

Exposure to western influences and the media have spawned a consumerist culture. The entry of
modern gadgetry like laptops, cell phones and white goods has grabbed away a part of the urban
Indian’s disposable income. The lure of spending on these modern gadgets has taken precedence
over the older virtue of saving. Adding to it, the urban Indian has been exposed to alternate forms
of savings like equities and bonds via mutual funds, which have diminished their desire for gold.
In effect, dampening the urban demand for gold. The passion for gold between the urban and the
rural Indian has widened.
Demand for Investment:-
Private Holding of Gold bars in India was forbidden until 1990 due to Gold Control Act. There
was physical investment in smuggled ten tola bars, but it was limited and often amounted to
keeping a few bars ready to be made into jewelers. Gold investment essentially was in 22-carat
jewellery.
Since 1990 (after Gold control Act was abolished), investment in small bars, both imported ten
tolas and locally made small bars, which have proliferated from local refineries, has increased
substantially. GFMS estimate that investment has exceeded 100 tons (3.2 million-oz) in some
years, although it is hard to segregate true investment from stocks held by the 16,000 or more
gold dealers spread across India.
Certainly gold has been used to conceal wealth, especially during the mid-1990s, when the local
rupee price increased steadily. It was also augmented in 1998 when over 40 tons (1.3 million-oz)
of gold from bonds originally issued by the RBI were restituted to the public.In the rural areas 22-
carat jewellery remains the basic investment, while in the cities, gold is competing with the stock
market, investment in Internet industries, and a wide range of consumer goods.
Factors Influencing Demand for Gold
Following are the factors influencing the demand for gold;
1. The movement of gold prices is one of the important variables determining demand for gold.
2. The increase in the irrigation, technological change in agriculture (through mechanization and
high yielding varieties), have generated large marketable surplus and a highly skewed rural
income distribution is another factors contributing to additional demand for gold.
3. Black money originating in the services sector, like real estate and public sector, has
contributed to gold as store of value. Hence income generated in these service sector can be
treated as a determining variable
4. Since bank deposits, unit trust of India, Mutual funds, small savings, etc are alternative
avenues for investing savings, the weighted return on these alternative assets can be
considered as another influencing factor.
5. Demand for gold also depends upon prices of other commodities. When there is an increase in
general price level, it has two effects: first it reduces the purchasing power available for
acquisition of jewellery and secondly, it reduces the real return on gold. It has depressing
effect on the component of demand in both ways.
6. Inflation redistributes incomes in favour of non-wage income earners, leading to more skewed
income distribution. With incremental income of non-wage earners, the demand for gold as a
store of value can be expected to rise.

Supply of Gold:-
The main economic effects that arise from the changes in the supply of gold can be seen against
the quantum of gold that is already in existence in the economy. Unofficial imports of Gold
flourished after the ban on import of gold. Illegal imports continued to take place at growing rates
thereafter. If the gold stock of Reserve Bank Of India is also included, the total gold stock in the
country was about 7656 tons at the end of 1991.

The gold market also benefited because the government abolished the 1962 Gold Control Act in
1992 and liberalized gold import into India on payment of a duty of Rs 250 per 10 grams
(presently Rs 100 per 10 grams). The government thought it more prudent to allow free imports
and earn the taxes rather than to lose it all to unofficial trade -surprisingly a very pragmatic view.
This expanded the gold market while reducing the quantum of trade and the profit margins in the
unofficial channel. The official imports gradually grew from the year 1992 with the official
imports peaking at 663 tons at the end of the decade.
Sources of Supply:-
The supply of Gold in India arises mainly from domestic production, legal and illegal imports.
Scrap gold, which is not an additional supply, supports the market requirements.
Domestic production:-
The main producers of Gold are Hutti Gold Mines and Bharat Gold mines Limited, which
annually produce about two tons. This has been the case from the past two decades. There are no
known gold reserves in India worth mentioning.
Imports
Domestic production being minuscule practically the entire demand is met by imports and
recycling of previously accumulated stock and scrap generated from it. There was a big spurt in
the consumption following the Liberalization of gold imports in 1992. Consumption seems to
remain around 400-425 tons in the next couple of years. Before resuming the rising trend,
estimated consumption was more than twice the level recorded in 1990 and nearly 70% higher
than in 1992.
A major step in the development of gold markets in India was the authorization in July 1997 by
the RBI to commercial banks to import gold for sale or loan to jewelers and exporters. Initially,
seven banks were selected for this purpose on the basis of certain specified criteria like minimum
capital adequacy, profitability, risk management expertise, previous experience in this area, etc.
At present, 14 banks and institutions are active in the import of gold –
 MMTC Ltd
 Handicraft And Handloom Export Corporation
 State Trading Corporation Of India
 The State Bank Of India
 Allahabad Bank
 Bank Of India
 Canara Bank
 Indian Overseas Bank
 Bank Of Nova Scotia
 HSBC
 Abn-Amro Bank
 Standard Chartered Bank
 Corporation Bank and
 Dena Bank.
The quantum of gold imported through these banks has been in the range of 500 tons per year.
World demand for gold was about 3200 tons in 2008. Corresponding to that in India was about
842 tons with imports occupying major chunk of 650 tons, domestic production 2 tons and
remaining being recycled gold.
Channels for Import of Gold:-
Gold enters India via. a number of different routes. The trade routes are complex but can be
classified into two broad categories - Direct flow (official) and Indirect flow (unofficial flows).
Direct flows include shipments, which mainly come from the refining centers of Europe, South
Africa and Australia. Imports through direct flows are done in three ways
1. Special import licenses
2. Non-resident Indians
3. Authorized banks and institutions.
Import of gold through Special Import License (SIL) and NRI route has been negligible after gold
import through banks was permitted. The liberalized gold policy has brought most of the
unofficial sector trade to official sector. The elimination of large unofficial market in forex has
improved the policy effectiveness. It may also be noted that the Indian consumer of gold has been
spared of huge transaction costs amounting to thousands crores of rupees on account of the
existence of the unofficial sector in the past.
Indirect flows (unofficial) occurs place through two entry ports of Singapore, Sri Lanka and
Dubai in the first instance.

Factors Influencing the Supply of Gold:-


The following are few of the factors that influence gold supply.
• Supply of gold follows the demand for gold hence the demand for gold is one of the
important variables determining supply for gold.
• The differentials between domestic and international prices for gold acts as inducement
for smuggling with the objective of earning large rupee income, thus this can be treated as
one of the important factor influencing supply of gold.

Tariff Structure:-
The import duty on Gold was Rs.220 per ten grams up to January 1999,after which it was
increased to Rs 400 per ten grams, this led to increased gold smuggling. As a result, India lost an
estimated Rs 6,000 crores (Rs 60 billion) of foreign exchange. Smuggling which gradually came
down when the duty was reduced to Rs 250 per ten grams on April 2001 and subsequently to Rs
100 Per ten grams. The amount of duty released from gold imports indicates an annual figure
varying from Rs. 1,000 to Rs. 2,000 crore per annum since 1997.
CONTRACT SPECIFICATIONS:

Gold
Trading system MCX's Trading System
Trade timings on all trading days:
Trading Hours : 09.55 a.m. 11.55 p.m.
Trading hours
Single Call Market (Closing session) for determination of Closing
Price:11.15 p.m. to 11.30 p.m.
Unit of trading 100 gm
Delivery unit 1 kg
Rs per 10 gm of Gold with 999.9 fineness (called “Pure Gold“ in trade
Quotation/Base Value
circles)
Not less than 995 fineness bearing a serial number and identifying
Quality specification stamp of a refiner approved by MCX. List of approved refiners will be
available with the Exchange and also on its web site: www.mcx.com
Quantity Variation None
At any date, 3 concurrent month contracts will be active. There will be
No. of active contracts
a total of twelve month contracts in a year
Delivery center Mumbai
Trading in any contract month will open on the 21st day of the month,
Opening Date 3 months prior to the contract month i.e. January 2004 contract opens
on 21st October 2003
20th day of the delivery month, if 20th happens to be a holiday then
Due date
previous working day
The discount will be given for the fineness below 999.9. The
Premium / Discount settlement price for less than 999.9 fineness will be calculated as:
(Actual fineness / 999.9) *Settlement price
Explanation of the contract specialization-
Gold-

1)The first parameter of the contract deals with that the gold is a commodity that is traded on
MCX markets from 9.55pm to 11.30 pm

2)Now generally we can do three types of trading-

a)Daily trading

b)Delivery trading

c)Short trading

3)Now the minimum quantity we can take is of 100 Gm.In one lot we can take maximum 1
kg.after 1 kg the lot changes and the second lot come in face.

4)Now the margin money generally we have to give is 10% and by giving the margin we can start
trading. It is mandatory to pay the margin money. Without paying of the margin money we can
not do trading.

5)Generally the fineness provided is 999.9 fineness and the gold must bear the mark of
recognized refiner approved by MCX .

6)Generally three month future contract is done in MCX Markets.

7)Any kind of discount may be provided if the fineness is less than 999.9

8)The delivery centre for collection of gold is generally in Mumbai.


Copper
An Overview:-

Copper (Latin cuprum, from the island of Cyprus) is believed to have been mined for over 5,000
years. It occasionally occurs natively, and is found in many minerals such as cuprites, malachite,
azurite, chalcopyrite, and bornite. Copper is amongst the largest consumed metal in the world. In
fact it ranks third after steel and aluminum. Until the mid-50s copper consumption kept in pace
with the production. Since then, the global copper consumption has steadily outgrown the
production, in 1990 by 4%, and consumption patterns shifted towards the rapidly developing
Asian countries

History-

The name copper is derived from the Greek word ‘chalkos’. It is also related to the Greek
mythology as it is said that it was associated with the goddess Venus.

The origination of this oldest known metal, copper, is not exactly known to the human race but it
is estimated that it was discovered in around 9000BC in the middle east. A copper locket had
been found in Iraq that is around 8500 BC old. Smelting, one of the processes that is used to
refine copper, dates back to around 4500BC and the smelting sites were located in the areas of
present day Israel, Egypt and Jordan at that time. This metal was also used to make weapons,
hammers and axes. The people in Egypt discovered that by adding tin to copper, the casting of the
metal becomes easier. the metal was getting popular in the east mainly in China and India. China
started the process of hydrometallurgy in which a metal is separated from its alloys. Indian people
made various other crafts by using alloys of copper like icons and lamps. The importance of this
very useful metal was identified and it was so extensively used that the respective era of history is
named as The Bronze Age (2500BC-600BC).

The inventions of new technologies in the east were adopted by whole of the world. It was found
that copper is a corrosion free substance and then it marked the invention of a new use of copper-
in plumbing systems and protecting wooden ships from algae. Ships of Christopher Columbus
too, use to have this copper guarding. With time, more and more new uses and new techniques to
extract copper were invented.

Copper coins have also played an important role in the history as a medium of currency. The
earliest instance found of copper being used as a currency was in the form of lumps in the 6th
century BC by the people of Italy. The shape of copper lumps were molded to coins with the
invention of new copper alloys. Rulers like Julius Caesar and Octavian us use to have their own
coins having their own symbols. This shows that copper has ever been a prominent contributor to
the all of the various aspects of history, culture, technology and medicine and is still used
extensively.
Global scenario

Global economy coming out of recession is seen lending impetus to metals demand currently.
While the US and the European economies are still reeling under pressure, Asian economy has
been doing well. No doubting fact that US and European economies, being industrial economies,
are the largest copper consumer. However, the strengthening of Asian economy led by China and
other Asian countries, the region has emerged as biggest consumer due to growing
industrialization and population growth. China’s economy has been growing at a phenomenal rate
and the country is consuming everything from scrap to concentrate to cathode to feed its rapidly
building downstream industry. China's copper industry continues to astonish, with consumption
rising by 15% last year. It is expected to grow 10% per year for the rest of this decade. China now
accounts for 20% of world consumption of copper sheet and strip, and usage in cable, wire, tube
and pipe.

India scenario

Indian copper industry is dominated by three major players namely Hindalco, Sterlite Industries
and Hindustan Copper. During the last decade, production capacity for refined has increased
almost meeting the demand for refined copper. The scenario remained subdued for most of FY04
due to lack of demand. Governments increasing thrust on infrastructure development, which
includes development of power sector, and pick up in industrial activity is likely to help generate
demand for copper lately. In fact, the domestic mineral production recorded a 3.3% growth in
June 2004 as compared to that of the corresponding month of previous year. India’s industrial
activity continues to report stronger growth during the last four quarters. As a result, leading
copper manufacturers such as Hindustan Copper, Hindalco, Sterlite Industries have witnessed
increase in production. Hindalco and Sterlite Industries have evinced interest in overseas
acquisition in order to meet growing demand.

Major Producer

Copper is considered to be a native of America. Large copper ore deposits are found in the US,
Chile, Peru, and Canada apart from African countries such as Zambia, Zaire. The most important
copper ores are the sulfides, the oxides, and carbonates. From these, copper is obtained by
smelting, leaching, and by electrolysis. Major copper producing countries are Chile (24% of the
global mine production) and the United States (19%).
Price Trend:-

Copper prices on the


London Metal
Exchange have
taken off late 2003.
Copper cash prices
crossed US$3,000/
per ton mark on
March 1, 2004 due
to increased pick-up
from countries like
China. Availability of copper had suffered due to lower mining activity around the globe.
Domestic copper prices closely follow movement in international prices.

GENERAL PRICE TREND OF COPPER

Price Outlook:-

Surge in demand has been driving copper prices at record high in the last few quarters. Revival in
the global economy, fuelled by strong Chines demand, and drop in exchange stock are expected
to keep prices afloat. World mining activity has seen tremendous improvement in the recent past,
which will ensure constant supply and hence could cap sudden spurt in prices.

Major trading centre in copper-

Copper is an important commodity that is traded mainly in


• London Metals Exchange (London)
• New York Mercantile Exchange (New York)
• Shanghai Futures Exchange (China)

Market Influencing Factor-

• Price fluctuations of copper in London Metal Exchange


• Production level of copper in the world
• Growth prospects of the major copper consuming countries of the world

CONTRACT SPECIFICATION
• COPPER
Trading system MCX's Trading System
Trading hours Trade timings on all trading days:
Trading Hours : 09.55 a.m. 11.55 p.m.
Single Call Market (Closing session) for determination of
Closing Price:11.15 p.m. to 11.30 p.m.
Unit of trading 1000 Kg
Delivery unit 1 MT
Symbol COPPER
1st date of every month but the month must be in odd sequence
Opening date i.e 1st January to 31st March. Then the next contract in the month
of March i.e 1st March to 31st May.
Due Date Last date of every month. i.e 28th February, 30th April.
Margin Requirement 10%

Explanation of the contract specialization of copper-

1)It is traded on MCX and NCDEX markets.

2)The quantity which we have to take is 1000 kg.

3)The delivery unit of it is 1 MT

4)The margin requirement is generally 10%.

5)In one lot we can take only 1000 kg if we have more than 1000 kg then we have two lot.

6)Depending upon no of lot the margin changes.

7)For the collection of copper different copper centre is given by MCX Markets

Silver
Overview:-

Silver has been used for thousands of years as ornaments and utensils, for trade, and as the basis
for many monetary systems. This made silver one of the most widely sought-after amongst all the
precious metals. It was probably the only precious metal the demand for which was influenced by
both its availability and usage.During the last century, the metals demand was also influenced
from its treasury importance. However, the large part of silver production is relatively insensitive
to the price of silver. In the early last century, development of technology led to increase in Silver
usage. Silver finds extensive usage in films, coins, consumer durables etc. Its superior electric
conductivity made it one of important ingredient in industrial and electronic usage. Increased
usage necessitated higher silver production.

Global Scenario:-

US Treasury dominated global silver scenario during the last century. Technological
advancement and reconstruction of war-torn European/Asian regions, world economy started its
upward move. This led to boom in industrial usage of silver.

Indian Scenario:-

In case of India the demand and consumption continues to remain upbeat. However, as far as
silver usage is concerned there is remarkable difference vis-à-vis global pattern. In India close to
90% of Silver consumption is in jewelry making.

Demand and Supply:-

World silver demand and supply, in absolute terms, have grown during the last 10 years.
Interestingly, CAGR have tapered down marginally due to development of alternatives. Having
said that, one cannot forget that the share of recycling or above ground supply in total supply
continues to be in high twenties. Though the demand for silver has showed a declining trend, but
it is in conformity with the global economy.

Since 2000, the global economy has fared below its potential. Silver demand growth rate slowed
down from 5.8% in 2000 to just 1.1% in 2003, on a CAGR basis demand shrunk by 0.89% over
the last five years. This explains high correlation between silver demand and growth in economy.

Other factors influencing demand and supply:-

For the average investor, silver can be an effective means of diversifying investment assets and
preserving wealth against the ravages of inflation. Silver can be an important store of value.

Major producing countries Mexico, Peru and Australia are the top three silver producing
countries in the world during 2003 followed by China and Poland.
Export/Import Scenario:-

Total global demand for silver is around 29,000 tons. Indian demand for silver is around 3,800
tons. Indian market is price sensitive and is dependent on the monsoon. The rural demand is
crucial to the total demand for silver in India.

Price Outlook:-

For centuries, the price of silver has been closely linked with the price of gold, but the de-
monetization of both metals in much of the world has weakened the link. Several factors
influence Silver prices such as number of Silver ounces required for buying an ounce of Gold,
investment demand, above-ground stocks of silver etc. Above factors, to large extent, help
determining prices.

CONTRACT SPECIFICATIONS:
SILVER

Trading system MCX's Trading System


Trade timings on all trading days:
Trading Hours : 09.55 a.m. 11.55 p.m.
Trading hours
Single Call Market (Closing session) for determination of
Closing Price:11.15 p.m. to 11.30 p.m.
Delivery unit 30 kg
List of approved refiners will be available with the Exchange
Quality specification
and also on its web site: www.mcx.com
Quantity Variation None
At any date, 3 concurrent month contracts will be active. There
No. of active contracts will be a total of twelve month contracts in a year. i.e. March-
May- July.
Delivery center Mumbai
Trading in any contract month will open on the 21st day of the
Opening Date
month, 3 months prior to the contract month.
20th day of the delivery month, if 20th happens to be a holiday
Due date
then previous working day
Margin 6.5%

SILVER MINI

Trading system MCX's Trading System


Trade timings on all trading days:
Trading Hours : 09.55 a.m. 11.55 p.m.
Trading hours
Single Call Market (Closing session) for determination of
Closing Price:11.15 p.m. to 11.30 p.m.
Delivery unit 5 kg
List of approved refiners will be available with the Exchange and
Quality specification
also on its web site: www.mcx.com
Quantity Variation None
At any date, 3 concurrent month contracts will be active. There
No. of active contracts will be a total of twelve month contracts in a year. i.e. March-
May- July.
Delivery center Mumbai
Trading in any contract month will open on the 21st day of the
Opening Date
month, 3 months prior to the contract month.
Due date 20th day of the delivery month, if 20th happens to be a holiday
then previous working day
Margin 6.5%

Problem related to having successful commodity market-


Even though the commodity derivatives market has good progress in the last few years, the real
issue facing the futures of the market have not been resolved. The number of commodities
allowed for derivative trading have increased, the volume and the valve of business has zoomed,
but the objectives of setting up commodity derivative exchange may not be achieved and the
growth rates witnessed may not be sustainable unless these real issue are sorted out as soon as
possible. Some of the main unresolved issue are as follows-

Commodity options

Trading in commodity options contracts has been banned since 1952.The market for commodity
derivatives cannot be called complete without the presences of this important derivative. Both
futures and options are necessary for the healthy growth of the market. While futures contracts
help a participants (say a farmer)to hedge against downside price movement, it does not allow
him to reap the benefit of an increases in prices. No doubt there is an immediate need to bring
about the necessary legal and regulatory changes to introduce commodity options trading in the
country. The matter is said to be under the active consideration of the option trading may be
introduced in the near future.

The warehousing and standardization-

For commodity derivative market to work efficiently. It is necessary to have a sophisticated,cost-


effective,reliable and convenient warehousing system in the country. Further independent labs or
quality testing centers should be set up in each region to certify the quality, grade and quantity of
commodities so that they are appropriately standardized and there are no shocks waiting for the
ultimate buyer who takes the physical delivery. Warehouses also need to be conveniently located.
Central warehousing corporation of India is operating 500 Warehouses across the country with a
storage capacity of 10.4million tones. This is obviously not adequate for a vast country .To
resolve this issue a gramin bhandaran yojana has been introduced to construct new and expand
the existing rural godowns.Large scale privatization of state warehouses is also being examined.

Cash versus physical settlement

It is probably due to the inefficiencies in the present warehousing system that only about 1% to
5% of the total commodity derivatives trade in the country are settled in physical delivery.
Therefore the ware housing problem obvious have to be handle urgently has a good delivery
system is the back bone of any commodity trade. A particular difficult problem in cash
settlement of commodity derivative contract is that at present under the forward contract
regulation at 1952, cash settlement of outstanding contracts at maturing is not allowed. In other
words ,all outstanding contracts at maturity should be settled in physical delivery. To avoid this,
participants square off their positions before maturity. So ,in practice, most contracts are settled in
cash but before maturity.

The Regulatory-

As the market activity pick-up and the volumes rise, the market will definitely need a strong and
independent regular, similar to the ‘SEBI’ that regulates the securities markets. Unlike SEBI
which is an independent body, the forward markets commission is under the dept of consumer
affairs and depends on it for funds. It is imperative that the govt should grant more powers to the
‘FMC’ to ensure an orderly development of the commodity markets. The SEBI and FMC also
need to work closely with each other due to the inter-relationship between the two markets.

Lack of economy of scale

There are too many(3 national level and 21 regional) commodity exchanges. Though over 80
commodities are allowed for derivatives trading, in practice derivative trading, in practice
derivative are popular for only a few commodities.Again,most of the trade takes place only on a
few exchanges. All this splits volumes and makes some exchanges unviable. This problem can
possibly be addressed by consolidating some exchanges. The Govt of India has announced its
intention to integrate the two markets. It is felt that convergences of these derivatives markets
would bring in economies of scale and scope without having to duplicate the efforts, thereby
giving a boost to the growth of commodity derivatives market. It would also help in resolving
some of the issues concerning regulating authorities such as reserve bank of india,FMC,SEBI,and
the dept of company affairs.

Tax and bottlenecks-


There are at present restrictions on the movement of certain goods from one state to another.
These need to be removed so that a truly national market could develop for commodities and
derivatives.Also,regulatory changes are required to bring about uniformity in octroi and sales tax.
Post April 2010 after implementation of uniform GST regime and almost total abolition of octroi
in all the states and union territories this problem might be addressed, although certain nitty-
gritty’s are still to be worked out.
RESULTS & FINDINGS-

 Commodity market is still in the nascent stages in India as it is an emerging market.

 Commodity market not totally based on the “Demand & Supply” forces prevailing in the
market and day traders still have the power to manipulate the daily trading somewhat..

 The player (Speculators) creates the bull and bear situation in the commodity market
based on money power and profit booking motives.

 I also found that If there is no speculation in the market then nobody is interested to
participate in the trading, as the real motive still is the speculation. Although I personally feel
that the maturity to the market will come only of the market is used by large number of
players to hedge.

 Initially Farmers and general people are not that much aware about the commodity
market. But with the development of technology and general awareness the farmers and
general public have started gaining profit from these markets

 The commodity market is currently only concerned with the future contracts of 1 month
and 3 month maturity and this should further be expanded.

 The business in the commodity market is a very risky in nature mainly due to above stated
reason of real motive being the speculation.

 Generally the role of hedgers is done by farmers. Farmers settle down their profits by
doing trading in MCX markets. Although it may not be happening to that extent.

 Generally the people who do not have money to take the delivery they do the role of
arbitersury to gain the profit by trading in two markets.

 These markets are also very useful to jewelry traders. They trade on both side i.e. on their
shop and in MCX markets to settle down their profits or loss.
CONCLUSION
India is one of the top producers of a large number of commodities and also has a long history of
trading in commodity and related derivatives. The market has made enormous progress in terms
of technology, Transparency and trading activity. Interestingly this have happen only after the
govt protection was removed from the number of commodity and market forces were allowed to
play their role. This should act as a major lesson for the policy makers in developing countries
that pricing and price risk management should be left to the market forces rather than try to
achieve these through administered price mechanisms. The management of price risk is going to
assume even greater importance in future with the promotion of free trade. In short I want to say
that, today the commodity market not only limited to the particular country but it also spread
across the world.

 India is the second largest market in the world after the China.

 In commodity market, there is no delivery based market activity. Only the contracts are
taking place.

 Large traders (e.g. MNC’s) maintain large stock of the quantity and play speculation in
the market.

 The “Holding Capacity” of participating traders is very strong.

 General people and framers are not that much aware about the commodity market, so the
speculators and the gamblers are taking the advantage of commodity market.
BIBLOGRAPHY
Books

• Research Methodology by C.R. KOTHARI, 2nd edition.

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