A

PROJECT REPORT
ON

“AWARENESS OF COMMODITY
MARKET”
PROJECT UNDERTAKEN AT

BIRLA CORPORATION LTD. SATNA

AWADHESH PRATAP SINGH UNIVERSITY, REWA (M.P.)

FOR THE AWARD OF

BACHELOR OF BUSINESS ADMINISTRATION
BBA (SEMESTER-VI)

BY

MISS. PREETI SINGH

UNDER GUIDANCE OF
PROF. ANKUR PHATAK

VINDHYA INSTITUTE OF MANAGEMENT & SCIENCE,

SATNA (M.P.)
2014- 2015
 VINDHYA INSTITUTE OF MANAGEMENT & SCIENCE
SATNA (M.P.)

GUIDE’S CERTIFICATE
This is to certify that MISS. PREETI SINGH has satisfactorily completed the

Project work on “A Study on Awareness of Commodity Market with reference to Birla

Cement” under my guidance for the partial fulfillment of BBA (Semester-VI)

submitted to Awadhesh Pratap Singh University, Rewa during the academic year

2014-2015.

To best of my knowledge and belief the matter presented by her is original

work and not copied from any source. Also this report has not been submitted earlier

for the award of any Degree of Awadhesh Pratap Singh University, Rewa.

Place: Satna PROF. ANKUR PHATAK

Date: / 05 / 2015 (Project Guide)

1
 VINDHYA INSTITUTE OF MANAGEMENT & SCIENCE
SATNA (M.P.)

DECLARATION

I undersigned, hereby declare that this Project Report entitled “A Study on

Awareness of Commodity Market with reference to Birla Cement” prescribed by

AWADHESH PRATAP SINGH UNIVERSITY, REWA during the academic year 2014-2015

under the guidance of PROF. ANKUR PHATAK is my original work.

The matter presented in this report has not been copied from any source. I

understand that any such copying is liable to be punishable in any way the university

authorities deem to be fit. Also this report has not been submitted earlier for the

award of any Degree or Diploma of Awadhesh Pratap Singh University, Rewa or any

other University.

This work humbly submitted to Awadhesh Pratap Singh University for the

partial fulfillment of Bachelor of Business Administration (Sem-VI).

PLACE: SATNA MISS PREETI SINGH

DATE: / 05 / 2015

2
 VINDHYA INSTITUTE OF MANAGEMENT & SCIENCE
SATNA (M.P.)

ACKNOWLEDGEMENT

Whenever we are standing on most difficult step of the dream of our life, we
often remind about The Great God for His blessings & kind help and he always helps
us in tracking off the problems by some means in our lifetime. I feel great pleasure to
present this project entitled “A Study on Awareness of Commodity Market with
reference to Birla Cement”.
I am grateful to those people who help me a lot in preparation of this project
report. It is their support and blessings, which has brought me to write this project
report. I have a deep sense of gratitude in my heart for them.
I would give sincere thanks to our faculty members Prof. Sankalp Shukla, Prof.
R.P.Singh, Prof. Prashant Mishra, Prof. Neeraj Saxena, Dr. Fahim Siddiqui, Prof. Priti
Dwivedi, Prof. Neelam Bajpai, Prof. Pooja Pandey who is been & will be source of
inspiration to us.
I am very thankful to my project guide Prof. Ankur Phatak for his whole-
hearted support and affectionate encouragement without which my successful project
would not have been possible.
Finally, I am very grateful to Mighty God and inspiring parents whose loving
& caring support contributed a major share in completion of my task.

3
 Miss. Preeti Singh

TABLE OF CONTENTS

S.N. Contents Page No.

1 Introduction of Project 5-17

2 Company Profile 18-23

3 Review of Literature 24-26

4 Objectives 27-28

5 Research Methodology 29-32

6 Data Analysis & Interpretation 33-48

7 Findings & Suggestions 49-51

8 Limitations 52-53

9 Conclusion 54-55

10 References 56-57

Annexure
11 58-62
Questionnaire

4
 CHAPTER-I

INTRODUCTION OF PROJECT

5
INTRODUCTION:

INTRODUCTIONS TO COMMODITY MARKET:

 What is “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. Indian 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, sugar and gur, potatoes and
onions, coffee and tea, rubber and spices. Etc.
 What is a commodity exchange?

A commodity exchange is an association or a company or any other body corporate

organizing futures trading in commodities for which license has been granted by regulating
authority.
 What is Commodity Futures?

A Commodity futures is an agreement between two parties to buy or sell a specified and
standardized quantity of a commodity at a certain time in future at a price agreed upon at the
time of entering into the contract on the commodity futures exchange.

6
The need for a futures market arises mainly due to the hedging function that it can perform.
Commodity markets, like any other financial instrument, involve risk associated with frequent
price volatility. The loss due to price volatility can be attributed to the following reasons:

 Consumer Preferences: - In the short-term, their influence on price volatility is

small since it is a slow process permitting manufacturers, dealers and wholesalers
to adjust their inventory in advance.

 Changes in supply: - They are abrupt and unpredictable bringing about wild
fluctuations in prices. This can especially noticed in agricultural commodities
where the weather plays a major role in affecting the fortunes of people involved
in this industry. The futures market has evolved to neutralize such risks through a
mechanism; namely hedging.

 The objectives of Commodity futures:

 Hedging with the objective of transferring risk related to the possession of physical assets
through any adverse moments in price. Liquidity and Price discovery to ensure base
minimum volume in trading of a commodity through market information and demand
supply factors that facilitates a regular and authentic price discovery mechanism.

 Maintaining buffer stock and better allocation of resources as it augments reduction in

inventory requirement and thus the exposure to risks related with price fluctuation
declines. Resources can thus be diversified for investments.

 Price stabilization along with balancing demand and supply position. Futures trading leads
to predictability in assessing the domestic prices, which maintains stability, thus
safeguarding against any short term adverse price movements. Liquidity in Contracts of
the commodities traded also ensures in maintaining the equilibrium between demand and
supply.

7
 Flexibility, certainty and transparency in purchasing commodities facilitate bank
financing. Predictability in prices of commodity would lead to stability, which in turn
would eliminate the risks associated with running the business of trading commodities.
This would make funding easier and less stringent for banks to commodity market players.

 Benefits of Commodity Futures Markets:

The primary objectives of any futures exchange are authentic price discovery and an
efficient price risk management. The beneficiaries include those who trade in the
commodities being offered in the exchange as well as those who have nothing to do with
futures trading. It is because of price discovery and risk management through the existence
of futures exchanges that a lot of businesses and services are able to function smoothly.
1. Price Discovery:-Based on inputs regarding specific market information, the demand and
supply equilibrium, weather forecasts, expert views and comments, inflation rates,
Government policies, market dynamics, hopes and fears, buyers and sellers conduct
trading at futures exchanges. This transforms in to continuous price discovery mechanism.
The execution of trade between buyers and sellers leads to assessment of fair value of a
particular commodity that is immediately disseminated on the trading terminal.

2. Price Risk Management: - Hedging is the most common method of price risk
management. It is strategy of offering price risk that is inherent in spot market by taking
an equal but opposite position in the futures market. Futures markets are used as a mode
by hedgers to protect their business from adverse price change. This could dent the
profitability of their business. Hedging benefits who are involved in trading of
commodities like farmers, processors, merchandisers, manufacturers, exporters, importers
etc.

3. Import- Export competitiveness: - The exporters can hedge their price risk and improve
their competitiveness by making use of futures market. A majority of traders which are
involved in physical trade internationally intend to buy forwards. The purchases made
from the physical market might expose them to the risk of price risk resulting to losses.
The existence of futures market would allow the exporters to hedge their proposed

8
 purchase by temporarily substituting for actual purchase till the time is ripe to buy in
physical market. In the absence of futures market it will be meticulous, time consuming
and costly physical transactions.

4. Predictable Pricing: - The demand for certain commodities is highly price elastic. The
manufacturers have to ensure that the prices should be stable in order to protect their
market share with the free entry of imports. Futures contracts will enable predictability in
domestic prices. The manufacturers can, as a result, smooth out the influence of changes
in their input prices very easily. With no futures market, the manufacturer can be caught
between severe short-term price movements of oils and necessity to maintain price
stability, which could only be possible through sufficient financial reserves that could
otherwise be utilized for making other profitable investments.

5. Benefits for farmers/Agriculturalists: - Price instability has a direct bearing on farmers

in the absence of futures market. There would be no need to have large reserves to cover
against unfavorable price fluctuations. This would reduce the risk premiums associated
with the marketing or processing margins enabling more returns on produce. Storing more
and being more active in the markets. The price information accessible to the farmers
determines the extent to which traders/processors increase price to them. Since one of the
objectives of futures exchange is to make available these prices as far as possible, it is
very likely to benefit the farmers. Also, due to the time lag between planning and
production, the market-determined price information disseminated by futures exchanges
would be crucial for their production decisions.

6. Credit accessibility: - The absence of proper risk management tools would attract the
marketing and processing of commodities to high-risk exposure making it risky business
activity to fund. Even a small movement in prices can eat up a huge proportion of capital
owned by traders, at times making it virtually impossible to pay back the loan. There is a
high degree of reluctance among banks to fund commodity traders, especially those who
do not manage price risks. If in case they do, the interest rate is likely to be high and terms
and conditions very stringent. This posses a huge obstacle in the smooth functioning and

9
 competition of commodities market. Hedging, which is possible through futures markets,
would cut down the discount rate in commodity lending.

7. Improved product quality: - The existence of warehouses for facilitating delivery with
grading facilities along with other related benefits provides a very strong reason to
upgrade and enhance the quality of the commodity to grade that is acceptable by the
exchange. It ensures uniform standardization of commodity trade, including the terms of
quality standard: the quality certificates that are issued by the exchange-certified
warehouses have the potential to become the norm for physical trade.

OVERVIEW OF THE INDIAN COMMODITY MARKET:

Despite intermittent curbs, India‘s six-year-old commodity futures market has seen a
steady stream of new entrants, drawn by the promise of richer rewards. The intense
growth, even in the absence of basic reforms, has attracted financial institutions, trading
companies and banks to set up large commodity bourse. Since, Indian Commodity
Exchange (ICEX), promoted by India bulls Financial Services Ltd in partnership with
MMTC is going to start its operation from November 2009; it is expected to create an
extensive competition among national level commodity exchanges. Commodity
derivatives market of India is drawing attention from all over the world, albeit FMC had
banned nine commodities since early 2007, out of which 4 are still out of trade and even
financial institutions and foreign entities are barred from trading in the market. Even,
industry players are of the view that commodity market regulator (FMC) should permit
banks and financial institutions to trade in commodity futures, allow options, exchange-
traded indices and some more powers to the market regulator from Ministry of Consumer
Affairs to develop the market.

EVOLUTION AND HISTORY OF COMMODITY MARKETS:

10
The history of organized commodity derivatives in India goes back to the nineteenth
century when Cotton Trade Association started futures trading in 1875, about a decade
after they started in Chicago. Over the time datives market developed in several
commodities in India. Following Cotton, derivatives trading started in oilseed in Bombay
(1900), raw jute and jute goods in Calcutta (1912), Wheat in Hapur (1913) and Bullion in
Bombay (1920).

However many feared that derivatives fuelled unnecessary speculation and were
detrimental to the healthy functioning of the market for the underlying commodities,
resulting in to banning of commodity options trading and cash settlement of commodities
futures after independence in 1952. The parliament passed the Forward Contracts
(Regulation) Act, 1952, which regulated contracts in Commodities all over the India. The
act prohibited options trading in Goods along with cash settlement of forward trades,
rendering a crushing blow to the commodity derivatives market. Under the act only those
associations/exchanges, which are granted reorganization from the Government, are
allowed to organize forward trading in regulated commodities. The act envisages three tire
regulations: (i) Exchange which organizes forward trading in commodities can regulate
trading on day-to-day basis; (ii) Forward Markets Commission provides regulatory
oversight under the powers delegated to it by the central Government. (iii) The Central
Government- Department of Consumer Affairs, Ministry of Consumer Affairs, Food and
Public Distribution- is the ultimate regulatory authority.

The commodities future market remained dismantled and remained dormant for about
four decades until the new millennium when the Government, in a complete change in a
policy, started actively encouraging commodity market. After Liberalization and
Globalization in 1990, the Government set up a committee (1993) to examine the role of
futures trading. The Committee (headed by Prof. K.N. Kabra) recommended allowing
futures trading in 17 commodity groups. It also recommended strengthening Forward
Markets Commission, and certain amendments to Forward Contracts (Regulation) Act
1952, particularly allowing option trading in goods and registration of brokers with
Forward Markets Commission. The Government accepted most of these

11
 recommendations and futures’ trading was permitted in all recommended commodities. It
is timely decision since internationally the commodity cycle is on upswing and the next
decade being touched as the decade of Commodities.
Commodity exchange in India plays an important role where the prices of any commodity
are not fixed, in an organized way. Earlier only the buyer of produce and its seller in the
market judged upon the prices. Others never had a say. Today, commodity exchanges are
purely speculative in nature. Before discovering the price, they reach to the producers,
end-users, and even the retail investors, at a grassroots level. It brings a price transparency
and risk management in the vital market. A big difference between a typical auction,
where a single auctioneer announces the bids and the Exchange is that people are not only
competing to buy but also to sell. By Exchange rules and by law, no one can bid under a
higher bid, and no one can offer to sell higher than someone else’s lower offer. That keeps
the market as efficient as possible, and keeps the traders on their toes to make sure no one
gets the purchase or sale before they do. Since 2002, the commodities future market in
India has experienced an unexpected boom in terms of modern exchanges, number of
commodities allowed for derivatives trading as well as the value of futures trading in
commodities, which crossed $ 1 trillion mark in 2006. Since 1952 till 2002 commodity
datives market was virtually non- existent, except some negligible activities on OTC basis.

In India there are 25 recognized future exchanges, of which there are three national level
multi-commodity exchanges. After a gap of almost three decades, Government of India
has allowed forward transactions in commodities through Online Commodity Exchanges,
a modification of traditional business known as Adhat and Vayda Vyapar to facilitate
better risk coverage and delivery of commodities. The three exchanges are: National
Commodity & Derivatives Exchange Limited (NCDEX) Mumbai, Multi Commodity
Exchange of India Limited (MCX) Mumbai and National Multi-Commodity Exchange of
India Limited (NMCEIL) Ahmedabad. There are other regional commodity exchanges
situated in different parts of India.

THE SIZE OF THE MARKET:

12
 The trading of commodities consists of direct physical trading and derivatives trading.
Exchange traded commodities have seen an upturn in the volume of trading since the start of
the decade. This was largely a result of the growing attraction of commodities as an asset
class and a proliferation of investment options which has made it easier to access this market.

The global volume of commodities contracts traded on exchanges increased by a fifth in

2010, and a half since 2008, to around 2.5 billion million contracts. During the three years up
to the end of 2010, global physical exports of commodities fell by 2%, while the outstanding
value of OTC commodities derivatives declined by two-thirds as investors reduced risk
following a five-fold increase in value outstanding in the previous three years.

Trading on exchanges in China and India has gained in importance in recent years due to
their emergence as significant commodities consumers and producers. China accounted for
more than 60% of exchange-traded commodities in 2009, up on its 40% share in the previous
year.

Commodity assets under management more than doubled between 2008 and 2010 to nearly
$380bn. Inflows into the sector totaled over $60bn in 2010, the second highest year on
record, down from the record $72bn allocated to commodities funds in the previous year. The
bulk of funds went into precious metals and energy products. The growth in prices of many
commodities in 2010 contributed to the increase in the value of commodities funds under
management.

HOW TO COMMODITY MARKET WORK:

There are two kinds of trades in commodities. The first is the spot trade, in which one pays
cash and carries away the goods. The second is futures trade. The underpinning for futures
is the warehouse receipt. A person deposits certain amount of say, good X in a ware house
and gets a warehouse receipt. Which allows him to ask for physical delivery of the good
from the warehouse? But someone trading in commodity futures need not necessarily
posses such a receipt to strike a deal.

13
A person can buy or sale a commodity future on an exchange based on his expectation of
where the price will go. Futures have something called an expiry date, by when the buyer
or seller either closes (square off) his account or give/take delivery of the commodity. The
broker maintains an account of all dealing parties in which the daily profit or loss due to
changes in the futures price is recorded. Squiring off is done by taking an opposite
contract so that the net outstanding is nil. For commodity futures to work, the seller
should be able to deposit the commodity at warehouse nearest to him and collect the
warehouse receipt.
The buyer should be able to take physical delivery at a location of his choice on presenting
the warehouse receipt. But at present in India very few warehouses provide delivery for
specific commodities.

Following diagram gives a fair idea about working of the Commodity market.

Today Commodity trading system is fully computerized. Traders need not visit a
commodity market to speculate. With online commodity trading they could sit in the
confines of their home or office and call the shots.
The commodity trading system consists of certain prescribed steps or stages as follows:

14
 I. Trading: - At this stage the following is the system implemented-
- Order receiving
- Execution
- Matching
- Reporting
- Surveillance
- Price limits
- Position limits

II. Clearing: - This stage has following system in place-

- Matching
- Registration
- Clearing
- Clearing limits
- Notation
- Margining
- Price limits
- Position limits
- Clearing house.

III. Settlement: - This stage has following system followed as follows-

- Marking to market
- Receipts and payments
- Reporting
- Delivery upon expiration or maturity.

CURRENT SCENARIO IN INDIAN COMMODITY MARKET:

15
India is among top 5 producers of most of the Commodities, in addition to being a major
consumer of bullion and energy products. 

Agriculture contributes about 22% GDP of Indian economy. It employees around 57% of the
labor force on total of 163 million hectors of land Agriculture sector is an important factor in
achieving a GDP growth of 8-10%. All this indicates that India can be promoted as a major centre
for trading of commodity derivatives.

Trends in volume contribution on the three National Exchanges:-

Pattern on Multi Commodity Exchange (MCX)

MCX is currently largest commodity exchange in the country in terms of trade volumes, further it
has even become the third largest in bullion and second largest in silver future trading in the
world. 

Coming to trade pattern, though there are about 100 commodities traded on MCX, only 3 or 4
commodities contribute for more than 80 percent of total trade volume. As per recent data the
largely traded commodities are Gold, Silver, Energy and base Metals. 

Incidentally the futures’ trends of these commodities are mainly driven by international futures
prices rather than the changes in domestic demand-supply and hence, the price signals largely
reflect international scenario.

Among Agricultural commodities major volume contributors include Gur, Urad, and Mentha Oil
etc. Whose market sizes are considerably small making then vulnerable to manipulations. 

Pattern on National Commodity & Derivatives Exchange (NCDEX)

NCDEX is the second largest commodity exchange in the country after MCX. However the major
volume contributors on NCDEX are agricultural commodities. 

But, most of them have common inherent problem of small market size, which is making them

16
vulnerable to market manipulations and over speculation. About 60 percent trade on NCDEX
comes from guar seed, chana and Urad (narrow commodities as specified by FMC).

Pattern on National Multi Commodity Exchange (NMCE)

NMCE is third national level futures exchange that has been largely trading in Agricultural
Commodities. 

Trade on NMCE had considerable proportion of commodities with big market size as jute rubber
etc. But, in subsequent period, the pattern has changed and slowly moved towards commodities
with small market size or narrow commodities. 

Analysis of volume contributions on three major national commodity exchanges reveled the
following pattern, Major volume contributors: - 

Majority of trade has been concentrated in few commodities that are 

• Non Agricultural Commodities (bullion, metals and energy)

• Agricultural commodities with small market size (or narrow commodities) like guar, Urad,
Mentha etc.

17
 CHAPTER-II

COMPANY PROFILE

18
COMPANY PROFILE:

Overview

Founded in1919 by the visionary industrialist Shri G.D. Birla, at the outskirts of the
Kolkata, Birla jute manufacturing company Ltd. Was the first company of the Birla
Industrial Conglomerate. Under the stewardship of his nephew Shri M.P. Birla, the
company diversified and expands its business interest beyond jute, to encompass cement
PVC coated fabric, PVC floor covering and auto trims.

After the demise of Late Mr. M.P. Birla in 1990, his wife, Mrs. Priyamvada Birla
took over as chairman of Birla Corporation and continued to lead the company till her
death on 3 July 2004. She was an entrepreneur of distinction strong business acumen and,
under her leadership; the company crossed the Rs. 1,300-plus turnover mark.

The company renamed Birla Corporation Limited, to reflect the wide range of
operation, is the flagship company of the M. P. Birla group. The strategic focus of the
company has been on steady growth by developing and assimilating technologies of
tomorrow to manufacturing an ever widening range of value-added product, while striving
for complete customer satisfaction in India and abroad. Birla Corporation Limited is proud
of safe work practice followed at all its factories and go downs. As an enlightened
corporate citizen, Birla Corporation Limited is keenly aware of social responsibilities too,
and provides education and health care facilities for its employees, their families and the
community at large.

19
 Its export in 2004-05 stood at Rs. 85.28crores. Over the year, BCL’s business has
grown from strength to strength.

Overview: Cement Industry

Birla Corporation Limited (BCL) has been ranked 6 th amongst India’s ten “Most Admired
Companies” in the Cement Sector by Fortune India, the eminent business magazine. The
ranking has been based on a number of criteria, including “size, contribution GDP, growth rate,
maturity of industry and sufficient competition”. The ranking of the company has gone up to 6 th
in 2013 from 8th in 2012. This is Fortune India’s second survey of India’s “Most Admired
Companies”.

Birla Corporation Limited is the flagship Company of the M.P. Birla Group. Incorporated as
Birla Jute Manufacturing Company Limited in 1919, it was Late Mr. Madhav Prasad
Birla who gave shape to it. As Chairman of the Company, Mr. Madhav Prasad

20
Birla transformed it from a manufacturer of jute goods to a leading multi-product corporation
with widespread activities. Under the Chairmanship of Mrs. Priyamvada Birla, the Company
crossed the Rs. 1300 - crore turnover mark and the name was changed to Birla Corporation
Limited in 1998.

After the demise of Mrs. Priyamvada Birla, the Company continued to consolidate in
terms of profitability, competitiveness and growth under the leadership of Mr. Rajendra
S. Lodha, late Chairman of the M.P. Birla Group. Under his leadership, the Company
posted its best ever results in the years ended 31.3.2006, 31.3.2007 and 31.3.2008.

The Company continued to record impressive growth in 2008-09 and 2009-10. Mr H V

Lodha is now Chairman of the company.

Birla Corporation Limited has products ranging from cement to jute goods, PVC floor
covering, as well as auto trims (jute felt-based car interiors).
 
 Installed Capacity and Production

Product Installed Capacity Production (2009-2010)

Cement 6.46 Mill. Tons. 5.69 Mill. Tons.
Jute Goods 38000 M T 27,300 MT
PVC Floor Covering 48.60 lakh sq. mtrs 1.09 lakh sq. mtrs.

21
Auto Trim Parts 7.80 lakh Pcs 0.64 lakh Pcs
Iron & Steel Casting 3,750 tons 1,078 tons

22
 LIST OF DIRECTORS
FOUNDERS OF M. P. BIRLA GROUP

LATE SHRI. M. P. BIRLA LATE SMT. PRIYAMVADAJI BIRLA

23
Achievements

1. SCW, BVC & DCW have got ISO 9002 quality certification, covering the entire range of
production & marketing.

2. Best Energy performance award in 1995-96 & 1994-95.

3. Second best improvement in energy performance award in 1995-96.

4. Top export award in 1994-95.

5. First prize in productivity to CCW in 1993-94.

6. Special Export award in 1993-94.

7. Best Energy performance award to SCW in 1993-94.

8. Special export in 1992-93.

9. Top export award for 1990-91 & 1991-92.

10. Second Best Performance in 1991-92.

11. Best Performance award in 1989-90.

24
 CHAPTER-III

REVIEW OF LITERATURE

25
REVIEW OF LITERATURE:

Since the introduction of co integration theory, a growing body of literature has empirically tested
market efficiency of commodity futures around the world. If the non-stationary spot and futures
prices are co integrated, it ensures that there exists a long-run equilibrium relationship between
them. However, if these two price series are not co integrated, they diverge without bound, such
that the futures price would provide little information about the movement of the spot price (Lai
and Lai, 1991, 569). Therefore, co integration between the spot price and the futures price is a
necessary condition for market efficiency (ibid. 568). Market efficiency also requires that the
futures price is an unbiased predictor on average, indicating that these two price indices have a co
integrating vector. So far, market efficiency has mainly been studies for developed countries such
as the US and the UK, and studies on emerging and developing counties are few. Among the
latter, examples other than India include Wang and Ke (2005) for wheat and soybeans and Xin et
al. (2006) for copper and aluminum, both of which examine the commodity market efficiency in
China using co integration methods.

The prior research on India consists of Bose (2008), Jabir and Gupta (2011), and Goyari and Jena
(2011).2 Bose (2008) examines some characteristics of Indian commodity futures in order to judge
whether the prices fulfill the efficient functions of the markets or not. She analyzes this issue by
applying different methods such as correlation, co integration and causality and using the price
indices from the MCX and the NCDEX from June 2005 to September 2007. The results show that
the multi-commodity futures indices help to reduce volatility in the spot prices of corresponding
commodities and provide for effective hedging of price risk, while the agricultural indices do not
exhibit these features clearly. Also, Jabir and Gupta (2011) analyze the efficiency of 12
agricultural commodity markets by examining the relationships between the futures and spot
prices from 2004 to 2007. As the results from their co integration and causality tests, they indicate
that co integration exists in these indices for all commodities except wheat and rice and that the
direction of causality is mixed, depending on the commodities. Finally, Goyari and Jena (2011)
examine the commodity futures market from June 2005 to January 2008 using the daily spot and
futures prices of gold, crude oil and guar seed. The results of their co integration test state that the

26
spot price and the futures price are co integrated for three commodities, suggesting that they have
a long-run relationship.

As mentioned above, all these studies use the period before 2008 as their sample period and so do
not cover the period during which Indian commodity futures gained momentum significantly.
Besides, they conduct the Johansen co integration test but do not test the co integrating parameter
restriction for the unbiasedness hypothesis. This paper differs from the surveyed studies on these
two points.

27
 CHAPTER-IV

OBJECTIVES OF THE STUDY

28
OBJECTIVES:

This research is based on the study of commodity market with reference to Birla Cement.
The objectives of my study are as follows:

 To study the concepts of commodities Trading in India.

 To study of The Various Trends In Commodity Trading

 To Study The Role of Commodities In Indian Financial Markets

 To study In detail The Role of Futures And Forwards.

 To analyze the present situation of the commodities in Indian market and suggest
for any improvements there after

29
 CHAPTER-V

RESEARCH METHODOLOGY

30
 RESEARCH METHODOLOGY

RESEARCH
Research is a process in which the researcher wishes to find out the end result for a given
problem and thus the solution helps in future course of action. The research has been defined as
“A careful investigation or enquiry especially through search for new fact in any branch of
knowledge”.

RESEARCH METHODOLOGY
Research methodology is a systematic and scientific method to know the truth and reality
behind phenomena. Research methodology is the way to systematically solve the problem. When
we talk about research methodology we not only talk about the research method but we also
consider the logic behind methods we use in the context of our research study and explain why, we
use a particular method or technique and why we are not using other, so that research result are
capable of being evaluated either by the researcher himself or the others.

The aim of result is a process recording and analyzing the critical and relevant facts about
the problem in any branch of human activity.

METHODOLOGY:

The efficiency of cash flow statement in Birla Cement over the years has been analyzed with the
help of following techniques and approaches:

1) OPERATING CYCLE APPROACH:

The normal operations of a manufacturing and trading company start with cash, go through the
successive segments of the operating cycle, viz, raw material storage period, conversion period,
finished goods storage period and average collection period before getting back cash along with

31
profits. The shorter the duration of the operating cycle period, the locking up of funds in current
assets is for a relatively short duration. Thus, operating cycle period has been calculated for four
years and the operating cycle period for the current year has been compared with the previous
years to know whether the period has increased or decreased over the years. To provide a better
view, each segment of operating cycle period is compared over the years to get a picture of
management of working capital management in the division.

2) RATIO ANALYSIS
Despite the usual limitations associated with ratios, ratio analysis is still popular for analyzing the
financial statements of business entities. This is mainly attributable to the simplicity in calculation
and indication of the direction in which the entity is moving. Thus various working capital ratios
have been calculated for the various years and compared to gauge the efficiency of working
capital management in the Cement division of Birla Corporation Ltd.

RESEARCH DESIGN:
Research design is a frame work or plan for a study that guides the collection and analysis of the
data. The controlling plan for a marketing research study in which the methods and procedures for
collecting and analyzing the information to be collected is specified. A plan for collecting and
utilizing data so that desired information can be obtained with sufficient precision or so that a
hypothesis can be tested properly.

SOURCES OF DATA:

PRIMARY DATA
Primary data refers to the data which is collected for the first time from the origin. It is the first
hand information. The input related to cash flow statement has been obtained from the inventory
stores located at cement plant (Birla Group). Some data and information related to working
capital management has been obtained from the finance and accounts department of the division.
The data so received are also collected from the management.

32
SECONDARY DATA
Secondary data refers to the data which are already in existence. These are second hand
information. The data required for making a comparative study are collected from annual reports
available on internet and published sources. The data required for the application of quantitative
tools and techniques for monitoring the efficiency of cash flow statement has been extracted from
the annual report presented in year 2012-2013 and 2013-2014.

33
 CHAPTER-VI
DATA ANALYSIS & INTERPRETATION

34
Q.1 Do you have any investment plan?

TABLE 1.1

Investment plan Frequency Percent

YES 32 32.0
NO 68 68.0
Total 100 100.0

CHART 1.1

INTERPRETATION
 In our study, we have put down this question to check the analytical aspect
of the investors.
 We have found in our study that 68% of the investors would prefer to
investment plan in it and only 32% of the investors would not prefer to
investment plan.

35
Q.2 If Yes, Where you would like to invest your money?
TABLE 2.1
Mode Of Investments Frequency Percent
Bank F.D 10 10.0
Commodity Market 13 13.0
Share Market 6 6.0
Other 3 3.0
Total 32 32.0

CHART 2.1

INTERPRETATION
 The above graph shows preferred mode of investment by investors.
 As we have taken sample of investors who invest in commodity market, it is
obvious that commodity market is most preferable mode of investment for them.
 The graph represents that Bank FD is second preferable mode of investment by
investors, i.e., 32% of the investors invest in Bank FD.

36
Q.3 If No, what reasons?
TABLE 3.1
Reasons Frequency Percent
Not Aware About Invest Avenues 28 28.0
Insufficient Income 37 37.0
Other 3 3.0
Total 68 68.0

CHART 3.1

INTERPRETATION
 In Our study, we have found that 55% of the investors have not aware about the invest
avenues.
 We also found that 41% of the inventors have insufficient income.
 We also found that 4% of the investors have other reason to not invest in money.

37
Q.4 Do you aware about Commodity Market?
TABLE 4.1
Aware About Commodity Market Frequency Percent

YES 29 29.0
NO 71 71.0
Total 100 100.0

CHART 4.1

38
INTERPRETATION
 In our study, we have put down this question to check the analytical aspect of the
investors.
 We have found in our study that 71% of the investors would prefer to not aware about
the commodity market and 29% of the investors would prefer to yes aware about the
commodity market.
 Whereas 29% of the investors analyze the market with the help of brokers / financial
advisors or themselves.

Q.5 If yes, which Commodity Exchange you will prefer for investment?

TABLE 5.1
Frequency Percent
MCX 7 7.0
NCDEX 8 8.0
NMCE 8 8.0
Can't Say 5 5.0
Other 1 1.0
Total 29 29.0

CHART 5.1

39
INTERPRETATION
 From the above graphical presentation, we can say that investors are mostly preferred
NCDEX (NATIONAL COMMODITY &DERIVATIVES EXCHANGE LTD.) &
NMCE (NATIONAL MULTI COMMODITY EXCHANGE) for trading in
commodities.
 MCX holds a market share of over 80% of the Indian commodity futures market, and
more than 2000 registered members operating through over 100,000 trader work station,
across India.
 We also found that 24% of the investors preferred MCX for trading in commodity market.
 From the above chart we can say that 17% of the investors preferred can’t say and 3% of
the investors use preferred local trading exchange for trading for trading in commodity
market.

Q.6 what is your perception about Commodity Market?

TABLE 6.1
Frequency Percent

Less Risk 30 30.0

Risk 52 52.0
Very Risk 18 18.0
Total 100 100.0

CHART 6.1

40
INTERPRETATION
 I can know that commodity is risky because the inventor says that there is no one can
predict to the commodity price in a market so that commodity is risky for the investing.
 We also that found that the 30% peoples are commodity is less risky and 18% peoples are
commodity is very risky.

Q.7 For each statement given below, please tick mark in the box to in the indicate your
opinion.
Objective: To check the effectiveness of factors in determining commodities price
from investor’s perspective.
TABLE 7.1
Factors which affects to determine commodities price
Statement Strongly Agree Neutral Disagree Strongly
Agree Disagree
Export-import data of commodities 47 26 15 10 2
issued by government to the
commodities price.
Flood, earthquake, droughts and 26 39 17 14 4
tsunami create fluctuation
incommodities price.
If buyers are standing less than 33 19 25 21 2
suppliers, reduces the price of
commodities.
Government policies like monetary 19 27 30 21 3

41
and fiscal policy affects commodities
price.
Crude oil inventory level data affects 18 29 16 28 9
commodities prices.
Seasons like monsoon, winter and 20 27 19 21 13
summer affects to the price of
commodities.

TABLE 7.2
Mean and Standard Deviation
Statement Mean Standard
Deviation
Export-import data of commodities issued by government to the 1.94 1.099
commodities price.
Flood, earthquake, droughts and tsunami create fluctuation 2.31 1.125
incommodities price.
If buyers are standing less than suppliers, reduces the price of 2.40 1.206
commodities.
Government policies like monetary and fiscal policy affects 2.62 1.108
commodities price.
Crude oil inventory level data affects commodities prices. 2.81 1.277
Seasons like monsoon, winter and summer affects to the price of 2.80 1.333
commodities.

CHART 7.1

42
 INTERPRETATION
 From the above graphical presentation and tables, we can say that investors are almost
agree with the all the statements related to the factors which affect to determine
commodity prices.
 We have calculate the mean and standard deviation for each of the statements and their
mean ranges from 1.94 to 2.81 which represent that investors are agree about that all the
factors are more or less important in determining commodity prices.
 The most important factors that affects the price of commodities are Export-Import data of
commodities issued by government, Flood, Earthquake, Droughts and Tsunami, If buyers
are standing less than suppliers, Government policies like monetary and fiscal policy,
interest rate issues by RBI and Foreign Exchange rate affects to commodities price, having
mean of 1.94, 2.31, 2.4, 2.62, 2.81 and 2.8 respectively

Q.8 Give your opinions about the followings…….

Objective: To check investors’ perception as compared to equity market and currency market and
to check views over reliability and transiency of on line trading in commodity market.

TABLE 8.1
Statement Strongly Agree Neutral Disagree Strongly
Agree Disagree
Commodity market gives more return than 43 24 9 19 5
equity market and currency market.
Commodity market consists more risk 19 33 24 23 1
than equity market and currency market.
Commodity market is less volatile then 17 24 32 20 7
equity market and currency market.
Commodity market fluctuation makes 17 32 28 19 4
impact on equity market and currency
market.
Online trading in commodity market is 16 30 22 26 6
transparent.
Online trading in commodity market is 17 18 17 26 22

43
reliable.

TABLE 8.2
Statement Mean Standard
Deviation
Commodity market gives more return than equity market and currency 2.19 1.308
market.
Commodity market consists more risk than equity market and currency 2.54 1.077
market.
Commodity market is less volatile then equity market and currency 2.76 1.164
market.
Commodity market fluctuation makes impact on equity market and 2.61 1.100
currency market.
Online trading in commodity market is transparent. 2.76 1.182
Online trading in commodity market is reliable. 3.18 1.410

CHART 8.1

INTERPRETATION

44
 From the above graphical presentation and graph we can come to know that investor’s
opinion is approximately neutral for the two statements. The statements are commodity
market and give more return than Equity market and currency market and commodity
market consists more risk than Equity market which has mean of 2.19 and 3.18
respectively and on the basis of that we can say that investors are neutral about both the
statements.
In our study, we also found that investors are agreeing about the following statements.
Commodity market is less volatile than Equity market and currency market, commodity
market fluctuation makes impact on Equity market and currency market , online trading
in commodity market is transparent, online trading in commodity market is reliable
because their means are 2.54, 2.76, 2.61 and 2.76 respectively.

PERSONAL DETAILS

1. GENDER:
TABLE 9.1
Gender Frequency Percent

Male 79 79.0

Female 21 21.0

Total 100 100.0

CHART 9.1

45
INTERPRETATION

 In our study, we have taken a sample of 100 investors who invest in commodity market.
 Out of 100, there are approximately 79% respondent are male while rest of the
respondents are female.

2. AGE GROUP:

TABLE 9.2

Frequency Percent

Below 20 30 30.0

20-30 42 42.0

31-40 15 15.0

41-50 10 10.0

51-60 2 2.0

Above 60 1 1.0

Total 100 100.0

46
 CHART 9.2

INTERPRETATION
 The above chart shows the graphical presentation of age group of investors who in
commodity market.
 From the graph, we can say that majority of the respondents are of age group between 20-
30 year i.e. 42% of the respondent having their age between 20-30 year.

3. OCCUPATION:

TABLE 9.3
  Frequency Percent

Government Employee 18 18

Self Employee 26 26

Professional 17 17

Farmer 5 5

Employee In Private Sector 11 11

Other 23 23

Total 100 100

47
 CHART 9.3

INTERPRETATION
 The above graphical presentation shows the occupation of respondents.
 Out of total of respondents, 26% are self Employed, 18% government employees, 11% are
private sector employees, 17% are professional employees, and 26% are other
respondents.
4. Monthly Income of Family (in Rs.):

TABLE 9.4
  Frequency Percent

Below 10000 43 43.0

10000-20000 24 24.0

20000-30000 18 18.0

30000-40000 9 9.0

40000-50000 3 3.0

Above 50000 3 3.0

Total 100 100.0

48
 CHART 9.4

INTERPRETATION
 The above chart shows the graphical presentation of monthly income of family of
respondents.
 In this data there is mostly 43% investors has more than Below 10000 incomes per month
that reason is family business in market and it is well settled because if you have no
sufficient income so you cannot payout of deal that when you get big loss that time you
have to pay and you have no more income.

5. Educational Qualification:
TABLE 9.5

  Frequency Percent

Below HSC 18 18.0

Undergraduate 13 13.0

Graduate 42 42.0

Post Graduate 26 26.0

Other 1 1.0

49
 Total 100 100.0

CHART 9.5

INTERPRETATION
 The above chart shows the graphical presentation of Education Qualification of investors
who invest in commodity market.
 From the graph, we can say that majority of the respondents are Graduate.

CHAPTER-VII

50
 FINDINGS & SUGGESTIONS

FINDINGS AND SUGGESTIONS

 More than 50% of the Traders in are aware about the commodity future
Market

 Hardly 30% traders are invested in the commodity future market

 Most of the investors are not ready to invest in commodity future market they feel it
involve high risk.

 Returns and the Risk of the commodity are the most critical factors, which

51
 Traders will consider while investing in any commodity

 Most of the investors are ready to invest in commodity future market if proper information
is provided

 As commodity future market is new and emerging ,many investors and farmers are not
fully aware of this market .as the market helps to trade transparently without middlemen
and agents

 While finding the reasons why most of the people are not trading in commodity market I
found that many respondents are not interested at all in this trade this is because of
unawareness & mythical perception about commodity market.

 Most of the respondents are were from government service & business men

SUGGESTIONS

• More agents and marketing executives should be appointed to educate the customers because
the customers having many myths in there mind

• And also create the awareness of electronic commodity trading

• Firm should approach people who are already into the business of commodities .special
campaigns / investors meets should be conducted for these people since they are aware of rate

52
fluctuation ,market trends etc . They have got market idea that benefits them in price
prediction. They will be in high spirits when price risk of them will be managed.

53
 CHAPTER-VIII
LIMITATIONS

LIMITATIONS

1. The study cannot say as totally perfect as it is subjected to any alteration.

2. The study is not based on the international perspective of Commodity markets. It is
limited to national level only.
3. The finding of the study is based on information which was given by the respondent. It
may be possible that the respondents ware not provided the right information.
4. There can be business from researcher or responds side.

54
55
 CHAPTER-IX

CONCLUSION

Commodity futures markets are new and emerging market. The awareness of the market is very
less among the investors who can use this trade to sell there products without the middlemen or
agents it also help the actual buyers too. Here trader also can transfer his risk to some other who
can handle it or can appetite the risk through hedging techniques
Compared to capital market commodity market is less risky in volatility
context here the prices do not change within a fraction of second .significantly, minimum margin
ready physical possession, no manipulation & fraud, maximum profitability is available over here

56
since the commodity market helps all such as farmers, industries and individuals investors it is
growing at a faster rate in global outlook.

57
 CHAPTER-X
REFERENCES

REFERENCES

 BOOKS

i) I.M PANDEY, financial management, vikash publishing house, New Delhi.

ii) PRASANNA CHANDRA, financial management, theory and practice, 3 rd edition,

Tata McGraw hill, New Delhi.

iii) BHATTACHARYA, H, total management by ratios, New Delhi, sage publication

Indiapvt. Ltd.

58
 iv) YADAV, R. A, “working capital management- a parametric approach”, the chartered
accountant.

v) PRASAD, R. 5, “working capital management in paper industry” finance India

volume XV. NO. 1, March 2001.

vi) Financial management and policy, J.C. VAN HORNE, PHI.

vii) Research methodology by C.R.KOTHARI.

 WEBSITES

www.google.com
www.birlacorporationlimited.com

59
 CHAPTER-XI
ANNEXURE

Questionnaire

1. Do you have any investment plan?

YES
NO

(If NO move to question no. 4)

2. If, yes, where you would like to invest your money?

Bank F.D
Commodity Market
Share Market

60
 Other (specify) ----------------------------------------------------------------

3. If no, why?

Not aware about invest avenues

Insufficient income
Other (specify) ----------------------------------------------------------------

4. Do you aware about Commodity Market?

YES
NO

(If NO move to question no. 7)

5. If yes, which Commodity Exchange you will prefer for investment?

MCX NCDEX
NMCE Can’t Say
Other (Specify) ----------------------------------------------------------

6. What is your perception about Commodity Market?

Less Risk Risk Very Risk

Factors which affects to determine commodities price

Statement Strongly Agree Neutral Disagree Strongly
Agree Disagree
Export-import data of commodities issued by
government to the commodities price.
Flood, earthquake, droughts and tsunami
create fluctuation incommodities price.
If buyers are standing less than suppliers,
reduces the price of commodities.
Government policies like monetary and fiscal
policy affects commodities price.
Crude oil inventory level data affects
commodities prices.
Seasons like monsoon, winter and summer
affects to the price of commodities.

61
 7. For each statement given below, please tick mark in the box to in the
indicate your opinion.

8. Give your opinions about the followings…..

Statement Strongly Agree Neutral Disagree Strongly

Agree Disagree
Commodity market gives more return than
equity market and currency market.
Commodity market consists more risk than
equity market and currency market.
Commodity market is less volatile then equity
market and currency market.
Commodity market fluctuation makes impact
on equity market and currency market.
Online trading in commodity market is
transparent.
Online trading in commodity market is reliable.

PERSONAL DETAILS:

1. Name:

2. Gender:

Male Female

3. Age:

Below 20 20 – 30

31-40 41-50

62
 51-60 Above 60

4. Occupation:

Government employee Self-employee

Professional Farmer

Employee in Private Sector Others

5. Monthly family income:

Below 10,000 10,000-20,000

20,000-30,000 30,000-40,000

40,000-50,000 Above 50,000

6. Educational qualification:

Below HSC Undergraduate

Graduate Post graduate

Others please specify ____________________________________

63