Indian Commodity

Markets
A brief Overview

Presentation Flow

Overview of the Indian commodity markets.

Why Commodities?

About KCSL.

Our Services.

cr. • Despite the world wide trend of allocating close to 10% in one’s investment portfolio towards commodity. • 14 hr market (10 am to 11. • Numerous opportunities for Investors.Commodity Markets in India • A vibrant and exciting market . encompassing Base Metals. . • Excellent liquidity. in India the allocation is below 1%. with average daily volumes in the range of 5565000/. Energy Futures. Traders and Arbitrageurs. A great opportunity to bridge the gap. & Agri Commodities. Precious Metals.30pm) • Although the latest entrant in the Indian financial markets. easily the fastest growing.

traders and arbitrageurs.Why Commodities? • Significant opportunities for investors. • Liquid asset class. • Enables significant portfolio diversification for an investor. . • Low cost of entry and exit. compared to some other asset classes. • Separate asset class.

catering to all executionary requirements of the client. manned by trained and experienced dealers. covering a broad range of commodities. • A well appointed research team. • Members of ACE. the three leading national level commodity exchanges. comprising of Fundamental and Technical Research Analysts. NCDEX (National Commodity and Derivatives Exchange Ltd) and MCX (Multi Commodity Exchange of India Ltd). there by garnering great insight about the physical commodity markets. a family which has a lineage of over seven decades in commodity markets. . • Pan India presence with HQ in Mumbai ( 34 Branches and 200 Authorized Partners across India) • 14 hour Dealing desk.About Us • Promoted by the Kotak family.

catering well to the highly volatile markets. . KCSL offers high quality risk management systems.About Us • Member of MCX Non-Ferrous Metals Advisory Board. that are intuitive and thorough. • Finally.

• Arbitrage in Commodity Markets. • Commodity Derivatives Trading.Services in Detail • Delivery Based Commodity Investments. .

Delivery based investment in Gold/Silver – Key attributes Key attribute for Gold include• Global appeal and uniformity • Status of a monetary asset • Inflation hedge • Safe haven asset • Resilient to business cycles • Less volatile in comparison to some asset classes • In a bull run for past one decade • India remains world’s biggest consumer • Long shelf life and can be held as long as investor desires • Low storage risk (In Demat form) • Trading on Exchange will assure transparent pricing • No quality and purity issues. as standard form of gold is traded • Gold in demat can be used as a pledge for margins for futures trading .

Delivery based investment in Gold/Silver-Key attributes Key attribute for Silver include• Silver is similar in gold in physical attributes and can be kept in storage for a long time • Silver is considered both an industrial metal and a previous metal • Silver has witnessed significant trading interest for past two years and gave most returns in nominal terms in 2010 • Silver is a smaller market and shows sharp price movement. giving trading opportunity as well • Gold is the key price determining factor for silver • Correlation between Gold and Silver has been near 0.9 for past one decade • Sharp rise in gold price has shifted buying interest to cheaper silver and this trend is likely to continue • India’s silver demand is expected to rise from 2800 tonnes in 2010 to 4000 tonnes this year • Silver ETF could be introduced in India as well .

• Create long position on exchange platform. • After getting delivery of the commodity. They can convert physical vault receipts into demat form. the client can keep it in an exchange accredited vault. KCSL too can act as C&F agent of client. At the time of settlement of contract the client has to pay full amount. • Client could have their own sales tax registration or they can appoint a C&F agent for sales tax related matters. • At the time of initiating long position on exchange client has to pay only margin and keep some funds towards Mark to Market (MTM). by paying rent.Delivery process for Gold/Silver investments • Client open commodity trading and demat accounts. .

001% .Delivery based investments Expenses • Following charges are applicable VAT 1% (refundable) C&F charges 0.25% + service tax Brokerage As Discussed + service tax Vault charges : Gold Rs 10 / Kg / day Rs 1 / 100 gm / day Vault charges : Silver Rs 15 / 30 Kg / day Transaction charges 0.004% Stamp duty 0.

even though the domestic equity markets are shut. 55-65. but with sound research advice and proper trading assistance by trained traders/RM. • While the markets are highly leveraged.Commodity Derivative Trading • Scope to participate in a highly liquid and exciting future’s markets. . • Competitive margins ensures low initial investment commitment. (Daily average turnover – Rs. the potential is limitless.000 cr) • Longer trading hours enables one to be invested during the international market session .

along with excellent support system in the form of research support and risk management services. for ready access to account status. • Free installation of Back office support system (BOSS) . • Ready access to the research desk (Fundamental and technical).Commodity Derivative Trading Services • We offer clients above par executionary services. for live up-date of prices and trade execution ability . • Internet based ODIN Terminal. • Dedicated dealer in the morning and evening shift. • Dedicated RM .

Margins are usually: – Daily margins – Mark to market payments • Take a position in the commodity future • Liquidate the position by squaring up.Commodity Derivative Trading Process • Open broking account • Deposit money for meeting margin requirements. .

Types of Arbitrage: There are mainly two types of arbitrage opportunities available in market • Cash and carry arbitrage • Calendar spread between different months in same exchange . before tax returns is possible after net of all charges. • Mis-pricing exists due to lack of awareness • 10-15% p.Arbitrage in Commodity Markets – key attributes Arbitrage involves simultaneous purchase and sale of an asset in different markets in order to profit from a difference in the prices.a. Rationale • Opportunities exist due to nascent stage of the futures market particularly in agricultural commodities.

. Generally client can get around 10-15% annual returns before tax. keep it in exchange accredited warehouses till expiry of futures contract and deliver the same on exchange platform at time of expiry of the contracts.Arbitrage in Commodity Markets – Spot-Future Arbitrage • It Involves buying in spot (cash) market and selling an equivalent quantity in futures market at a specific spread • Client shall take physical deliveries from spot market.

a. The client shall reverse both positions if spread narrows before expiry Otherwise get delivery of commodity from exchange in the first month and give same delivery in the next month or shall rollover positions and give delivery in the subsequent months.Arbitrage in Commodity Markets – Calendar Spread Arbitrage • • • • • It involves simultaneous purchase and sale of a commodity in two different contracts of same exchange. Recommended in non perishable commodities like gold. before tax. . Typically client buys current month futures contract and sell next month futures contract simultaneously at a spread to get returns in the range of 10-15% p.

• Valid sales-tax registration. Else use KCSL’s physical desk services .Process Account opening • Open trading account with KCSL and Demat accounts with KSL for commodity segment in both NSDL and CDSL • Necessary documentation with Kotak commodity for spot market purchase.Arbitrage in Commodity Markets .

CnF charges and other expenses at actual Transaction fees of exchange and stamp duty Dematerialization and DP charges Warehousing and assaying cost Standard deduction (in Agri-commodities) Interest cost on margin and actual delivery investment .Expense s • • • • • • Brokerage.

Calendar-spread Speculative income/(loss).Taxation Transaction Tax treatment* Cash-carry arbitrage/inter exchange spot / Calendar spread and inter-exchange (involving physical delivery) Business income/(loss). both legs. notforward represent . . 4 years.Business loss can be offset by business income .Speculative loss can be offset ONLY by (without involving speculative gains. physical delivery) *: Client should consult his own tax advisor. . both legs [futures-futures]/inter exchange futures .Speculative losses Above can be does carried for any advice or direction on tax treatment from Kotak commodities.Business Losses can be carried forward for 8 years.

Weekly and Special research reports on commodity complex  Centralized dealing and operational desk  Effective risk management system • Corporate Desk  Dedicated relationship manager  Top class services on execution and post trade assistance  In-depth research on commodities of interest  Direct access to research team and products  Centralized dealing and operational desk  Round the clock risk management system .KCSL-Services • Individual Desk  In-depth research on commodities of interest  Exclusive research chat for market updates and research calls  SMS services for intraday technical calls  Daily.

Thank You .