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Commodity Markets

July 2010

Way2Wealth Commodities Pvt. Ltd.


making investing simpler, more understandable and profitable

Index
Definition Commodity As Asset Class Commodity Uniqueness Classification of Commodities

Indian Commodity Market Size


Commodities Offered for Trading Why Commodities How to Invest Commodities @ Way2Wealth

Commodity - Definition
A commodity is any good or service produced by human labour and offered as a product for general sale on the market - Karl Max Characteristics Commodity is anything movable (a good) that has following characteristics Fungible, i.e. the same no matter who produces it Derivatives, i.e. involves further processing into number of products Economic cost, i.e. production of it involves some cost

Commodities in Real Life


Wheat in your bread Petrol in your vehicle Coffee on your table Sugar in your sweets Chana in your chhole Gold in your necklace and so on . Commodities are everywhere

Index
Definition Commodity As Asset Class Commodity Uniqueness Classification of Commodities

Indian Commodity Market Size


Commodities Offered for Trading Why Commodities How to Invest Commodities @ Way2Wealth

Commodity As Asset Class


In financial parlance, assets are economic resources that is capable of being owned or controlled to produce value Commodity too has gained importance currently as independent asset class Commodity, being the natural goods are independent of other asset classes Assets Classes Equities Fixed Income : : Performer during economic expansion & an out performer over very long term Performs at the later stage of recession

Real Estate
Commodities

:
:

Performs during early expansion


Performance spread evenly over the economic cycle

Index
Definition Commodity As Asset Class Commodity Uniqueness Classification of Commodities

Indian Commodity Market Size


Commodities Offered for Trading Why Commodities How to Invest Commodities @ Way2Wealth

Commodity Unique points of diversification


1. Seasonality 2. Correlation A major force in the commodities markets Unlike other asset class, commodities are positively and negatively correlated within & outside the group which is unique to commodities only

3. Weather

No other asset class are so much influenced by weather patterns


Provides natural hedge against war, inflation, other asset portfolios, recessions etc. example -GOLD

4. Hedge

Commodity Performance
Returns Over Different Asset Classes in 4 Yrs.
100 90 80 70 60 50 40 30 20 10 0 -10 SENSEX NIFTY CNX 500 NCDEX AGRI INDEX -1.44 INR MCX METAL INDEX 31.55 69.51 73.72 75.95 88.46

Source:Bloomberg,Way2Wealth Research

Commodity Performance
Various Asset Classes Perform ance 260 240 220 200 180 160 140 120 100 80 60 Oct-05 May-06 Dec-06 Jul-07 Nifty Feb-08 Sep-08 Apr-09 Nov-09

NCDEX Ag Index

USDINR

MCX Metal Index

Contribution in global landscape


Indian Share in Global Commodity Market
9%

Global Vs. India


Global commodity has relatively long history Size is 9 times larger than India

91% Global India

India
Commodity futures, though active since 19th century was banned later in 1970s Commodity volumes shoots up significantly after re-launch in 2003 MCX emerged as worlds Sixth largest exchange Volumes on Indian exchanges are increasing at CAGR of 73.7 percent

Commodity Trading ( Value in Million USD) Global India 2009 14831317 1469673 2008 11712611 1067984

Source:FMC,Way2Wealth Research

Global growth in Commodities 2004-09

Global Com m odity F&O -2004

Global Com m odity F&O -2009

20%

12% 23%

12%

68%
65%
Source : WEF Am erica Asia Europe+ME

Source : WEF

Am erica

Asia

Europe+ME

Share of Asia has jumped more than 5 times

Global growth in Commodities 2008-09

Exchangew ise Volum e Share Com m odity F&O -2008

Exchangew ise Volum e Share Com m odity F&O -2009

7% 5% 11%
9%

18%
9%

6%

5%

33%

13%

Source: WFE DCE CME

8%
SHFE ZCE

38%
Source: WFE

18%
MCX LME
DCE CME SHFE ZCE

20%
ICE MCX LME

ICE

Chinese exchanges has seen two fold increase in volume

Index
Definition Commodity As Asset Class Commodity Uniqueness Classification of Commodities

Indian Commodity Market Size


Commodities Offered for Trading Why Commodities How to Invest Commodities @ Way2Wealth

Classification of Commodities
Bullion Gold Silver Palladium etc

Agriculture Grains Pulses Edible oils/seeds Spices etc

Commodities

Energy Crude oil Heating oil Natural gas Furnace oil Etc.

Base Metals Copper Zinc Aluminum Nickel Tin

Index
Definition Commodity As Asset Class Commodity Uniqueness Classification of Commodities

Indian Commodity Market Size


Commodities Offered for Trading Why Commodities How to Invest Commodities @ Way2Wealth

Commodity Indian Structure


FMC The Regulator

Commodity Exchanges

National Exchanges

Regional Exchanges

NCDEX

NMCE

MCX

NBOT

20 Other Regional Exchanges

Leadership position with >90% share

Indian Growth so far


Significant rise in volume since launch of exchanges in 2003
Volume Growth in Indian Exchanges 700 600 500 400 300 200 MCX Leader in Metals & Energy 100 0 2004 2005 2006 MCX 2007 2008 NCDEX TOTAL 2009 2010
> 65% CAGR Growth

Source:FMC,Way2Wealth Research

Segment wise % Share of Commodities 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Bullion and other metals 31.5 36.1 57.9 64.6 56.7 40.8 Other than bullion metals 23.2 Agriculture 68.2 55.335.8 23.1 11.9 15.7 Energy 0.3 8.4 6.3 12.3 20.3 Others 0.0 0.1 0.0 0.0 31.4 0.0 Source:FMC,Way2Wealth Research * 2008-09 other segment includes energy& other metals

NCDEX Leader in Agri

Indian Growth during 2004-09

Exchange wise commodity Volumes in 2004

Exchange wise commodity Volumes in 2009


12%

38%

62%

88%
MCX NCDEX

MCX

NCDEX

Indian Growth during 2004-09

India Commodity Wise Market Share in 2004


0% 17%
12%

India Commodity Wise Market Share in 2009


9% 31%

15%

13%

67%

1% 0%
15% 20%

Gold

Silver

Crdue oil

Copper

Total agri

Others

Gold

Silver

Crdue oil

Copper

Total agri

Others

Returns in Indian commodities


Returns Across Various Com m odities in 5 Yrs. 600 500 400 300 200 100 0 -100 -12.36 -45.21 92.86 62.54 3.83 9.25 87.12 22.25 51.16 4.96 9.65 485.86

142.80 94.21 23.60

Guar Gum

Guar Seed

Source:Bloomberg,Way2Wealth Research

Almost 45 commodities are available for trading in both NCDEX & MCX Though few have been de-listed during high inflation times, re-listing also has happened Bullion, Base metals, energy & Agri are the major contributors in terms of volumes

Mentha Oil

Aluminium

Soybean

Turmeric

Crude oil

Soy Oil

Gold

Copper

Pepper

Jeera

Silver

Lead

Zinc

Index
Definition Commodity As Asset Class Commodity Uniqueness Classification of Commodities

Indian Commodity Market Size


Commodities Offered for Trading Why Commodities How to Invest Commodities @ Way2Wealth

Why Invest in Commodities


Commodity provides true diversification in financial portfolio Commodity act as hedge against risks involved in business Rising income will ensure Inflation which in turn will ensure bull market in commodites Explosion of population and shriking agricultural land would leave commodity scarce

Returns chasing funds & investors (traders, investor &HNI) will make it vibrant Consumption / Spending in infrastructure / GDP growth will lead to depletion of metals Secular bull market in commodities is likely to continue

Who Can Invest


Hedgers : Risk Management
o Consumers Refineries, food processing companies o Traders, exporters, importers o Producers farmers, Integrated producers

Speculators: High Volatility Higher Leverage


o Retail investors, Commodity spot trader o Institutional, Corporate & proprietary traders

Arbitrageurs : Safe Opportunist


o Spot future arbitrage o Spread Strategies o Intra and inter market arbitrage

Investors: Portfolio diversifier


o Individuals, Pension & Mutual Funds o Corporate bodies

Index
Definition Commodity As Asset Class Commodity Uniqueness Classification of Commodities

Indian Commodity Market Size


Commodities Offered for Trading Why Commodities How to Invest Commodities @ Way2Wealth

How to Invest
Procedure for Trading in Commodities
Open Demat & Trading A/C (Way2Wealth)
Filling KYC (Know Your Customer) Documents required : Pan Card, Address Proof, Networth, Cancelled cheque (MICR), Photo etc

To get familiar with this asset class, start reading research reports and monitor advisory and execution Acquire full knowledge of risk involved in futures
Mark to Market Daily Pay-in & pay-out Margin requirements Contract expiry & rollover Leverage, profit & loss etc

Index
Definition Commodity As Asset Class Commodity Uniqueness Classification of Commodities

Indian Commodity Market Size


Commodities Offered for Trading Why Commodities How to Invest Commodities @ Way2Wealth

Research @ Way2Wealth
Methodology - Analysis
Fundamental Supply-n-demand, crop survey, climatic changes, policies, logistics, specifications, delivery stocks, physical market linkages, Cartel move, etc Technical Chart patterns, indicators etc

Derivative Volume and Open Interest Change, Contract duration, rollover, Relative analysis with other markets etc
Statistical Arima modelling, Correlation & regression study, Deviation, Time series, Seasonality, Ratio study etc.

Research Products @ Way2Wealth


Products
Strategies
Arbitrage / Spreads Hedging All commodities Trading / Investment advisory

Reports
Daily Weekly Special Events Commodity Profiles

Special Support
Need based special coverage of non futures commodities like Coal, Chemicals, Naptha, Freight, Carbon credits etc. (on cost basis)

Products @ Way2Wealth
Trading Products
Based on Fundamental / Technical / Derivatives & Algorithm
Plain vanilla Trading Customised Trading

Investing Products
Algorithm or statistical based
Trend chasing, Money management principle, premium brokerage Strong execution skills

The People @ Way2Wealth


Sunil Ramrakhiani - COO

More than 15 years in industry. Founder member NCDEX, Member of product committee, Regular speaker in various forum

Vinay Tiwary

- Sales Head

More than 8 years in industry. Have worked with prominent exchange as product head for bullions.

Shantanu Bhardwaj

- Head Business Analytics & Product Development

More than 8 years in industry. Conceptualise & Launched pulses & Guarseed contracts in NCDEX. Have worked as Regional Manager west in IL&FS Investsmart.

Brajendra Talesara

- Head Dealing & Arbitrage desk

More than 12 years experience in industry. Strong execution skills. Have worked in Anand Rathi, Investsmart etc.

The People @ Way2Wealth

K N Rahaman

- Research Head

More than 10 years in Industry. Former Research Head in Agriwatch & Investsmart. Consultancy Projects done for ADB, JBIC, ICICI, OXFAM, DUPONT etc. Member of All India crop forecasting committee (industry) for pulses & oilseeds.

Prasad MSR

- Research Analyst

More than 6 years in industry as Research analyst for various commodities. Have worked with IL&FS Investsmart, Transgraph etc

Krishna Reddy

- Research Analyst

More than 6 years in industry as Research Analyst for various commodities. Have worked in IL&FS investsmart

Thank you
Team Commodities