Professional Documents
Culture Documents
GOLD
KARVY Advantage
Organization Chart
Introduction to commodity market
3 15-25
Research Methodology
4 26-29
5 Indian Commodity Futures Market 30-46
Introduction
Commodity trading contracts
Future market mechanisms
Participants in futures market & trading procedure
Limitations of commodity future market
World Markets
Turning to demand
11 SUGGESTIONS 81
12 CONCLUSION 82
13 BIBLIOGRAPHY 83
Executive Summary
Now days, the commodity market is in growth stage and the Karvy
Finapolis Belgaum; working as a broking firm wants to expand and for
extensive reach thinking of establishing branches in various cities of
Karnataka.
I have taken the commodity futures, to study and analyze, as it is the
emerging trend in the market, at Karvy Finapolis Belgaum, I have
taken Gold as the commodity to study the Impact of present gold price
on future gold market and its trading mechanism.
Objectives:
To study the mechanism of commodity market.
Research methodology:
SAMPLE SIZE: 100 random sample size
SAMPLE TYPE: Simple random sampling
SAMPLE AREA: Belgaum city
TOOL USED FOR ANALYSES:
1. Graphical Representation of Analysis:
Pie charts
Line Chart
2. SPSS
3. Correlation
Secondary data-
Information collected from different websites likes Gold
World, MCX etc.
From various text books, journals, magazines, news
papers and booklets from company.
Findings:
There is positive correlation between both market traders
can easily predict the future prices of the commodities and hedge
their positions.
Most of the respondents are interested in investing in equity
(i.e. 49%) when compared to the other investment alternatives
because they feel investing in equity will provide more returns to
them.
82% of Investors are aware about commodity future market.
67% of Investors have not invested as they have a perception
that it is risky and they even do not have much knowledge about
trading mechanism.
For gold price fluctuation main reasons are
Dollar depreciation / appreciation
World distress
Increase in money supply
Inflation
Suggestions:
Both the markets are positively correlated the traders have
knowledge about the commodity demand and supply and their
price fluctuations. So Karvy can approach these traders and they
can easily convince them so these people are the targeted
customers for Karvy.
More Awareness program has to be conducted by Karvy
consultants so that already aware investor takes the challenge to
invest in this commodity future market. Because since this was
new to the market and also risky but gives good return. so it can
be done through by giving advertisements in local channels, News
papers, by sending E-mail to present customers etc
From survey it is found that most of the potential customers are
concerned about the genuine information and moderate brokerage
so Karvy can look upon this. If it can give good information and
charge moderate brokerage it will help to attract more and more
customers.
Conclusion
Capital market is already matured and reached at high level, every
investor interested to invest but not in commodity Future Market due to
lack of awareness. As per Data analysis most of the investors do not have
much idea of commodity market in Belgaum they are required to be
given awareness training and knowledge with the help of workshops and
seminars, as investors are willing to know more about commodity
market. There exists a high degree of positive correlation between Spot
Commodity Market and Commodity Future Market. If an amount of
small change in the spot gold market prices has the direct impact on the
future prices of gold in commodity market.
COMPAN PROFILE
Overview:
KARVY, is a premier integrated financial services provider, and ranked
among the top five in the country in all its business segments, services
over 16 million individual investors in various capacities, and provides
investor services to over 300 corporate, comprising the who is who of
Corporate India. KARVY covers the entire spectrum of financial services
such as Stock broking, Depository Participants, Distribution of financial
products - mutual funds, bonds, fixed deposit, equities, Insurance
Broking, Commodities Broking, Personal Finance Advisory Services,
Merchant Banking & Corporate Finance, placement of equity, IPO,
among others. Karvy has a professional management team and ranks
among the best in technology, operations and research of various
industrial segments.
We offer services that are beyond just a medium for buying and
selling stocks and shares. Instead we provide services, which are multi
dimensional and multi-focused in their scope. There are several
advantages in utilizing our Stock Broking services, which are the reasons
why it is one of the best in the country.
services to help you make the right financial moves that are specifically
suited to your portfolio.
KARVY Advantage:
Trade from anywhere in India Karvy, with its network of branches across
the length and breadth of the country, is always within your reach, no
matter where you are. This gives you the facility to trade from anywhere
in India.
Reliable research
Karvy has a dedicated team of research analysts who work round the
clock to provide the best research newsletters and advices. We reach
your desk daily, weekly and monthly.
Personalized Services
Karvy, with its wide array of personalized services from registry to stock
broking takes the pleasure of adding one more service, commodities
broking with the same personal touch
State of Infrastructure
The strong IT backbone of Karvy helps us to provide customized direct
services through our back office system, nation-wide connectivity and
website.
Achievements
Among the top 5 stock brokers in India (4% of NSE volumes)
India's No. 1 Registrar & Securities Transfer Agents
Organization Chart
Managing Director
Branch Manager
N number of Executives
the world. The history of Commodity Future trading can be traced back
to 1688 with the introduction of Future trading in rice in Japan. This
was followed by an increased participation in commodity derivatives,
especially in Futures, in the industrialized countries like America and
Britain. All the countries opened the avenue for introduction of Future
trading in commodities in 19 th century. Major commodity Future trading
platforms opened in the world are Chicago Board of Trade (NYBOT) and
New York Mercantile Exchange (NYMEX).
Indian scenario
Present Scenario
the global economy recovered from its slump aided by the boom in the
US markets and increased demand from developing economies like India
and China. In the global investment market, the newly hailed, attractive,
asset class is commodities. So, investors are being attracted to this new
booming market for investment.
meant for hedgers, speculators and arbitrages, but also for retail
investors who want to trade in booming commodity market.
Commodity derivatives market trade contracts for which the
underlying asset is commodity. It can be an agricultural commodity like
wheat, soybeans, rapeseed, cotton, etc or precious metals like gold,
silver, etc.
settled by delivery or cash depending upon sellers and buyers. Since the
delivery process takes long time to materialize and one has to keep track
of all the delivery process transactions, nobody wants to take burden of
delivery handling process.
Note:
Compulsory delivery option- it is an option where on the expiry of
contract of a particular commodity, all the open outstanding positions
are closed out by way of delivery. Heavy penalties are levied in case of
default in delivery.
Seller option – it is an option where the sellers has right to deliver the
particular commodity on the expiry of the contract. In this option seller
has to give his intention 5 working days prior to the expiry of the
contract. The client who has not delivery intention and having open
position at the expiry of the contract has to bear a stipulated penalty.
Both Option/Intention Matching – in both the option contract the
delivery happens only case of where the intention from buyer as well as
seller received for a prescribed commodity to the extent of matched
quantity. These contracts are generally cash selected and there is no
penalty for open position.
Lock-in the price for your produce – If you are a farmer, there is
every chance that the price of your produce may come down drastically
at the time of harvest. By taking positions in commodity futures you can
effectively lock-in the price at which you wish to sell your produce
Assured demand – Any glut in the market can make you wait
unendingly for a buyer. Selling commodity futures contract can give you
assured demand at the time of harvest. If you are a large scale consumer
of a product, here is how this market can help you.
Control your cost – If you are an industrialist, the raw material
cost dictates the final price of your output. Any sudden rise in the price
of raw materials can compel you to pass on the hike to your customers
and make your products unattractive in the market. By buying
commodity futures, you can fix the price of your raw material.
Ensure continuous supply – Any shortfall in the supply of raw
materials can stall your production and make you default on your sale
obligations. You can avoid this risk by buying a commodity futures
contract by which you are assured of supply of a fixed quantity of
materials at a pre-decided price at the appointed time.
Research Methodology
TOPIC:
“ Study of Commodity Market with Special Reference to
Gold.” at KARVY Finapolis Belgaum for fulfillment of requirement of
MBA IVth semester in Institute of Management Education and research.
It was an opportunity to learn the practical aspects of the firm.
OBJECTIVES:
SAMPLE SIZE:
SAMPLE AREA:
Belgaum City
DURATION OF PROJECT:
a. Pie charts
b. Line Chart
2. SPSS
N∑XY-(∑X) (∑Y)
Correlation(r) =
[N∑X2 –(∑X)2]1/2[N∑Y2 –(∑Y)2]1/2
Rules:
If, PE *6 > r then correlation is not significant.
prices were collected from business line news paper and confirm it from
gold smith and future prices were collected from MCX.
with would offer facilities in about 40 cities throughout India. The reach
will gradually be expanded to other cities.
"The Act Provides that the Commission shall consist of not less
then two but not exceeding four members appointed by the Central
Government out of them being nominated by the Central Government to
be the Chairman thereof. Currently Commission comprises three
members among whom Dr. Kewal Ram, IES, is acting as Chairman and
Smt. Padma Swaminathan, CSS and Dr. (Smt.) Jayashree Gupta, CSS,
are the Members of the Commission."
AFGRI commodities
Soya bean
Soya oil
Rapeseed/Mustard
Seed Rapeseed/
Mustard Seed Oil
Crude Palm oil
RBD Palmolein
0 Commodities introduced in Phase II
Rubber
Jute
Pepper
Chana (Gram)
Guar
Wheat
All the commodities are not suitable for futures trading & for being
suitable for futures trading the market for commodity should be
competitive, i.e., there should be large demand for and supply of the
commodity no individual or group of persons acting in concert should be
in a position to influence the demand or supply, and consequently the
price substantially. There should be fluctuations in price. The commodity
should have long shelf life and be capable of standardization and
gradation.
Forward contracts
2) Futures Contracts
3) Option Contracts
Under the Act, a ready delivery contract is one, which provides for
the delivery of goods and the payment of price therefore, either
immediately or within such period not exceeding 11 days after the date of
the contract, subject to such conditions as may be prescribed by the
Central Government. Already delivery contract is required by law to be
fulfilled by giving and taking the physical delivery of goods. In market
parlance, the ready delivery contracts are commonly known as "spot" or
"cash" contracts.
Futures Contract:
paid, for at a set time in the future, known as the "settlement date."
Although actual delivery of the commodity can take place in fulfillment of
the contract, most futures contracts are actually closed out or "offset"
prior to delivery.
A commodity futures contract is a tradable standardized contract,
the terms of which are set in advance by the commodity exchange
organizing trading in it.
The futures contract is for a specified variety of a commodity,
known as the "basis”, though quite a few other similar varieties, both
inferior and superior, are allowed to be deliverable or tender-able for
delivery against the specified futures contract.
The parties to the contract are required to negotiate only the
quantity to be bought and sold, and the price. The Exchange prescribes
everything else. Because of the standardized nature of the futures
contract, it can be traded with ease at a moment’s notice.
Option Contract:
An option on a commodity futures contract is a legally binding
agreement between two parties that gives the buyer, who pays a market
determined price known as a "premium," the right (but not the
obligation), within a specific time period, to exercise his option. Exercise
of the option will result in the person being deemed to have entered into
a futures contract at a specified price known as the "strike price." In
some cases, an option may confer the right to buy or sell the underlying
asset directly, and these options are known as options on the physical
asset.
Commodity future trading contracts rarely are for the actual or
physical delivery allowed to be settled otherwise than by issuing or giving
deliveries. Therefore, speculators use these futures contracts to benefit
gain on his futures contracts should roughly equal the merchant's loss in
the cash market.
Here are three examples of how hedging helps the cash market
work better:
These are just a few ways that commodity owners use futures
markets. It requires skill and knowledge acquired that comes only by
study and experience.
The futures market is used for hedging the price risk and for
trading or arbitrage. Brokers of all commodity exchanges, who are
located all across the country, serve the futures market users directly
through their own branch offices' network or through the network of
their franchisees or sub-brokers.
Selection of Broker:
A trustworthy, reliable, efficient, effective & innovative broker,
having membership to any of the Exchange like MCX / NCDEX etc.
would be in Investor’s interest. Broker should be such that recognizes
investors’ needs & aspirations & work as a dedicated team to deliver
highly effective & customized solutions to investors risk management
needs.
Intraday Trading:
supposed to act or bear the penal charges for any failure in doing so.
Those who do not express their intention to give or receive delivery at the
beginning of tender period are required to square-up their open positions
before the expiry of the contract. In case they do not their positions are
closed out at 'due date rate'. The links to the physical market through
the delivery process ensures maintenance of uniformity between spot
and futures prices.
Buyers intending to take delivery will receive it, if there are sellers
willing warehouse at the designated delivery centers on the designated
delivery days.
There are commission agents who help the brokers with handling
of the delivery, logistic support, and associated quality certification
through to give delivery. The Buyer will have to make the payment within
three days after the delivery is allotted. The buyer will take actual
delivery from the empanelled agencies and associated billings due to tax
implications. This support is required as the buyer may be in a different
city than the place where the delivery is being received.
coin and bar demand dropped to 67 tons. Indian jewelry off take is
sensitive to price increases and even more so to volatility, although this
decline in tonnage since 1998 is also due in part to increasing
competition from white and brown goods and alternative investment
vehicles, but is also a reflection of the increase in price. The Indian
bride’s “Streedhan”, the wealth she takes with her when she marries and
which remains hers, is still gold, however (thus giving gold an important
role in the “empowerment” of women in India).
World Markets
Turning to demand
demand, but that in turn will depend on the “type” of recession. So far,
the brewing recession has been positive for gold, as it has been
accompanied by a rise in inflation and a falling dollar, which has boosted
demand for gold as a dollar and inflation hedge.
gold belt.
The Tian Shan Gold Belt - the second largest belt in the world.
South Africa
Australia
United States
London is the biggest and the oldest gold market in the world.
Mumbai is India’s liberalized gold regime.
New York is the home of gold future trading.
Istanbul, Dubai, Singapore and Hong Kong are doorways to
important consuming regions.
Gold has three crucial attributes that, combined, set it apart from
other commodities: firstly, assayed gold is homogeneous; secondly, gold
is indestructible and fungible; and thirdly, the inventory of aboveground
stocks is astronomically large relative to changes in flow demand. One
consequence of these attributes is a dramatic reduction in gestation lags,
given low search costs and the well-developed leasing market. One would
expect that the time required convert bullion into producer inventory is
short, relative to other commodities which may be less liquid and less
homogenous than gold and may require longer time scales to extract and
be converted into usable producer inventory, making them more
vulnerable to cyclical price volatility. Of course, because of the variability
of demand, the price responsiveness of each commodity will depend in
part on precautionary inventory holding.
spot price
Cumulative
Frequency Percent Valid Percent Percent
Valid Investors 41 41.0 41.0 41.0
Daily Trading
59 59.0 59.0 100.0
Bases/Future Market
Total 100 100.0 100.0
spot price
Investors
41.0%
59.0%
Interpretation:
In all 100 sample size 59 respondents are gold smiths. All are
fix the price according to daily bases, which are displays in TV time to
time. In a day in spot market three times price is changes.
Cumulative
Frequency Percent Valid Percent Percent
Valid Investors 41 41.0 41.0 41.0
Local supplier 5 5.0 5.0 46.0
Wholesaler 54 54.0 54.0 100.0
Total 100 100.0 100.0
commodities
Investors
41.0%
Wholesaler
54.0%
Local supplier
5.0%
Interpretation:
Above Pie chart shows that out of 100 sample size, 54% of
respondents get gold from wholesalers, 5% are from local suppliers and
remaining are investors. So most of them get the gold from wholesalers.
invest
Cumulative
Frequency Percent Valid Percent Percent
Valid Gold 9 9.0 9.0 9.0
Bank/Fixed Deposit 10 10.0 10.0 19.0
Equity 49 49.0 49.0 68.0
Mutual Funds 28 28.0 28.0 96.0
Real Estate 4 4.0 4.0 100.0
Total 100 100.0 100.0
invest
Real Estate
4.0%
Mutual Funds
28.0%
Gold
9.0%
Bank/Fixed Deposit
10.0%
Equity
49.0%
Interpretation:
The Graph clearly shows that most of the respondents are interested in
investing in equity (49%) when compared to the other investment
alternatives because they feel investing in equity will provide more
returns to them.
aware
Cumulative
Frequency Percent Valid Percent Percent
Valid Yes 82 82.0 82.0 82.0
No 18 18.0 18.0 100.0
Total 100 100.0 100.0
aware
No
18.0%
Yes
82.0%
Interpretation:
The above pie chart describes that 82% of the investors (goldsmiths or
gold traders) are aware about the Commodity Future market and 18% of
them are not aware about Commodity Future Market. So there is a need
to create awareness about the commodity future market and its benefits.
commodity
Cumulative
Frequency Percent Valid Percent Percent
Valid Not aware 17 17.0 17.0 17.0
Yes 16 16.0 16.0 33.0
No 67 67.0 67.0 100.0
Total 100 100.0 100.0
commodity
Not aware
17.0%
Yes
16.0%
No
67.0%
Interpretation:
The pie chart shows that, even though the investors are aware about
commodity future market only 16% of them have actually invested in this
market where as the remaining have not invested because among them
17% are not aware and remaining 67% investors have not invested as
they have a perception that it is risky and they even do not have much
knowledge about trading mechanism.
future
Cumulative
Frequency Percent Valid Percent Percent
Valid Investors 16 16.0 16.0 16.0
Yes 61 61.0 61.0 77.0
No 23 23.0 23.0 100.0
Total 100 100.0 100.0
future
No
23.0%
Investors
16.0%
Yes
61.0%
Interpretation:
The above pie chart represents that, the investors who have not yet
invested in the commodity future market, out of them 61% of the
investors are interested to invest in the coming future.
Cumulative
Frequency Percent Valid Percent Percent
Valid Genuine Information 69 69.0 69.0 69.0
Moderate Brokerage 13 13.0 13.0 82.0
Good Service 13 13.0 13.0 95.0
Recommendation 5 5.0 5.0 100.0
Total 100 100.0 100.0
13.0%
Moderate Brokerage
13.0%
Genuine Information
69.0%
Interpretation:
The graph shows that, the investors expect that the brokers should
provide them the genuine information regarding the market. Also they
want moderate brokerage and good services from the brokers.
SPOT FUTURE
DATE PRICE PRICE
10-16 Dec 2007 10207.29 10253.86
17-23 Dec 2007 10270 10281.86
24-30 Dec 2007 10577.86 10477.43
31,1-6 Jan 2008 10729.14 10841.43
7-13 Jan 2008 10902.14 11229.43
14-20 Jan 2008 11291.43 11310.14
21-27 Jan 2008 11434.43 11477.71
28-31 jan,1-3 Feb 2008 11582.71 11681.29
4-10 Feb 2008 11609.43 11577.57
11-17 Feb 2008 11677.43 11600
18-24 Feb 2008 12024.71 11960.29
25-29 Feb,1-2 Mar 2008 12320.29 12271
3-9 mar 2008 12735.29 12700
10-16 Mar 2008 12895.29 12863.29
17-23 Mar 2008 12503.14 12435.43
24-30 Mar 2008 12149.57 12144
31,1-5 Apr 2008 11724.67 11699.33
= 38874931920 – 196804*196634.8
Interpretation:
Hence,
Correlation is 0.9931
Probable Error is 0.00224
Hence the six time of probable error i.e. 0.0135 is less than the
correlation. Therefore, the prices prevailing in both the market are highly
correlated. This means, the future prices will very much following the
trend of Spot commodity market price. In fact the future prices will
reflect the spot prices very closely.
SPOT $
DATE PRICE RATE % Changes in prices
10-16 Dec 2007 10207 39.41 Spot $ rate
17-23 Dec 2007 10270 39.6 0.0061441 0.00475
24-30 Dec 2007 10578 39.45 0.0299764 -0.00382
31,1-6 Jan 2008 10729 38.69 0.0143021 -0.01919
7-13 Jan 2008 10902 39.32 0.0161243 0.01621
14-20 Jan 2008 11291 39.33 0.0357073 0.00033
21-27 Jan 2008 11434 39.47 0.0126645 0.00356
28-31 Jan,1-3 Feb
2008 11583 39.41 0.0129684 -0.00156
4-10 Feb 2008 11609 39.6 0.0023064 0.00497
11-17 Feb 2008 11677 40.02 0.0058573 0.0105
18-24 Feb 2008 12025 40 0.0297399 -0.00061
25-29 feb,1-2 Mar
2008 12320 39.89 0.0245803 -0.00261
3-9 Mar 2008 12735 40.45 0.0336843 0.01389
10-16 Mar 2008 12895 40.44 0.0125635 -3.5E-05
17-23 Mar 2008 12503 40.52 -0.0304098 0.00194
24-30 Mar 2008 12150 40.15 -0.0282786 -0.00913
31,1-5 Apr 2008 11725 40 -0.0349728 -0.00372
Interpretation:
As, P.E. is not more than r (correlation), according to rule three nothing
can be conclude with certainty. It means that correlation between spot
gold price and $ rate is neither significant nor certainty.
But analyzing above chart and correlation (0.2042), it can be concluded
that correlation between dollar and spot gold price is not so much
significant. It means if one price increases other will be decrease. For
example, in the week of 24 to 30 December and 14 to 20 th January Gold
price increases and dollar rate decreases.
precious metals are often sold to cover losses. The US stock market
provides a good indication of risk aversion.
Crude oil started the year with a bang as it traded at $100/bbl for
the first time. However, much of the price increase is based on
speculation rather than the underlying supply and demand balance. In
2008, demand is expected to expand less than the consensus view due to
a slowdown of G7 economies. In China as well, GDP growth is likely to be
lower than last year. By the end of this year, Brent is predicted to be
trading at $70/bbl.
Thus, one of the main fundamentals suggests a significant
correction rather than a continuation of the upward trend of precious
metals in 2008. However, this does not contradict our forecast. In the
first half of the year, other factors will be superimposed on the effect of
falling oil prices. The correlation between gold and crude oil has been
greater over the last eight years than that between gold and the
EUR/USD exchange rate, but there are also phases in which the
correlation is rather less close. These periods include the beginning of
the year, when different seasonal patterns can lead to a divergence.
While crude oil often eases over the winter, demand from the jewelry
industry means that gold and silver prices tend to rise until the end of
the first quarter. Although jewelry demand may not be quite as great as
expected in view of the high current prices, it should support the prices
of gold and silver. In the case of platinum it appears that jewelry demand
in China is falling, whereas in gold it remains strong despite price rises.
Demand from financial investors is far more important than demand
from the jewelry industry for the development of precious metal prices. It
is often said that investors buy gold as a hedge against rising inflation.
However, empirical experience does not bear this out. US inflation has no
significant effect on the gold price. Demand from financial investors is
10. Rising Gold Prices and Low Interest Rates Discourage Financial
Speculation on the Short Side:
When gold prices were continuously falling and financial speculators
could access central bank gold at a minimal leasing rate (0.5 - 1% per
annum), sell it and reinvest the proceeds in a high yielding bond or
Treasury bill, the trade was viewed as a lay up. Everyone did it and now
there are numerous stale short positions. However, these trades now
make no sense with a rising gold price and declining interest rates.
11. The Central Banks are nearing an Inflection Point when they will
be Reluctant to provide more Gold to the Market:
The central banks have supplied too much already via the leasing
mechanism. In addition, Far Eastern central banks who are
Conclusion:
Findings
traders can easily predict the future prices of the commodities and
spot gold prices and dollar rates are highly correlated or not.
them.
that it is risky and they even do not have much knowledge about
trading mechanism.
invest in the coming future. The investors expect that the brokers
market. Also they want moderate brokerage and good services from
the brokers.
World distress
Inflation
SUGGESTIONS
Both Spot Gold & Future Gold Markets are positively correlated the
traders have knowledge about the commodity demand and supply
and their price fluctuations. So Karvy can approach these traders
and they can easily convince them so these people are the targeted
customers for Karvy.
As correlation between spot gold rate and dollar rate is not high,
investor can hedge their risk by investing in gold future and dollar.
So they get benefit of diversification.
CONCLUSION
prices has the direct impact on the future prices of gold in commodity
market. So Traders can take more advantage of this. Because they can
predict the future prices, depending upon the present demand and
Supply in the spot market. As they also get benefits of diversification,
means in case of uncertainty in gold market they can invest in dollar i.e.
forex market. It helps to all such as Individual investors and gold
traders. There is a maximum hours of trading that is from 10am to 11.55
pm. It is better for working class people to deal at evening.