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TABLE OF CONTENTS

Sl. No

CHAPTER

TITLE

PAGE
No.

1.

Abstract

I

2.

Acknowledgement

II

3.

List of Tables

IV

4.

List of Figures

V

INTRODUCTION

1

1.1 Statement of the problem

2

1.2 Objectives of the study

2

1.3 Scope of the study

2

1.4 Research Methodology

3

1.5 Limitations of study

3

1.6 Chapter scheme

4

5.

I

7.

II

INDUSTRY PROFILE

5

7.

III

COMPANY PROFILE

11

8.

IV

DATA ANALYSIS AND
INTERPRETATIONS

32

9.

V

FINDINGS OF THE STUDY

77

10.

VI

SUGGESTIONS AND
RECOMMENDATION

78

BIBILOGRAPHY

82

11.

PROJECT REPORT

A COMPARATIVE STUDY OF THE COMMODITY MARKET (GOLD)AND
EQUITY MARKET(NIFTY) WITH REFERENCE TO INDIABULLS
SECURITIES LTD.,
INTRODUCTION
Definition of a "Commodity"
Any product that can be used for commerce or an article of commerce
which is traded on an authorized commodity exchange is known as commodity. The
article should be movable of value, something which is bought or sold and which is
produced or used as the subject or barter or sale. In short commodity includes all kinds of
goods. Forward Contracts (Regulation) Act (FCRA), 1952 defines “goods” as “every
kind of movable property other than actionable claims, money and securities”.
In current situation, all goods and products of agricultural (including
plantation), mineral and fossil origin are allowed for commodity trading recognized under
the FCRA. The national commodity exchanges, recognized by the Central Government,
permits commodities which include precious (gold and silver) and non-ferrous metals;
cereals and pulses; ginned and un-ginned cotton; oilseeds, oils and oilcakes; raw jute and
jute goods; and gur; potatoes and onions; coffee and tea; rubber and spices. Etc.

Stock markets extremely risky and volatile and hence the risk consideration is an
important concern for investors. To reduce this risk, the concept of derivatives comes into
the picture. Derivatives trading commenced in India in June 2000, SEBI permitted the
derivative segments of two stock exchanges, NSE and BSE, and their clearing
house/corporation to commence trading and settlement in derivatives contracts, The
trading in BSE Sensex options commenced on June 4, 2001 and the trading in options on
individual securities commenced in July 2001. Futures contracts on individual stocks
were launched in November 2001.

2001.Single stock futures were launched on November 9. It will help us to know which is more risky and which would yield us more returns. It is for overall operation pattern that stipulates what information to be collected from which source and by which procedures. analyzed and presented so that they will provide meaningful information. at present Mutual Funds are permitted to participate in the derivatives market for the purpose of hedging (minimizing risk) and rebalancing their portfolio. Objectives of the study:  To study the relationship between Commodity and Equity market  To analyze of usage of gold  To compare the risk factor in both the markets  To identify the function of gold market  To make suggestions Scope of the study: The study mainly focuses on the comparison between the gold price and the nifty index . . Limitation of the Study 1) Only past five months data have been taken for the study. This would mainly suggest which is the best means of investment for the investors. Research methodology is a scientific way to study research problem and research design. Research Methodology: Methodology is a plan of action for research projects and explains in details how data are collected. The index futures and options contract on NSE are based on S&P CNX. 2) It is only a comparative study the future happening may vary.

3) Data collected is only a secondary data . pricing. neglecting the trade of securities. . a group of Manhattan dairy merchants got together to bring chaotic condition in New York market to a system in terms of storage. set quality and quantity standards. In 1872. any commodity can be traded. These central marketplaces provided a place for buyers and sellers to meet. and transfer of agricultural products. In the middle of 19th century in the United States. and establish rules of business. Agricultural commodities were mostly traded but as long as there are buyers and sellers. stock index futures and options etc. Comparison of Commodities & Equities Commodity Equity Intrinsic Value No Intrinsic value Macro Economic Risk Company performance Less Volatile Volatile Rate of return is high Domain knowledge of Rate of return is medium commodity is useful 100% risk of delivery at the end Not very much of contract Delivery in Demat / Physical Price quote vary based on No risk of delivery Delivery in Demat commodity Price quoted for one share Commodity Exchanges A brief description of commodity exchanges are those which trade in particular commodities. businessmen began organizing market forums to make the buying and selling of commodities easier.

The three exchanges are: National Commodity & Derivatives Exchange Limited (NCDEX) Multi Commodity Exchange of India Limited (MCX) National Multi-Commodity Exchange of India Limited (NMCEIL) All the exchanges have been set up under overall control of Forward Market Commission (FMC) of Government of India. Life Insurance Corporation of India (LIC). Stamp Act. during the Great Depression. National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE). 2003.In 1933. Contracts Act. The major commodity markets are in the United Kingdom and in the USA. 1956 and had commenced its operations on December 15. was established in New York through the merger of four small exchanges – the National Metal Exchange. After a gap of almost three decades. the Commodity Exchange. and the New York Hide Exchange. National Commodity & Derivatives Exchange Limited (NCDEX) National Commodity & Derivatives Exchange Limited (NCDEX) located in Mumbai is a public limited company incorporated on April 23. Inc. It is promoted by ICICI Bank Limited. Forward Commission (Regulation) Act and various other legislations. In India there are 25 recognised future exchanges. .This is the only commodity exchange in the country promoted by national level institutions. 2003 under the Companies Act. NCDEX is regulated by Forward Market Commission and is subjected to various laws of the land like the Companies Act. It is a professionally managed online multi commodity exchange. the Rubber Exchange of New York. of which there are three national level multicommodity exchanges. the National Raw Silk Exchange. a modification of traditional business known as Adhat and Vayda Vyapar to facilitate better risk coverage and delivery of commodities. Government of India has allowed forward transactions in commodities through Online Commodity Exchanges..

. Corporation Bank. Others never had a say. On 25th July. end-users. Gujarat State Agricultural Marketing Board and Neptune Overseas Limited. Pulses Importers Association and Shetkari Sanghatana. Today. Bank of India and Canara Bank. it was granted approval by the Government to organise trading in the edible oil complex. MCX started offering trade in November 2003 and has built strategic alliances with Bombay Bullion Association. at a grassroots level. Electronic Multi-Commodity Exchange in India. Earlier only the buyer of product and its seller in the market judged upon the prices. 2002. It is being supported by Central Warehousing Corporation Ltd. Multi Commodity Exchange of India Limited (MCX). It has operationalised from November 26. commodity exchanges are purely speculative in nature. MCX facilitates online trading. It got its recognition in October 2002. It brings a price transparency and risk management in the vital market. is an independent and de-mutualised exchange with a permanent recognition from Government of India. they reach to the producers. in an organised way. 2001. clearing and settlement operations for commodity futures markets across the country. Before discovering the price. Bombay Metal Exchange.Multi Commodity Exchange of India Limited (MCX) Headquartered in Mumbai. State Bank of India. Union Bank of India. National Multi-Commodity Exchange of India Limited (NMCEIL) National Multi Commodity Exchange of India Limited (NMCEIL) is the first demutualized. Solvent Extractors’ Association of India. Commodity exchange in India plays an important role where the prices of any commodity are not fixed. Key shareholders of MCX are Financial Technologies (India) Ltd. and even the retail investors...

S. Argentina Minneapolis Agricultural Agricultural Agricultural NYMEX New York. Energy. Emissions. Industrial Metals. US Energy. Precious Metals. US Agricultural. Georgia. industrial Metals HedgeStreet Exchange Intercontinental Exchange Product Types ICE Precious Metals Atlanta. Biofuels CCX Chicago.Commodities exchanges across the world Americas Exchange Brazilian Mercantile and Futures Exchange Chicago Board of Trade (CME Group) Chicago Mercantile Exchange (CME Group) Chicago Climate Exchange Abbreviation Location Agricultural. US Agricultural Memphis Cotton Exchange Memphis. Biofuels Kansas City Board of Trade KCBT Kansas City. BMF São Paulo. US USFE Chicago. US Agricultural. US Emissions California. Biofuels CME Chicago. Energy. US Mercado a Termino de Buenos Aires MATba Minneapolis Grain Exchange MGEX New York Mercantile Exchange (CME Group) U. Central Japan Commodity . Brazil CBOT Chicago. Industrial Metals Energy Asia Exchange Abbreviation Location Product Types Bursa Malaysia MDEX Malaysia Biofuels Nagoya. US Agricultural. US Energy. Biofuels. Futures Exchange Buenos Aires.

Rubber Osaka. Precious Metals. Japan India Agricultural Energy. Japan Industrial Metals. Agricultural TOCOM Agricultural Europe Exchange Commodity Exchange Bratislava. JSC Climex Abbreviation Location CEB CLIMEX Bratislava. Precious Metals. Metals.Exchange Japan Dalian Commodity Exchange DCE Dubai Mercantile Exchange Dubai Gold & Commodities Exchange Kansai Commodities Exchange Exchange of India Ltd National Commodity Exchange Limited Bhatinda Om & Oil Exchange Ltd. Agricultural Precious Metals. Energy. Agricultural Emissions NYSE Euronext Europe Agricultural European Climate Exchange ECX Europe Emissions . NMCE India NCEL Pakistan Precious Metals. National Commodity and Derivatives Exchange Tokyo Grain Exchange China Agricultural. the Netherlands Product Types Emissions. Metals. Plastics DME Dubai Energy DGCX Dubai Precious Metals KANEX Multi Commodity Exchange MCX National Multi-Commodity Dalian. Slovakia Amsterdam. Agriculture BOOE India Agricultural NCDEX Mumbai All Tokyo.

Pulses. MCX has also setup in joint venture the National Spot Exchange a purely agricultural commodity exchange and National Bulk Handling Corporation (NBHC) . Deutschland Agricultural Oceania Exchange Abbreviation Location Australian Securities Exchange ASX Product Types Sydney. MCX offers futures trading in Agricultural Commodities. UK Industrial Metals. Bullion. Oils & Oilseeds. Plantations. Australia Agricultural MULTI COMMODITY EXCHANGE (MCX): MCX is an independent commodity exchange based in India. Spices and other soft commodities. It was established in 2003 and is based in Mumbai. Energy. Plastics Hannover. Ferrous & Non-ferrous metals. The turnover of the exchange for the period Apr-Dec 2008 was INR 32 Trillion.London Metal Exchange LME Risk Management Exchange RMX London.

000 trading terminals  MCX COMDEX is India's first and only composite commodity futures price index MCX Achievements • Live Trading Since November 10. no. 3 in crude oil and gold in futures trading  The crude volume touched 23. • Real-time price & information dissemination through website and info vendors. 2003 • Average Daily Turnover – Rs. It is now regulated by forward market commission.which provides bulk storage and handling of agricultural products. 2009  The highest traded item is gold with an average monthly turnover of Rs 1.Rs.84 trillion)  The exchange's competitor is National Commodity & Derivatives Exchange Ltd  Globally. no. 7500 crores • Highest Daily Turnover .42 Trillion ($29 Billion). 2 in natural gas. 1 commodity exchange with 84% Market share in 2008($0. 1 in silver.  MCX has 10 strategic alliances with leading commodity exchange across the globe  The average daily turnover of MCX is about US$ 2.49 Million barrels on January 3. .  MCX is India's No. MCX ranks no.4 billion  MCX now reaches out to about 500 cities in India with the help of about 10. 17987crores • Operations from 700+ centers with over 1500+ members & 9000+ Trading Terminals (TWS) • Connectivity through VSAT and leased line etc.

Steel Flat. HNI. Steel Long (Bhavnagar). Sponge Iron. Silver M Zinc FIBER ENERGY . Silver Steel Long (Govindgarh). Gold. Nickel. Tin. Gold HNI. Lead. Silver. Copper. i-gold.• World’s second largest silver exchange after COMEX • World’s third largest gold exchange after COMEX & TOCOM Commodity Market Segment COMMODITY MARKET PRECIOUS METAL OTHERS AGRICULTURE ENERGY The products traded at MCX : METAL BULLION Aluminium. Gold M.

Mustard Oil. Sour Crude Oil. Sugar M30. Jeera. PVC OIL & OIL SEEDS Castor Oil. Gold is alloyed (mixed with other metals. Castor Seeds. "750" means 750/1000 gold (equal to 18K). Coconut Oil. M. Electricity. Coconut Cake. Some countries hallmark gold with a three-digit number that indicates the parts per thousand of gold. Polypropylene(PP). Soymeal. The purity of gold jewelry is measured in karats. brilliant yellow precious metal that is resistant to air and water corrosion. Furnace Oil. Mentha Oil. Cotton Seed. Natural Gas. In this system. Cotton S Staple. Kapas SPICES Cardamom. Cotton M Staple. Rice Bran Refined Oil.Cotton L Staple. Cotton Yarn. Coffee (Robusta). E. Carbon Credit PLANTATIONS Arecanut. Kapasia Khalli. . Pepper. Rubber PULSES PETROCHEMICALS Chana. Crude Palm Oil. Sesame Seed. Gurchaku. Red Chilli Brent Crude Oil. Refined Soy Oil. Guar Seed. ATF. Soy Seeds CEREALS OTHERS Guargum. Cashew Kernel. Maize Potato (Agra). Gold is the most malleable (hammerable) and ductile (able to be made into wire) metal. Mustard Seed (Jaipur). Mustard Seed (Sirsa). "500" means 500/1000 gold (equal to 12K). Yellow Peas HDPE. Sugar S-30 This project mainly deals with the commodity products especially gold (precious metals) GOLD A very ductile and malleable. It is a precious metal that is very soft when pure (24 Kt. Soy Bean. Potato (Tarkeshwar). Refined Sunflower Oil. Groundnut Oil. RBD Palmolein.). usually silver and copper) to make it less expensive and harder. Alloyed gold comes in many colors. Masur. Rice Bran DOC. Crude Oil.

the majority of which was sold . About 80 percent of that gold production was used to make jewelry. it is curious to note that the early Egyptian's medium of exchange was not gold but barley.000 B. But without hard archaeological evidence to pinpoint the time and place of man's first happy encounter with the yellow metal. In 2001. Consequently. Another mentions that the pharaohs and temple priests used the relic metal for adornment in ancient Egypt circa 3000 B. One states that gold's recorded discovery occurred circa 6000 B. Intricately sculptured art objects and adornment jewelry have been uncovered in the Sumerian royal Tombs in southern Iraq and the tombs of Egyptian kings. Experts of fossil study have observed that bits of natural gold were found in Spanish caves used by the Paleolithic Man about 40. is claimed by the citizens of the Kingdom of Lydia (western Turkey). Due to its rarity.C. it is not surprising that historical sources cannot agree on the precise date that gold was first used.C.C.C.GOLD THROUGH THE AGES The history of gold begins in remote antiquity. Significant buildings and religious temples and statues have been covered with thinly beaten sheets of gold. who at various places and at different times first came upon native gold. it was estimated that 2870 tons of gold were produced worldwide. we can only conjecture about those persons. However.circa 550 B. gold has long been considered a symbol of the wealth and power of its possessor.C. Uses of gold Gold has been prized by people since the earliest times for making statues and icons and also for jewelry to adorn their bodies. The first use of gold as money in 700 B. Surely. you remember the kingdom of the famous fortune seeking King Croesus .

In many Asian countries. gold is important to religious ceremonies and social occasions. Gold jewelry is universally popular. and China. Thailand.in India. Dubai. loved for its lustrous yellow color and untarnishing character.  Tokyo where TOCOM sets the mood of Japan  Mumbai under India's liberalized gold regime  24 hours round the clock market  Hong Kong Gold Market  Zurich Gold Market  London Gold Market  New York Market India in World Gold Industry (Rounded Figures) India (In Tons) World (In Tons) % Share Total Stocks 13000 145000 9 Central Bank holding 400 28000 1. Singapore and Hong Kong as doorways to important consuming regions. such as India.08 Annual Recycling 100-300 1100-1200 13 Annual Demand 800 3700 22 Annual Imports 600 . such as the Chinese New Year and Hindu marriages in India.4 Annual Production 2 2600 0. Europe and the United States of America. World Gold Markets  London as the great clearing house  New York as the home of futures trading  Zurich as a physical turntable  Istanbul.

Annual Exports 60 Major gold producing countries  South Africa  United States  Australia  China  Canada  Russia  Indonesia  Peru  Uzbekistan  Papua New Guinea  Ghana  Brazil  Chile  Philippines  Mali  Mexico Main features of Key Asian Gold Markets Country Market status Loco London gold trading Import of gold bars China Restricted Restricted Hong Kong Free Free India Restricted Restricted Indonesia Free Free .

North Restricted Restricted Korea.035274 Ounces troy to grains 480 Grains to ounces troy 0.3495 Grammes to ounces avoirdupois 0.1035 Grammes to ounces troy 0.Japan Free Free Korea. South Restricted Free Malaysia Free Free Myanmar Restricted Free Philippines Restricted Restricted Singapore Free Free Taiwan Restricted Free Thailand Restricted Free Vietnam Restricted Free Gold conversion To Convert Weight Multiply by Ounces troy to grammes 31.0321507 Ounces avoirdupois to grammes 28.0020833 .

00% 750 Fine 18 Karats 58. and the table .035 grammes The purity of gold articles is generally described in three ways Percent % (Parts of gold per Fineness(Parts of gold per Karats(Parts of gold per 100) 1000) 24) 100% 999 Fine 24 Karats 91.60% 416 Fine 10 Karats Gold coated measures Many gold-coated articles are also used as substitutes for solid karat gold.274 Kilograms to ounces troy 32. or microinches.375 Kilograms to tolas 85. The thickness of the coatings are often expressed in millionths of an inch.1507 Ounces troy to tolas 2.83 Taels to ounces troy 1.6667 Tolas to ounces troy 0.7172 For example : 10 ounces troy = 311.Ounces troy to ounces avoirdupois 1.911458 Kilograms to ounces avoirdupois 35.755 Ounces troy to taels 0.09714 Ounces avoirdupois to ounces troy 0.70% 917 Fine 22 Karats 75.20337 Kilograms to taels 26.50% 583 Fine 14 Karats 41.

1 millionth inch (micro inch) = 0.607 1.212 3.37 micro inches 1 millimeter = 39.161 0. The following fine gold contents of other bar weights are accepted by the London Bullion Market Association (LBMA).074 100 Grams 3.75 5Taels 5.6 1.4 microns 1 millionth meter (micron) = 39.995 16.below provides a way to translate between these and other measurement units.0 Bars of 999.9 1 Kilo 31.199 3.0 Bars of 999.017 .322 0.9 fine.99 32.148 1/2 Kilo 15.731 3.987 6.0254 micron 1 thousanth inch (mil) = 25. Fine Gold Contents in Ounces Troy Gross Weight Bars of 995.119 32.161 10 Tolas 3.011 6.746 3.059 16.321 0.161 0.608 10 Grams 0.215 50 Grams 1.322 5 Grams 0.37 mils Fine gold content The minimum fineness is 995 parts per 1000 fine gold and gold said to be 1000 fine is marked down to 999. These bars are available at the spot Loco-London price plus a premium which varies dependent on prevailing market conditions in different locations.

Jewellery consumption (in Tonnes) Top No. Countries 1998 1999 2000 1 India 622 617 600 2 United States 379 400 409 3 EU 414 395 374 4 China 228 204 184 5 Saudi Arabia 186 167 169 6 Egypt 135 138 128 7 Turkey 142 92 126 8 Italy 108 101 92 9 Indonesia 48 110 88 10 United Kingdom 65 68 74 11 Taiwan 66 66 60 12 Korea 35 52 56 13 Pakistan 53 60 54 14 France 56 56 54 .

In July 1997 the RBI authorized the commercial banks to import gold for sale or loan to jewellers and exporters." Hedging is a strategy designed to minimize exposure to an unwanted business risk. In the cities gold is facing competition from the stock market and a wide range of consumer goods. Domestic consumption is dictated by monsoon. making them into standard bars in India. assaying. This reduced the disparity between international and domestic prices of gold from 57 percent during 1986 to 1991 to 8. Facilities for refining. 13 banks are active in the import of gold. The term comes from a gambling saying "hedging your bets. The gold hoarding tendency is well ingrained in Indian society. while still allowing the business to profit from an . Trading Strategies : Hedgers: Hedgers face risk associated with the price of an asset.5 percent in 2001. harvest and marriage season. India is the world's largest consumer of gold in jewellery as investment. Indian jewellery offtake is sensitive to price increases and even more so to volatility. They use futures or options markets to reduce or eliminate this risk. as compared to the rest of the world. both qualitatively and quantitatively. A hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment. At present.15 Spain 61 53 51 16 Mexico 32 42 51 17 Thailand 21 42 51 18 Russia 44 40 47 19 Iran 42 41 45 20 Japan 45 43 43 Indian Gold Market Gold is valued in India as a savings and investment vehicle and is the second preferred investment after bank deposits. are insignificant.

in practice the arbitrageur is not a separate person. It must be noted that the practice of speculation. Secondly. Arbitrageurs: Arbitrage can be described as a transaction involves buying and selling a good or asset in two different markets in order to achieve a risk less profit through the difference in price between them. speculative activity increases the liquidity of markets thereby enabling hedgers to transact large volumes of business on the market quickly. Speculators: If a futures market is restricted to hedgers alone. reduces the costs of marketing. by facilitating hedging. In a broadest sense we can say an arbitrageur is one who trades only to realize profits from discrepancies in the market. It is here that the role of the speculator becomes apparent. either a hedger or a speculator can indulge in arbitrage when the opportunity arises. . Let us see the main use of speculation. Arbitrage plays a big role in ensuring that prices in futures markets do not diverge from the level dictated by supply and demand and in ensuring speedy correction of any pricing anomalies.investment activity. Typically. it is quite conceivable that one or other group of hedgers would be unable to hedge without distorting the price because of the absence of counter parties to the transactions. easily and without unduly affecting the market price. we can say yes as there can be no effective hedging since the volume of demand for long and short hedging will not be equal except by occasional coincidence. The speculators have no specific interest in the commodity rather they are risk seekers whose interest stems from the profit which they expect to make from assuming the price risk. Of course. a hedger might invest in a security that he believes is under-priced relative to its "fair value". It is the speculators who take up the slack in the market and provide liquidity.

com .FINDINGS AND INTERPRETATION: Source: kannafuture.

com Source: kannafuture.Source: nseindia.com .

com .com Source: kannafuture.Source: nseindia.

Source: nseindia.com Source: kannafuture.com .

Source: nseindia.com Source: kannafuture.com .

Source: nseindia. .  The Nifty or the equity market would yield us with higher returns with less investment when compared to gold.  This clearly shows us that when the gold prices are high the nifty points goes down therefore it clearly shows that they have an inverse relationship.com Interpretation:  The above shown graphs are the gold price movements and the nifty points fluctuations for past five months i.  It also shows that commodity market have a higher risk than the equity market because it involves huge cash to be invested and more over it deals with the physical delivery of the goods which may lead to mishappenings.e (Jan 2009 – May 2009) .

. Therefore nothing can be predicted in the market .The market fluctuations may be due to world market functioning also . It may not be true in all cases.Conclusion: It is a general assumption that both the commodity market and the equity market have an inverse relationship . Therefore technical analysis and the prediction of the market are just a tool for investment. but when you keenly observe the graph of the month of May 2009 both the commodity market and the equity market have direct relationship. Similarly there may be sudden changes due the government interference.