Commodity Markets defined• Commodity: Any tangible item that can be bought and sold.

• SPOT MARKET-Mandis

• FUTURES MARKET-Exchanges

Inflation adjusted returns in the developed markets

• Returns greater than bonds and almost equivalent to stocks

• Risk is lower than investing in stocks

U.K.U.S.

U.S.

Major International Exchanges

COMMEX

Agricultural: corn, soybean, oats, wheat etcMetals :gold,silver

Precious Metals and Energy

Goldman Sachs Commodity IndexFertilizer.Dairy,etc

Gold,Silver

Base Metals,Plastics

Indian Scenario• More than 100 years old market

• Regional exchanges- Bombay Cottons Exchange- India Pepper and Spice Trade

Association- National Board of Trade etc.

• Year 2003- Landmark year

- Organized Trading at National Level

Premier Exchanges

• Organized National level exchanges• Professionally managed • Demutualised setup

T he Commodities

G oldS ilver

P recious Meta ls

S tee lC opperN icke l

Tin

Base M eta ls

C erea lsPulses

Spices e tc

Agricu lture

C rude O il

Energy

Soya O ilC astor Seeds

Mustard O il

O ils and O il Seeds

C ottonSugar

Softs

More than 70 commodities listed in a short span of 2 years

Record Volume seen in many commodities

NCDEX MCX

Promoters

ICICI Bank,LIC,

NABARD,NSE,PNB,CRISIL,

Canara Bank,IFFCO

Financial Technologies (India) Ltd., SBI, HDFC

Bank, Union Bank of India, B O I, BOB, Canara Bank,

Corp. Bank and more.

Expiry 20th of contract month for most of the commodities or

as specified

15th or 5th of the contract month,as specified for the

particular commodity

Actively traded

commoditiesAgro- commodities,Mild

Steel ingotsGold,Silver,Crude Oil

Average volumes of commodities traded

Commodity Exchange Avg.volume per day

Gold MCX 5,42,800 kgs

Silver MCX 10,55,730 kgs

Crude MCX 5,03,700 bbl

Refined Soya Oil NCDEX 21,000 MT

Soybean, Guar seed NCDEX 12,000 MT

Mild Steel Ingots NCDEX 6,100 MT

Spices(jeera,turmeric,chilly,pepper) NCDEX 1,800 MT

Chana,Urad,Wheat NCDEX 30,000 MT

Sugar M NCDEX 10,500 MT

Guar gum NCDEX 1,37,000 MT

Medium staple cotton NCDEX 1,500 bales

Regulation

Brokers/Traders

Exchanges

Forwards M arket C om m ision

M in istry O f C onsum er A ffa irs

The Potential-AGRO ECONOMY• Constitutes 22% of GDP

• Provides food to 1Billion people

• Sustains 65% of the population : helps alleviate poverty

• Produces 51 major Crops

• Provides Raw Material to Industries

• Contributes to 1/6th of the export earnings.

Participants

Hedgers Arbitragers Investors

Gain from price

differentials

Individuals

Actively Managed FundsProducer

User

Importer

Exporter

The Commodity Hedger

• Risks faced by Commodity Users and Producers

• Price Volatility

• Types of Hedges

• Corporates currently benefitting from the market

Risks faced by Commodity Users and Producers

Commodity enterprises faces two types of Risks

• PRICE RISK• QUANTITY RISK(eg from weather)

HEDGING REDUCES PRICE RISK

Price Volatility- Prices of commodities volatile

due to

- Demand Supply mismatch

- Erratic Monsoon

- Import – Export restrictions

- Spoilage during storage

- Substitute demand etc.

Wheat

730

750

770

790

810

830

850

870

6/7/20

04

9/7/20

04

07/13/

2004

07/16/

2004

07/20/

2004

07/23/

2004

07/27/

2004

07/30/

2004

3/8/20

04

6/8/20

04

10/8/2

004

08/13/

2004

08/17/

2004

08/20/

2004

08/24/

2004

08/27/

2004

08/31/

2004

3/9/20

04

7/9/20

04

10/9/2

004

09/14/

2004

09/17/

2004

Date

Price

/ Q

tl

12% 12% RiseRise

13% 13% FallFall

Sugar M-30 (NCDEX)

1550

1600

1650

1700

1750

1800

1850

1900

1950

2000

11/01/2004 11/16/2004 11/30/2004 12/14/2004 12/30/2004 01/13/2005 01/28/2005Date

Pric

e / Q

tl

23.66 % Rise

Types of HedgesLong hedge

Hedge against increase in cotton prices(e.g. Textile

companies)

Short hedge

Hedge against decrease in prices(e.g.Steel ,Rubber,Oil

producers)

Commodity – Tool of HedgingWheat

Physical Stock 200 Tons @ 750/qtl

Price down to 680/qtl

Loss of Rs. 70/qtl

200 tons sold in Futures @ 800/qtl

Settlement at 680qtl

Profit of Rs. 120qtl

Profit of Rs 50 qtl

Corporates currently benefitting from the market

Portfolio DiversificationCorrelation Coefficient in the Indian Markets

GOLD SILVER STOCKS BONDS

GOLD 1 0.89 0.206 0.741

SILVER 1 -0.099 0.146

STOCKS 1 0.112

BONDS 1

• Diversification reduces risk

• Downside risk is limited -Residual Value

Types of Arbitrage

• Calendar Spread Arbitrage

• Inter exchange Spread Arbitrage

• International Spread Arbitrage

• Spot Future Arbitrage

Calendar Spread Arbitrage• Exploiting the convergence of price between two contract.

• Example -

Chana 20 Dec05 1900 1901

Chana 20 Jan05 1954 1955Spread between the two contract months is 53

On expiry -

Chana 20 Dec05 1910 1911

Chana 20 Jan05 1912 1913

Spread between the two contract months is 2

International Spread Arbitrage• Prices in India are derived from International prices.

• Exploiting the mismatch in parity

NYMEX Crude 60.35

INR 46.23

Fair Value (Rs.) 2790

MCX Crude (Rs.) 2820

Difference 30

Spot – Future arbitrage• Steps in Arbitrage Process

•1)      Spot Purchase and spontaneous future sale

•2)      Goods warehoused within 4 to 5 days and payment to

• Supplier towards spot purchase

•3)      Goods certified in next 5 days

•4)      Goods dematerlization in next 2 days

•5)      Delivery on the expiry of Future Contract

•6)      Release of Client fund along with his profit.

Obligation of Client

No taxation obligation (Sales Tax etc.) is being done on part of client. We have our sales tax registration at every state in name of Navratan Comdex Pvt Ltd. So whatever are the taxation formalities, we will complete on behalf of client. 

Risk Parameter

No risk is involved in spot future arbitrage since profit in the arbitrage sauda is locked at its initiation itself. There might be a slight diversion of Annualized Approximate Return due to uncontrolled upward move of commodity prices since we have to call MTM Loss Money for the time prices come down again. But the absolute amount of profit will not be changed anyhow.

Formalities

If a client wants to do arbitrage, client has to open a Trading Account and a Demat Account with us. Trading Account is required to initiate futures sauda and Demat Account is necessary to get demat goods in client account. Except this no other obligation is due on client part. 

Investment

Client has to pay his purchase cost of goods along with all expenses (warehousing charges, spot commission, our commission, we will incur on his behalf. The client will pay further, specified margin for the future sale sauda.

Milestones achieved• NCDEX unveils India's first agriculture index.

• NCDEX peak daily turnover of 4271cr.

• MCX clocks record volume in Crude Oil contracts. Peak Daily Volume of 9,26,500 Barrels

• MCX registered 602kgs of physical deliveries of GOLD february contract

Sample Contract SpecificationSpecifications GOLD SUGAR

Trading unit 1 kg 10MT

Quotation/Base Value

Rs/10gms Rs/100kg

Market Price Rs 7760 Rs 1800

Lot Value Rs 776000 Rs 180000

Total Margin * 5% 10%

Delivery unit 1 kg 10 MT

* Margin is changed from time to time depending upon volatility ,time to expiry etc.

Client Registration Form (CRF) • Individual / HUF

Documents Required• Photo with signature across.• Name , Address, Tel. No.• Birth Date & Occupation.• Bank A/c details• IT PAN No. or 49A / Form 60• Introducer’s Name &

Signature• Signature of Client• Manager (Person in charge)

Signature

• Non –Individual --Company/ Firms/ Trust

Documents Required• Certified true copy of Board Resolution• Certified true copy of Audited Final A/cs

for the latest year.• Copy of IT Return, if possible• Certified true copy of MOA/ AOA /

Partnership Deed / Trust Deed• Details of 2 key persons

* Photo with signature across* Name, Address, Tel. No.* Birth Date & Designation* Copy of any one of the specified documents* Signature of key person.

The Edge• Early movers in the commodities business• Integrated wealth management solutions across

global financial markets• Propriety Global economic and investment strategy

research• Sophisticated asset allocation and risk modeling

processes• Seasoned team of professionals• Local strength –Underpinned by network of national

offices• Multiple dealing terminals for better Client servicing