A SYNOPSIS ON

“COMMODITY MARKET”

AT

“INDIA BULLS SECURITIES LTD”

BY

S. SRINATH REDDY

(HALL TICKET NO: 2122-18-672-037)

Synopsis for project to be submitted for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

OSMANIA UNIVERSITY

2018-2020

AURORA’PG COLLEGE, MUSARAMBAGH

 CHAPTER PLAN

CHAPTER-1
INTRODUCTION
SCOPE OF THE STUDY
OBJECTIVES OF THE STUDY
METHODOLOGY OF THE STUDY
LIMITATIONS OF THE STUDY
CHAPTER-2
REVIEW OF LITERATURE
CHAPTER-3
INDUSTRY PROFILE
COMPANY PROFILE
CHAPTER-4
DATA ANALYSIS AND INTERPRETATION
CHAPTER-5
SUGGESTION
FINDINGS & CONCLUSION
BIBLIOGRAPHY
 1.1 INTRODUCTION

Commodity includes all kinds of goods. FCRA defines “goods” as “every kind of moveable

property other than actionable claims, money and securities”. Or 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 commodity futures trading, consists of a futures contract, which is a legally binding

agreement providing for the delivery of the underlying asset or financial entities at specific

date in the future. Like all future contracts, commodity futures are agreements to buy or sell

something at a later date and at a price that has been fixed earlier by the buyer and seller. So,

for example, a cotton farmer may agree to sell his output to a textiles company many months

before the crop is ready for actual harvesting.

Commodity Market

The commodity market is a market where forwards, futures and options contracts are traded

on commodities. Commodity markets have registered a remarkable growth in recent years.

The stage is now set for banks to trade in commodity futures. This could help producers of

agricultural products bankers and other participants of the commodity markets. Banks have

started acknowledging the commodity derivatives market. In this context the Punjab National

Bank and the Corporation Bank have sanctioned loans worth Rs 50 crore to commodity

futures traders over the past six months.

In the present global economic scenario, due to various factors such as inflation, political

factors, natural factors, the variations in prices of all commodities are a natural phenomenon.

So,from the point of the cultivators of the commodity (in case of agricultural products) or

dealers in the metals, there is a genuine need for them, an instrument with which they can

hedge their risks. Thus, a commodity future is one of the most important derivative securities.
With this they will be able to reduce risks.

Consequently, the speculators who play an important part, in determining the price also come

in the picture. Thus with the help of their speculative expertise, it can also be a very lucrative

investment opportunity. Through this, project, an attempt is made to prove that commodity

futures can be used effectively as a risk reduction instrument and also as a very good

investment opportunity.The futures market in commodities offers both cash and delivery-

based settlement. Investors can choose between the two. If the buyer chooses to take delivery

of the commodity, a transferable receipt from the warehouse where goods are stored is issued

in favour of the buyer. On producing this receipt, the buyer can claim the commodity from

the warehouse. All open contracts not intended for delivery are cash-settled. While

speculators and arbitrageurs generally prefer cash settlement, commodity stockiest and

wholesalers go for delivery. The option to square off the deal or to take delivery can be

changed before the last day of contract expiry. In the case of delivery-based trades, the

margin rises to 0-25% of the contract value and the seller is required to pay sales tax on the

transaction.Trading in any contract month will open on the twenty first day of the month,

three months prior to the contract month. For example, the December 2005 contracts open on

21 September 2005 and the due date is the 20-day of the delivery month. All contracts

settling in cash will be settled on the following day after the contract expiry date. Commodity

trading follows a T+1 settlement system, where the settlement date is the next working day

after expiry. However, in case of delivery-based traders, settlement takes place five to seven

days after the expiry.

 1.2 NEED OF THE STUDY

 Commodity market is growing and it is becoming more critical. Therefore the

research is in on the commodity futures and analysis of risk and return involved in

commodity futures.

 Achieving hedging efficiency in the main reason opt for futures contracts. For

instance, in February, 2007 India had to pay $52 per barrel more for importing oil

then what they had to pay a week ago.

 The utility of a future compact for hedging or risk management purpose parallel on

near-parallel relationship between the spot and future price over time. In other words,

the efficiency of a futures contract for hedging essential envisages that the price in the

physical and future markets move in close union not only in the direction but also by

almost same magnitude so that loses in one market are offset by gains in the others

 Theoretically( and ideally), in perfectly competitive market with surplus supplies and

abundant stock round the year, future price will exceed the spot price by the cost of

storage till the maturity of the future contract but such storage cost declines has the

contract approaches maturity, there by reducing the premium or contango commanded

by the future contract over the spot delivery over its life and eventually becomes zero

during the delivery month when the spot and futures price virtually converge.

 The efficiency of a futures contract for hedging depends on the prevalence of such an

ideal price relationship between the spot and futures market.

 1.3 SCOPE OF THE STUDY

 One month spot prices for commodity futures like Gold, Silver, Cotton, Nickel,

copper and Crude oil etc are collected for calculation.


Only 10 commodities have been included. However, the analysis is been done based

on calculation 2019 may.

The above mentioned commodity futures are more traded in the market in terms of

volume.
 1.4 OBJECTIVES OF THE STUDY

The objectives of the study are:

 To study the growth of commodity futures trading.

 To analyse the risk involvedin various commodity.

 To know the use of strategies available in the commodity market.

 1.5 RESEARCH METHODOLOGY

Methodology states that how the research studies should be undertaken. This includes the

design specifications, sources of data, methods of primary data collection, methods used for

collecting secondary data etc.

Primary Data

It is a raw data collected from any source before the study, this data is taken as the use to

study secondary data below.

Secondary Data

Mainly secondary data has been used for the study. Secondary data consists of collecting

information from various financial sites. It includes the records and reports of research

experts from 2019may.

TOOLS & TECHNIQUES

 For analysis and interpretation statistical tools are used.

 In this study standard deviation and Beta are used for calculating Risk and Return of

commodity futures.
 2.2 REVIEW OF LITERATURE

Mukhopadhyay, Arup Ranjan, Pradhan, Biswabrata, and Gupta, Abhijit(2008) in their

research paper “Developing an Index for Trading Through Multi Commodity Exchange in

India”, researched to facilitate business development and to create market awareness, and

conducted an index named MCX COMAX for different commodities viz. agricultural, metal

and energy traded on Multi Commodity Exchange in India. By using weighted geometric

mean of the price relatives as the index, weights were selected on the basis of percentage

contribution of contracts and value of physical market. With weighted arithmetic mean of

group indices the combined index had been calculated. It served the purpose of Multi

Commodity Exchange to make association among between various MCX members and their

associates along with creation of fair competitive environment. Commodity trading market

had considered this index as an ideal investment tool for the protection of risk of both buyers

and sellers.

Swami PrakashSrivastava and BhawanaSaini (2009) in their research paper “Commodity

Futures Markets and its Role in Indian Economy” discussed that with the elimination of ban

from commodities, Indian futures market has achieved sizeable growth. Commodity futures

market proves to be the efficient market at the world level in terms of price risk management

and price discovery. Study found a high potential for future growth of Indian commodity

futures market as India is one of the top producers of agricultural commodities.

Rajendran - As majority of Indian investors are not aware of organized commodity market;

their perception about is of risky to very risky investment. Many of them have wrong

impression about commodity market in their minds. It makes them specious towards

commodity market. Concerned authorities have to take initiative to make commodity trading

process easy and simple. Along with Government efforts NGO‟s should come forward to

educate the people about commodity markets and to encourage them to invest in to it. There
is no doubt that in near future commodity market will become Hot spot for Indian farmers

rather than spot market. And producers, traders as well as consumers will be benefited from

it. But for this to happen one has to take initiative to standardize and popularize the

Commodity Market.
 2.3 JOURNALS/ARTICLES

ARTICLE 1:

Title - Volatility and commodity price dynamics

Authors: Robert S. Pindyck

Date of publication: 25 August 2004

Commodity prices are volatile, and volatility itself varies over time. Changes in volatility can

affect market variables by directly affecting the marginal value of storage, and by affecting a

component of the total marginal cost of production, the opportunity cost of producing the

commodity now rather than waiting for more price information. I examine the role of

volatility in short-run commodity market dynamics and the determinants of volatility itself. I

develop a structural model of inventories, spot, and futures prices that explicitly accounts for

volatility, and estimate it using daily and weekly data for the petroleum complex: crude oil,

heating oil, and gasoline.

ARTICLE 2:

Title: Martingale, Market Efficiency and Commodity Prices

Author: Jean-PierreDanthine

Date of publication: May 2009

The martingale model of market efficiency is based on a hypothesis of efficient utilization of

information and on the possibility of expressing market equilibrium in terms of expected

returns. The paper is concerned with providing an answer to the two following questions: (1)

Under which (microeconomic) conditions is it feasible to describe equilibrium in efficient

spot commodity markets in terms of expected returns? (Are the two underlying assumptions

consistent?) (2) Is the ‘expected return’ assumption necessary to test market efficiency and

what alternative can be proposed?

ARTICLE 3:
Title: Placing the 2006/08 Commodity Price Boom into Perspective
Author:John BaffesWorld Bank ,TassosHaniotis
European Union - European Commission

Date of publication: July 1, 2010

The 2006-08 commodity price boom was one of the longest and broadest of the post-World
War II period. Apart from strong and sustained economic growth, the recent boom was fueled
by numerous factors, including low past investment in extractive commodities, weak dollar,
fiscal expansion, and lax monetary policy in many countries, and investment fund activity. At
the same time, the combination of adverse weather conditions, the diversion of some food
commodities to the production of biofuels, and government policies (including export bans
and prohibitive taxes) brought global stocks of many food commodities down to levels not
seen since the early 1970s. This in turn accelerated the price increases that eventually led to
the 2008 rally. The weakening and/or reversal of these factors coupled with the financial
crisis that erupted in September 2008 and the subsequent global economic downturn, induced
sharp price declines across most commodity sectors. Yet, the main price indices are still twice
as high compared to their 2000 real levels, begging once more the question about the real
factors affecting them. This paper concludes that a stronger link between energy and non-
energy commodity prices is likely to be the dominant influence on developments in
commodity, and especially food, markets. Demand by emerging economies is unlikely to put
additional pressure on the prices of food commodities. The paper also argues that the effect of
biofuels on food prices has not been as large as originally thought, but that the use of
commodities by financial investors (the so-called "financialization of commodities" ) may
have been partly responsible for the 2007/08 spike. Finally, econometric analysis of the long-
term evolution of commodity prices supports the thesis that price variability overwhelms
price trends.

Keywords: Markets and Market Access, Emerging Markets, Commodities, Energy

Production and Transportation, E-Business.
ARTICLE 4:

Title: Commodity Market Financialisation: A Closer Look at the Evidence

Authors: Alexandra Dwyer, James Holloway and Michelle Wright

Date of publication:2013

There is some debate about whether financial investors have caused excessive increases in

the level and volatility of commodity prices. These investors are viewed by some as being

less concerned with fundamentals than traditional market participants and hence impeding the

price discovery process – that is, they are destabilising speculators or ‘noise traders’. This

article discusses the relationship between the futures markets for commodities (where

financial investors are most active), and the spot markets.

 BIBLIOGRAPHY

BOOKS REFERRED

 Kothari, C.R., Research Methodology, New Delhi, New Age International Pvt Ltd,

2003.

 DhaneshKhatri, Security Analysis and Portfolio Management, Macmillan publishers

India Ltd, New Delhi,2010

 Prasanna Chandra, Investment Analysis and Portfolio Management, Tata McGraw

Hill Publishing Co Ltd (3rd Ed) New Delhi

JOURNALS

 Chan, M. L., & Mountain, D. C. (1988), the interactive and causal relationships

involving precious metal price movements. Journal of Business and Economic

Statistics, 6 (1), 69–77.

 Escribano, A., & Granger, C. W. J. (1998), investigating the relationship between

gold and silver prices. Journal of Forecasting, 17 (2), 81–107.

 Ma, C. (1985), spreading between the gold and silver markets: is there parity? Journal

of Futures Markets, 5 (4), 579–594

 Simon, M. A. (1996), the outlook for and inter-relationship between gold and silver,

CPM Group Market Report, www.cpmgroup.com/msimon_auvsag.html

 Wahab, M., Cohn, R., &Lashgari, M. (1994), the gold–silver spread: integration, co-

integration, predictability and ex-ante arbitrage. Journal of Futures Markets, 14 (6),

707–756
NEWS PAPERS

 The Economic times

 The New Indian Express

 Business Standard

 Business Line

 Mint

WEBSITES

1. http://www.rbi.org.in

2. http://www.goldresearch.org.in

3. http://www.gold.org

4. http://www.investopedia.com

5. http://www.investing.com

6. http://www.mcxindia.com

7. http://www.kitco.com

8. http://www.indiagoldrate.com