1. INTRODUCTION

1.1 Introduction to the Study:

Commodity Futures:

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. 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 cotton, oilseeds, oils and

oilcakes; raw jute and jute goods; sugar; potatoes and onions; coffee and tea;

rubber and spices etc.

Commodity futures are still a relatively unknown asset class, despite being

traded in the India for over 3 years. This may be because commodity futures are

strikingly different from stocks, bonds, and other conventional assets. Among

these differences are: (1) commodity futures are derivative securities; they are not

claims on long-lived corporations; (2) they are short maturity claims on real

assets; (3) unlike financial assets, many commodities have pronounced

seasonality in price levels and volatilities.

1

The economic function of corporate securities such as stocks and bonds, that is,

liabilities of firms, is to raise external resources for the firm. Investors are bearing

the risk that the future cash flows of the firm may be low and may occur

during bad times, like recessions. These claims represent the discounted

value of cash flows over very long horizons. Their value depends on decisions

of management. Investors are compensated for these risks. Commodity futures

are quite different; they do not raise resources for firms to invest. Rather,

commodity futures allow firms to obtain insurance for the future value of their

outputs (or inputs). Investors in commodity futures receive compensation for

bearing the risk of short-term commodity price fluctuations.

Commodity futures do not represent direct exposures to actual commodities. Futures

prices represent bets on the expected future spot price. Inventory decisions link

current and future scarcity of the commodity and consequently provide a

connection between the spot price and the expected futures spot price, hence

commodity futures, display many differences.

Commodity Trading:

Commodity is defined as any bulk good traded on an exchange or in the cash

market. One of the first forms of trade between individuals began by what is called

the barter system wherein goods were traded for goods. Lack of a medium for

exchange was the sole initiator of this system. People sold what they had in

excess and bought what they lacked. Animals were the first few commodities to be

exchanged. Some examples of commodities include grain, oats, gold, oil, beef,

silver, and natural gas. These markets are the meeting places of buyers and

sellers of an ever-expanding list of commodities that today includes agricultural

goods, metals and petroleum, but also products such as financial instruments,

foreign currencies and stock indexes that trade on a commodity exchange.

2

Commodity futures contract:

A commodity futures contract is an agreement to buy (or sell) a specified quantity

of a commodity at a future date, at a price agreed upon when entering into the

contract – the futures price. The futures price is different from the value of a

futures contract. Upon entering a futures contract, no cash changes hands

between buyers and sellers – and hence the value of the contract is zero at its

inception.

A futures contract on a commodity is a commitment to deliver or receive a specific

quantity and quality of a commodity during a designated month at a price

determined by the futures market. There are two reasons to use commodity

futures contracts, either to hedge a price risk, or to speculate. An example of

hedging, a farmer who has Rs. 1000 of wheat to sell he could either wait until

harvest and sell your wheat at the current market price, or he could use a futures

contract to "lock-in" the price today. If the farmer is satisfied with the price of wheat

today then he will sell (or short) the appropriate wheat futures contract. By shorting

the contract he is guaranteed today's price at harvest time. How does that work?

The gain (or loss) on the futures contract will equal the gain (or loss) on the market

price at harvest time; we call this a perfect hedge. A mutual fund manager would

use this same strategy but with index futures. He would short futures contracts on

a stock index therefore reducing any downside risk for a certain period of time.

Risks associated with futures contract applies mainly to speculators. Speculators

take positions on their expectations of future price movement often with no

intention of making or taking delivery of the commodity. They buy when they

anticipate rising prices and sell when they anticipate declining prices. The reason

futures are so risky is because they are usually bought on margin, and each

futures contract represents a large amount of the underlying asset.

3

History of the commodity market:

In India, the futures market for commodities evolved by the setting up of the

“Bombay Cotton Trade Association Ltd.”, in 1875.A separate association by the

name "Bombay Cotton Exchange Ltd” was established following widespread

discontent amongst leading cotton mill owners and merchants over the functioning

of the Bombay Cotton Trade Association. With the setting up of the ‘Gujarati

Vyapari Mandali” in 1900, the futures trading in oilseed began. Commodities like

groundnut, castor seed and cotton etc began to be exchanged. Raw jute and jute

goods began to be traded in Calcutta with the establishment of the” Calcutta

Hessian Exchange Ltd” in 1919. The most notable centers for existence of futures

market for wheat were the Chamber of Commerce at Hapur, which was

established in 1913. Other markets were located at Amritsar, Moga, Ludhiana,

Jalandhar, Fazilka, Dhuri, Barnala and Bhatinda in Punjab and Muzaffarnagar,

Chandausi, Meerut, Saharanpur, Hathras, Gaziabad, Sikenderabad and Barbell in

U.P. The Bullion Futures market began in Bombay in 1990.

After the economic reforms in 1991 and the trade liberalization, the Govt. of India

appointed in June 1993 one more committee on Forward Markets under

Chairmanship of Prof. K.N. Kabra. The Committee recommended that futures

trading be introduced in basmati rice, cotton, raw jute and jute goods, groundnut,

rapeseed/mustard seed, cottonseed, sesame seed, sunflower seed, safflower

seed, copra and soybean, and oils and oilcakes of all of them, rice bran oil, castor

oil and its oilcake, linseed, silver and onions.

All over the world commodity trade forms the major backbone of the economy. In

India, trading volumes in the commodity market have also seen a steady rise - to

Rs 5, 71,000 crores in FY05 from Rs 1, 29,000 crores in FY04. In the current fiscal

year, trading volumes in the commodity market have already crossed Rs 3, 50,000

crores in the first four months of trading.

4

Some of the commodities traded in India include Agricultural Commodities like

Rice Wheat, Soya, Groundnut, Tea, Coffee, Jute, Rubber, Spices, Cotton,

Precious Metals like Gold & Silver, Base Metals like Iron Ore, Aluminum, Nickel,

Lead, Zinc and Energy Commodities like crude oil, coal. Commodities form around

50% of the Indian GDP. Though there are no institutions or banks in commodity

exchanges, as yet, the market for commodities is bigger than the market for

securities.

Commodities market is estimated to be around Rs 44, 00,000 Crores in future.

Assuming a future trading multiple is about 4 times the physical market, in many

countries it is much higher at around 10 times.

Derivatives:

Commodities whose value is derived from the price of some underlying asset like

securities, commodities, bullion, currency, interest level, stock market index or

anything else are known as “Derivatives”. In simpler form, derivatives are financial

security such as an option or future whose value is derived in part from the value

and characteristics of another security, the underlying asset.

It is a generic term for a variety of financial instruments. Essentially, this means

you buy a promise to convey ownership of the asset, rather than the asset itself.

The legal terms of a contract are much more varied and flexible than the terms of

property ownership. In fact, it’s this flexibility that appeals to investors. When a

person invests in derivative, the underlying asset is usually a commodity, bond,

stock, or currency. He bet that the value derived from the underlying asset will

increase or decrease by a certain amount within a certain fixed period of time.

5

‘Futures’ and ‘options’ are two commodity traded types of derivatives. An ‘options’

contract gives the owner the right to buy or sell an asset at a set price on or before

a given date. On the other hand the owner of a ‘futures’ contract is obligated to

buy or sell the asset.

The other examples of derivatives are warrants and convertible bonds (similar to

shares in that they are assets). But derivatives are usually contracts. Beyond this,

the derivatives range is only limited by the imagination of investment banks. It is

likely that any person who has funds invested an insurance policy or a pension

fund, which they are investing in, and exposed to, derivatives – wittingly or

unwittingly.

Shares or bonds are financial assets where one can claim on another person or

corporation; they will be usually being fairly standardized and governed by the

property of securities laws in an appropriate country. On the other hand, a contract

is merely an agreement between two parties, where the contract details may not

be standardized. Derivatives securities or derivatives products are in real terms

contracts rather than solid as it fairly sounds.

Commodity Derivatives:

Commodity Exchange is a platform where different types of market participants

trade in wide spectrum of commodity derivatives. In other words, prices of

contracts can be determined at present for goods to be delivered in future. This

helps people to avoid wide fluctuations in the prices of the commodities. The

Government issued notifications on 1.4.2003 permitting futures trading in the

commodities, with the issue of these notifications futures trading is not prohibited

in any commodity. Options trading in commodity are, however presently

prohibited.

6

Commodity Trading Exchanges in India:

Brief descriptions of commodity exchanges are those which trade in particular

commodities, neglecting the trade of securities, stock index futures and options

etc. 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)

Multi Commodity Exchange of India Limited (MCX)

National Multi-Commodity Exchange of India Limited (NMCEIL)

Fig 1.1 Structure of Commodity Market:

7

National Commodity & Derivatives Exchange Limited (NCDEX):

NCDEX is a public limited company incorporated on April 23, 2003 under the

Companies Act, 1956. It has commenced its operations on December 15, 2003.

National Commodity & Derivatives Exchange Limited (NCDEX) is a professionally

managed online multi commodity exchange promoted by ICICI Bank Limited (ICICI

Bank), Life Insurance Corporation of India (LIC), National Bank for Agriculture and

Rural Development (NABARD) and National Stock Exchange of India Limited

(NSE).

Punjab National Bank (PNB), CRISIL Limited, Indian Farmers Fertilizer

Cooperative Limited (IFFCO) and Canara Bank by subscribing to the equity shares

have joined the initial promoters as shareholders of the Exchange. Started with an

authorized capital of Rs. 50 crores, ICICI BANK, LIC, NABARD and NSE hold the

maximum share in the share capital (15% each).

NCDEX is located in Mumbai and offers facilities to its members in more than 390

centers throughout India. The reach will gradually be expanded to more centers.

NCDEX is the only commodity exchange in the country promoted by national level

institutions. NCDEX is a nation-level, technology driven on-line commodity

exchange with an independent Board of Directors and professionals not having

any vested interest in commodity markets.

NCDEX currently facilitates trading of thirty six commodities - Cashew, Castor

Seed, Chana, Chilli, Coffee, Cotton, Cotton Seed Oilcake, Crude Palm Oil,

Expeller Mustard Oil, Gold, Guar gum, Guar Seeds, Gur, Jeera, Jute sacking

bags, Mild Steel Ingot, Mulberry Green Cocoons, Pepper, Rapeseed - Mustard

Seed ,Raw Jute, RBD Palmolein, Refined Soy Oil, Rice, Rubber, Sesame Seeds,

Silk, Silver, Soy Bean, Sugar, Tur, Turmeric, Urad (Black Matpe), Wheat, Yellow

Peas, Yellow Red Maize & Yellow Soybean Meal. At subsequent phases trading in

more commodities would be facilitated.

8

Currently NCDEX has 700 members at 470 locations across the country. The

exchange saw 400% growth in the first year of its operations and expects 200% in

the second year also. According to the latest news NCDEX plans to roll out more

contracts like contracts in nickel, tin and mentha oil.

Multi Commodity Exchange of India Limited (MCX):

MCX an independent multi commodity exchange has permanent recognition from

Government of India for facilitating online trading, clearing and settlement

operations for commodity futures markets across the country.

It was inaugurated in November 2003 by Mr. Mukesh Ambani. It is headquartered

in Mumbai. The key shareholders of MCX are Financial Technologies (India) Ltd.,

State Bank of India, NABARD, NSE, HDFC Bank, State Bank of Indore, State

Bank of Hyderabad, State Bank of Saurashtra, SBI Life Insurance Co. Ltd., Union

Bank of India, Bank Of India, Bank Of Baroda, Canara Bank, Corporation Bank.

MCX offers futures trading in the following commodity categories: Agri

Commodities, Bullion, Metals- Ferrous & Non-ferrous, Pulses, Oils & Oilseeds,

Energy, Plantations, Spices and other soft commodities.

Today MCX is offering spectacular growth opportunities and advantages to a large

cross section of the participants including Producers / Processors, Traders,

Corporate, Regional Trading Centers, Importers, Exporters, Cooperatives, and

Industry Associations.

In a significant development, National Stock Exchange of India Ltd. (NSE),

country’s largest exchange and National Bank for Agriculture and Rural

Development (NABARD), country’s premier agriculture development bank

9

announced their strategic participation in the equity of MCX on June 15, 2005.

This new partnership of NSE and NABARD with MCX makes MCX consortium the

largest distribution network across the country.

MCX is an ISO 9001:2000 online nationwide multi commodity exchange. It has

over 900+ members spread across 500+ centers across the country, with more

than 750+VSATs and leased line connections and 5,000+ trading terminals that

provide a transparent robust and trustworthy trading platform in more than 50

commodity futures contract with a wide range of commodity baskets which

includes metals, energy and agriculture commodities. Exchange has pioneered

major innovations in Indian commodities market, which has become the industry

benchmarks subsequently.

MCX is the only Exchange which has got three international tie-ups which is with

Tokyo Commodity Exchange (TOCOM), the 250 year old Baltic Freight Exchange,

London, Dubai Metals & Commodity Centre (DMCC) & Dubai Gold & Commodity

Exchange (DGCX), the strategic initiative of Government of Dubai. MCX has to its

credit, setting up of the National spot exchange (NSEAP), which connects all India

APMC markets thereby contributing in the implementation of Government of

India’s vision to create a common Indian market.

The trading system of MCX is state-of-the-art, new generation trading platform that

permits extremely cost effective operations at much greater efficiency. The

Exchange Central System is located in Mumbai, which maintains the Central

Order Book. Exchange Members located across the country are connected to the

central system through VSAT or any other mode of communication as may be

decided by the Exchange from time to time. The controls in the system are system

driven requiring minimum human intervention. The Exchange Members places

orders through the Traders Work Station (TWS) of the Member linked to the

Exchange, which matches on the Central System and sends a confirmation back

to the Members.

10

Settlement: Exchange maintains electronic interface with its Clearing Bank. All

Members of the Exchange are having their Exchange operations account with the

Clearing Bank. All debits and credits are affected electronically through such

accounts only. All contracts on maturity are for delivery. MCX specifies tender and

delivery periods. A seller or a short open position holder in that contract may

tender documents to the Exchange expressing his intention to deliver the

underlying commodity. Exchange would select from the long open position holder

for the tendered quantity. Once the buyer is identified, seller has to initiate the

process of giving delivery and buyer has to take delivery according to the delivery

schedule prescribed by the Exchange.

Players involved in commodities trading like commodity exchanges, financial

institutions, and banks have a feeling that the markets are not being fully exploited.

Education and regulation are the main impediments to the growth of commodity

trading. Producers, farmers and agri-based companies should enter into formal

contracts to hedge against losses. The use of commodity exchanges will create

more trading opportunities; result in an integrated market and better price

discoveries.

National Multi-Commodity Exchange of India Limited (NMCEIL):

National Multi Commodity Exchange of India Limited (NMCEIL) is the first de-

mutualized, Electronic Multi-Commodity Exchange in India. On 25th July, 2001, it

was granted approval by the Government to organize trading in the edible oil

complex. It has started operating from November 26, 2002. It is being supported

by Central Warehousing Corporation Ltd., Gujarat State Agricultural Marketing

Board and Neptune Overseas Limited. It got its recognition in October 2002.

11

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.

Benefits of Commodity Trading Exchange:

The commodity markets being cyclical in nature have inherent risks involved. Due

to this, banks have kept away. The exchanges have brought expertise, control,

and transparency of prices. Once the commodities are deemed negotiable and

transferable, warehouse receipts can be an effective tool in the hands of farmers.

They can then wait for prices to soar up before selling their produce. To

encourage and assist farmers to use warehouse receipts, banks like ICICI are

providing up to 70 per cent loans against de-mat receipts which are obtained from

the exchange against physical produce. The idea is to transfer risk from the entity

to the commodity, by aligning repayment of the loan to actual use of the

commodity.

12

Thus, the need for risk management strategies in this growth phase is very

essential because most companies do not have a policy for managing commodity

risk. Development of scientific tools for price discovery, promotion of contract

farming and better weather forecasts will help increase confidence and attract

investors to commodities.

Some of the other benefits of having an exchange in commodity trading are:

Hedging - price risk management by risk mitigation

Speculation - take advantage of favorable price movement

Leverage - pay low margin to enjoy large exposure

Liquidity - ease of entry and exit of market

Price stabilization along with balancing demand and supply position

Flexibility, certainty and transparency in purchasing commodities facilitate

bank financing.

13

Different types of Commodities Traded:

MCX

Following are the commodities traded in MCX.

Gold, Gold M, Gold HNI, Silver, Silver M , Silver HNI

Castor Seeds, Soy Seeds, Castor Oil, Refined Soy Oil, Soymeal, RBD Palmolein, Crude Palm Oil, Groundnut Oil, Mustard Seed, Mustard Seed Oil, Cottonseed Oilcake, Cottonseed

Pepper, Red Chilli, Jeera, Turmeric

Steel Long, Steel Flat, Copper, Nickel, Tin

Kapas, Long Staple Cotton, Medium Staple Cotton

Chana, Urad, Yellow Peas, Tur

Rice, Basmati Rice, Wheat , Maize, Sarbati Rice

Crude Oil

Rubber, Guar Seed , Gur, Guargum Bandhani, Guargum, Cashew Kernel, Guarseed Bandhani

14

NCDEX

Following are the commodities traded in NCDEX.

Agro Products

Arabica Coffee Cashew

Castor Seed Chana

Chilli Common Raw Rice

Common Parboiled Rice Crude Palm Oil

Cotton Seed Oilcake Expeller Mustard Oil

Grade A Parboiled Rice Grade A Raw Rice

Guar gum Guar Seeds

Gur Jeera

Jute sacking bags Lemon Tur

Long Staple Cotton Maharashtra Lal Tur

Medium Staple Cotton Mulberry Green Cocoons

Mulberry Raw Silk Mustard Seed

Pepper Raw Jute

RBD Palmolein Refined Soy Oil

Robusta Coffee Rubber

Sesame Seeds Soya bean

Yellow Soybean Meal Sugar

Turmeric Urad

Wheat Yellow Peas

Yellow Red Maize  

Base Metals

Mild Steel Ingots

Precious Metals

Gold

Silver

15

16

Types of traders in a derivatives market:

Hedgers:

Hedgers are those who protect themselves from the risk associated with the price

of an asset by using derivatives. A person keeps a close watch upon the prices

discovered in trading and when the comfortable price is reflected according to his

wants, he sells futures contracts. In this way he gets an assured fixed price of his

produce.

In general, hedgers use futures for protection against adverse future price

movements in the underlying cash commodity. Hedgers are often businesses, or

individuals, who at one point or another deal in the underlying cash commodity.

Take an example: A Hedger pay more to the farmer or dealer of a produce if its

prices go up. For protection against higher prices of the produce, he hedges the

risk exposure by buying enough future contracts of the produce to cover the

amount of produce he expects to buy. Since cash and futures prices do tend to

move in tandem, the futures position will profit if the price of the produce raise

enough to offset cash loss on the produce.

Speculators:

Speculators are some what like a middle man. They are never interested in actual

owing the commodity. They will just buy from one end and sell it to the other in

anticipation of future price movements. They actually bet on the future movement

in the price of an asset. They are the second major group of futures players.

These participants include independent floor traders and investors. They handle

trades for their personal clients or brokerage firms. Buying a futures contract in

17

anticipation of price increases is known as ‘going long’. Selling a futures contract

in anticipation of a price decrease is known as ‘going short’. Speculative

participation in futures trading has increased with the availability of alternative

methods of participation.

Speculators have certain advantages over other investments they are as

follows:

If the trader’s judgment is good, he can make more money in the futures market

faster because prices tend, on average, to change more quickly than real estate or

stock prices. Futures are highly leveraged investments. The trader puts up a small

fraction of the value of the underlying contract as margin, yet he can ride on the

full value of the contract as it moves up and down. The money he puts up is not a

down payment on the underlying contract, but a performance bond. The actual

value of the contract is only exchanged on those rare occasions when delivery

takes place.

Arbitrators:

According to dictionary definition, a person who has been officially chosen to make

a decision between two people or groups who do not agree is known as Arbitrator.

In commodity market Arbitrators are the person who takes the advantage of a

discrepancy between prices in two different markets. If he finds future prices of a

commodity edging out with the cash price, he will take offsetting positions in both

the markets to lock in a profit. Moreover the commodity futures investor is not

charged interest on the difference between margin and the full contract value.

18

Uses of Futures Markets:

In this chapter, the uses of futures markets, especially in connection with futures

commodity and their possible uses for the farmers, traders, banks and others have

been reviewed.

Hedging:

The hedger is a trader who enters the futures market in order to reduce a pre-

existing risk position. Having a position does not mean that the trader must

actually own a commodity. An individual or a firm who anticipates the need for a

certain commodity in the future or a person who plans to acquire a certain

commodity later also has a position in that commodity. In many cases, the hedger

has a certain hedging horizon – the future date when the hedge will terminate. The

hedge can be a long hedge or a short hedge. If the hedger buys futures contract to

hedge, it will be a long hedge.

For example, a roller flourmill owner may like to lock-in the price of the wheat that

he wants to purchase three months later by purchasing wheat futures. If three

months later the wheat prices rise, carrying futures prices along with them, the

flourmill owner will purchase wheat from the spot market at a higher price. The

loss that he may suffer in the cash market will be compensated by sale of futures

at a higher price. Similarly, a farmer can sell three-month futures at the prevailing

price and lock-in his profits at that level. If the prices fall, the loss suffered by the

farmer in the cash market will be compensated by the profit that the farmer will

earn by squaring the transaction in the futures market.

In practice, hedging solutions are not as neat as the ones described above. In the

above example, the goods in question were exactly the same both in the cash and

the futures market, the amounts purchased / sold in the cash market matched the

19

futures contract amounts, and the hedging horizons of the farmer and the mill

owner matched the delivery dates of the futures contracts. It will be rare for all

factors to match perfectly; they will differ in time span covered, the amount of

commodity or the physical characteristics of the commodity that are traded in the

cash and the futures markets. Such hedges are known as cross-hedges. In such

cases, the hedger must trade the right number and kind of futures contract to

control the risk in hedged positions as much as possible. There can be situations

where the hedger does not have any definite hedging horizon and may enter into

what is known as risk-minimizing hedge.

The hedger has many incentives. Tax is a major incentive. In an un-hedged

situation, the profits fluctuate widely and the person / firm may have to pay taxes in

the high profit years while he is not able to utilize the tax credits when he runs into

losses. Hedging also serves to minimize the cost of financial distress. Widely

fluctuating profits may drive many persons / firms to bankruptcy. In an idealized

world with no transaction costs, which is inhabited by ‘homo-economics’ this may

not be a factor. In the real world, bankruptcy involves avoidable human misery and

prolonged winding up procedures.

Role of Speculators:

Derivative markets have long been viewed with suspicion as speculators are the

most visible players. We consider it appropriate to emphasize that functioning

derivative markets will have speculators who need to be viewed from the point of

view of their economic usefulness and who need to be regulated with a view to

preventing systemic instability.

A speculator is a trader who enters the futures market in search of profit and, by

so doing, willingly accepts increased risks. Different types of speculators may be

categorized by the length of time they plan to hold a position. Traditionally, there

are three kinds of speculators: scalpers, day traders and position traders.

20

Scalper’s time horizon is the shortest, ranging from the next few seconds to the

next few minutes and they make profits that may be only one or two ticks, the

minimum allowable price movement. If the prices do not move in the scalper’s

direction within a few minutes of assuming a position, the scalper will like to close

the position and begin looking for a new opportunity. It is understood that scalpers

do not go by the demand and supply positions of the underlying commodity but act

on the ‘sentiment’.

They generate enormous amounts of transactions and are able to survive as they

pay minimum transaction cost. Besides earning profits for themselves, their main

role is to provide liquidity in the market. They provide a party willing to take the

opposite side of a trade for other traders; hedgers know that their orders can be

executed.

By actively trading, they generate price quotations thereby allowing markets to

discover prices more effectively. By competing for trades, they help close the bid-

ask spread.

Day Traders close their position before the end of trading each day. Their strategy

is to guess the price movements on account of developments during the day,

including announcement of government policies and release of data. Position

Traders maintain overnight positions, which may run into weeks or even months.

They may hold outright positions in which they run huge risks and may also earn

big profits.

The more risk averse among them assume spread positions which may involve

relative price movements in different contracts on the same underlying

commodities or commodities which are closely related. It is pertinent to examine

whether hedgers need speculators. Theoretically, if there are sufficiently large

numbers of short and long hedgers, they may fulfill each other’s need and the

21

speculators may have no role. However, in practice, there is always a mismatch

between the time when the short and long hedgers would approach the market

and the speculators fill in this gap.

Leading commodity markets of world:

Some of the leading exchanges of the world are New York Mercantile Exchange

(NYMEX), the London Metal Exchange (LME) and the Chicago Board of Trade

(CBOT).

Leading commodity markets of India:

The government has now allowed national commodity exchanges, similar to the

BSE & NSE, to come up and let them deal in commodity derivatives in an

electronic trading environment. These exchanges are expected to offer a nation-

wide anonymous, order driven; screen based trading system for trading. The

Forward Markets Commission (FMC) will regulate these exchanges

1.2 Subject Background of the Research Topic:

Commodity derivatives, which were traditionally developed for risk management

purposes, are now growing in popularity as an investment tool. Most of the trading

in the commodity derivatives market is being done by people who have no need

for the commodity itself. They just speculate on the direction of the price of these

commodities, hoping to make money if the price moves in their favor. The

commodity derivatives market is a direct way to invest in commodities rather than

investing in the companies that trade in those commodities.

In India agriculture has traditionally been an area with heavy government

intervention. Government intervenes by trying to maintain buffer stocks, they try to

22

fix prices, and they have import-export restrictions and a host of other

interventions. Many economists think that we could have major benefits from

liberalization of the agricultural sector.

In this case, the question arises about who will maintain the buffer stock, how will

we smoothen the price fluctuations, how will farmers not be vulnerable that

tomorrow the price will crash when the crop comes out, how will farmers get

signals that in the future there will be a great need for wheat or rice. In all these

aspects the futures market has a very big role to play.

If you think there will be a shortage of wheat tomorrow, the futures prices will go

up today, and it will carry signals back to the farmer making sowing decisions

today. In this fashion, a system of futures markets will improve cropping patterns.

Next, if I am growing wheat and am worried that by the time the harvest comes out

prices will go down, then I can sell my wheat on the futures market. I can sell my

wheat at a price, which is fixed today, which eliminates my risk from price

fluctuations.

These days, agriculture requires investments -- farmers spend money on

fertilizers, high yielding varieties, etc. They are worried when making these

investments that by the time the crop comes out prices might have dropped,

resulting in losses. Thus a farmer would like to lock in his future price and not be

exposed to fluctuations in prices.

The third is the role about storage. Today we have the Food Corporation of India,

which is doing a huge job of storage, and it is a system, which -- in my opinion --

does not work. Futures market will produce their own kind of smoothing between

the present and the future.

23

If the future price is high and the present price is low, an arbitrager will buy today

and sell in the future. The converse is also true, thus if the future price is low the

arbitrageur will buy in the futures market. These activities produce their own

"optimal" buffer stocks, smooth prices. They also work very effectively when there

is trade in agricultural commodities; arbitrageurs on the futures market will use

imports and exports to smooth Indian prices using foreign spot markets.

In totality, commodity futures markets are a part and parcel of a program for

agricultural liberalization. Many agriculture economists understand the need of

liberalization in the sector. Futures markets are an instrument for achieving that

liberalization.

1.3 Need and Importance of the Study:

The study covers commodity derivatives market with specific reference to

Future market.

The study shows the Beta and Volatility calculation for the purpose of

measuring the risk and variability of different Commodity future.

The study also shows how an investor can minimize risk through hedging.

The study is undertaken to understand the commodity future market.

24

2. RESEARCH DESIGN

2.0 Introduction:

This chapter deals with various aspects of research, the method of conducting

research, research techniques used, methodology of research etc. The success of

a particular research depends a lot on how it is designed.

2.1 Topic of the Study:

“A Study of investment pattern in Commodities and Associated Risks”

2.2 Statement of Problem:

Commodities investment is used by investors with multidisciplinary uses. They are

being used as an hedging mechanism against fall in Agricultural prices, Portfolio

protection, Beating Inflation etc. The researcher feels a comprehensive study is

very much required into the investment pattern in commodities considering the

associated risk profile.

Commodities are one of the few asset classes that tend to benefit from rising

inflation. As demand for goods and services increases, the price of those goods

and services usually goes up as well, as do the prices of the commodities used to

produce those goods and services. Because commodity prices usually rise when

inflation is accelerating, investing in commodities may provide portfolios with a

hedge against inflation.

India, being an agro-based economy, has markets for most of the agro-based

commodities. The booming commodity investment market offers considerable

25

rewards to investors who understand the unique characteristics, benefits and

challenges of these 'capital' assets.

Encompassing asset allocation, investment strategies, and risk control,

commodities has emerged as a new alternative investment class. Investor interest

in commodities has increased dramatically in recent years as the asset class has

outperformed traditional assets such as stocks and bonds.

Commodity trading has its start way back to the pre independence period. Yet the

percentage of investors involved in commodity trading as compared to stock

market is very low.

The problem under study is to know the level of awareness of commodity trading

among brokers and investors. The study helps to know the views of various stock

brokers regarding commodity trading, prospects of commodity trading in India. It

helps us to analyze the shortcomings of commodity market.

2.3 Review of Literature:

Secondary data are used as a basis of analysis. The monthly prices for

various commodity futures were the main source for the Beta and Volatility

calculation and also for analyzing the different strategies involved in

investments.

Data is collected from various websites like www.ncdex.com,

www.mcx.com, www.nseindia.com and www.economictimes.com.

The detailed study is undertaken on major categories of commodity like

Agriculture, Metal, Precious metal and Energy.

26

One month commodity prices are taken for the calculation of Risk and

Return.

2.4 Objectives of the Study:

The proposed study has the following objectives:

To Identify and Analyze the various Investment Pattern in Commodities

To study in detail the associated risk with different investment Commodities

To provide information about the commodity market in India.

To analyze the risk involved in various commodity.

To get information from Stock Broker about Commodities.

To study the working of Commodity Market in India.

To study how successful these commodities are in India.

2.5 Scope of the Study:

The study provides the information relating to the commodity trading in

India. An effort is been made to answer the frequently asked questions.

The study is conducted on the basis of response of 40 Stock Brokers.

Stock brokers of different companies have been chosen so that the study is

unbiased.

27

One month spot prices for commodity futures like Pepper, Jeera, Chana,

Gold, Silver, Copper, Aluminum and Crude Oil etc are collected for

calculation.

2.6 Hypothesis:

H0: Investment Pattern is uniform across Commodities

H1: Investment Pattern is not uniform across Commodities

2.7 Operational definitions:

Return:

Return is the primary motivating force that drives investment. It represents the

reward for understanding investment.

Risk:

Risk refers to the possibility that the actual out come of an investment will differ

from its expected outcome. More specifically, more investors are concerned about

the actual outcome being less than the expected outcome. The wider the range of

possible outcomes, the greater the risk.

Beta:

Beta is the slope of the characteristic regression line. Beta describes the

relationship between the Commodity return and the Index returns.

Standard Deviation:

It is a measure of the values of the variables around its mean or it is the square

root of the sum of the squared deviations from the mean divided by the number of

28

observances. The standard deviation helps to measure the variability of return.

The variability in return includes both systematic and unsystematic risk.

2.7 Methodology:

Methodology here refers to the method as to how the researcher has done his

efforts towards the activity of reviewing the literature. The Methodology includes

the sources of data which include either secondary data or primary data and

even some times the combination of both.

Secondary data are readily available, because they were collected for some other

purpose and which can also be used to solve the present problem. They are the

cheapest and the easiest means of access to information. But for the present

study, more concentration is on primary data.

Primary Data

Primary data are those which the researcher collects directly by himself. In this

project work, primary data is collected by giving questionnaires. Respondents

were given Questionnaires and data were collected..

Secondary Data

Secondary data are those, which are got through reviewing primary data. The

various secondary data used in this work includes

1. Internet

2. Periodicals

3. Journals

4. Books related to Commodity Market etc.

29

2.8 Sampling:

Sampling Technique:

Convenient sampling- Researcher focuses on selected few commodities

to study the topic Convenience Sampling is being used. Under

Convenience Sampling the researcher will be taking sampling according to

his or her convenience.

Sample Area:

Bangalore city is Sample area for this project.

Population:

All commodity traded in exchanges will form as the population of the study

Sample size:

Sample size of 40 stock brokers is used for this study.

2.9 Tools for Data Collection:

Data has been collected from two main sources:

Primary data:

The study is based on data collected from brokers of various companies with the

help of structured questionnaire. Questionnaire is included in appendix. Data on

various parameters was included like number of years in business, increase in

number of clients from past year, turnover per day were collected to access

information regarding growth in commodity market. Informal discussion is also

carried with few brokers to know their opinion.

30

Secondary data:

Websites:

www.karvy.com

www.karvycomtrade.com

www.mcxindia.com

www.ncdex.com

www.indianmba.com

www.icfaipress.org/books/commoditiesmarket

www.finance.indiamart.com/markets/commodity/traders_derivatives_market.html

Books and Magazines related to the study etc.

2.10 Field work:

Field work was done for a period of one month starting from 1st April, 2007 to 31st

April 2007.Questionnaire was supplied to respondents and data were collected.

2.11 Method of Analysis:

Statistical Tools:

Statistical Tools like t-test and correlation are going to be used in addition to bar /

pie diagram using SPSS package to analyze the questionnaire and Excel sheet is

used to calculate Beta and Volatility calculations.

2.12 Limitations of the Study:

Man has done everything to make it come true but everything has its own

limitation.

A uniform across risk model cannot be derived

31

The historical data available is in the date of the expiry of the contract.

In this study, only Futures are taken due to time and cost constraints.

One month data was taken for analysis.

The survey has been done within Bangalore city, which might fail to be

representative of total market.

A thorough in depth interview was not completely possible because of time

constraints of the respondents

2.13 Layout of Chapters:

Chapter 1 : Introduction

Chapter 2 : Research Methodology

Chapter 3 : Profiles of Industry / Company

Chapter 4 : Analysis and Interpretation of Data

Chapter 5 : Summary of Findings, Suggestions & Conclusion

Bibliography

Annexure

32

3. PROFILES OF INDUSTRY / COMPANY

3.1 INDUSTRY PROFILE:

With the accelerating pace of industrialization and sustained population growth,

the prospects for the commodity market are fast growing. India may become major

consumer of the agricultural commodities. As of now India imports about 3 million

tonnes of pulses and five million tonnes of edible oils from abroad, as well as

some spices. India may also continue to be a regular importer of wheat, as its farm

fields are unable to meet the growing requirements. These consumptions may

continue to be there since the population needs them for sustenance.

Commodity markets re of great help not only for their participants but also the

economy as a whole. The twenty year bear market for commodities has drastically

reduced the prices of many commodities to their lowest levels. The present shift in

trend in commodity trading complimented by the global increase in demand will

certainly hold a promising future for the investments in this segment.

Many former developing nations are industrializing and joining the world economy,

creating a massive middle class of consumers. Even as the demand for several

commodities is accelerating, many of the supply lines are tightening. Population

growth and rapid industrialization have ushered in a huge and growing middle

class, which is competing for every additional barrel of crude oil sold in the

international markets, and for every kilogram of wheat, sugar, rubber or gold. And

the increasing purchasing power of the middle class has resulted in firm price

trends.

Meanwhile, the rapid industrialization is itself spurring a parallel demand for

commodities: from copper for the burgeoning telecom industry, silver for

electronics, gas and oil for running factories, electricity for heating, and iron and

steel for cars and buses...

33

To bridge any demand-supply mismatch, a new-generation commodity market has

evolved that enables not only the trader to book profits, but also extends the same

facility to the farmer and common man.

The recovery in the commodity prices is set to gain momentum after a 20-year

downturn cycle. The last commodity market rally started in the 1970s and

continued till the 1980s, when grain and metal producers enjoyed a decade of

rising prices and fat profit margins. This price surge triggered a worldwide

expansion in commodity production, ultimately bridging the demand-supply divide.

The subsequent downturn cycle witnessed commodity prices plunging to their all-

time lows. Taking into consideration the inflationary spiral, several commodity

prices plunged to 100-year lows in real terms, during this period. But the

conditions seem bright for a revival of a commodity upswing cycle now.

The Commodities Super Cycle has five key phases of a commodity cycle, and we

are now entering Phase IV and the best ways to profit over the next three years. 

    

Phase I occurred between 1982 and 1998, when producers cut production… and

yet demand was flat or falling nonetheless.  Phase II, from 1998 to 2001, was

marked by chronic under-investment in mines, oil rigs, and plants, after years of

weak demand.  Phase III was the turning point.  This began in late 2001.  This was

the point where demand began to rebound and suppliers began a mad rush to

meet the rising demand. 

And yet, as profitable as Phase III was, it only planted the seeds for the most

profitable phase of all: Phase IV, the Lift-off stage. This is the stage we’re entering

now with many commodities and this is where the prices for many resources go

vertical. In effect, the commodity prices are expected to firm up from the current

year and the international commodity markets are likely to become far more active

and buoyant.

34

3.2 COMPANY PROFILE:

About KARVY Group:

KARVY, is a premier integrated financial services provider, and ranked among the

top five in the country in all its business segments, services over 16 million

individual investors in various capacities, and provides investor services to over

300 corporates, comprising the who is who of Corporate India. KARVY covers the

entire spectrum of financial services such as Stock broking, Depository

Participants, Distribution of financial products - mutual funds, bonds, fixed deposit,

equities, Insurance Broking, Commodities Broking, Personal Finance Advisory

Services, Merchant Banking & Corporate Finance, placement of equity, IPO’s,

among others. Karvy has a professional management team and ranks among the

best in technology, operations and research of various industrial segments.|

Karvy - Early Days:

The birth of Karvy was on a modest scale in 1981. It began with the vision and

enterprise of a small group of practicing Chartered Accountants who founded the

flagship company …Karvy Consultants Limited. They started with consulting and

financial accounting automation, and carved inroads into the field of registry and

share accounting by 1985. Since then, They have utilized their experience and

superlative expertise to go from strength to strength…to better their services, to

provide new ones, to innovate, diversify and in the process, evolved Karvy as one

of India’s premier integrated financial service enterprise.

35

Thus over the last 20 years Karvy has traveled the success route, towards building

a reputation as an integrated financial services provider, offering a wide spectrum

of services. And they have made this journey by taking the route of quality service,

path breaking innovations in service, versatility in service and finally…totality in

service.

Their highly qualified manpower, cutting-edge technology, comprehensive

infrastructure and total customer-focus has secured for them the position of an

emerging financial services giant enjoying the confidence and support of an

enviable clientele across diverse fields in the financial world.

Their values and vision of attaining total competence in their servicing has served

as the building block for creating a great financial enterprise, which stands solid on

their fortresses of financial strength - their various companies.

With the experience of years of holistic financial servicing behind them and years

of complete expertise in the industry to look forward to, they have now emerged as

a premier integrated financial services provider.

And today, they can look with pride at the fruits of their mastery and experience –

comprehensive financial services that are competently segregated to service and

manage a diverse range of customer requirements.

KARVY Group companies are:

36

Karvy Consultants Limited

The first securities registry to receive ISO 9002 certification in India. Registered

with SEBI as Category I Registrar, is Number 1 Registrar in the Country. The

award of being ‘Most Admired’ Registrar is one among many of the

acknowledgements they received for their customer friendly and competent

services.

Karvy Stock Broking Limited

The company, Member of National Stock Exchange (NSE), offers a

comprehensive range of services in the stock market through the benefits of in-

depth research on crucial market dynamics, done by qualified team of experts.

Apart from stock broking activities, the company also provides Depository

Participant Services to its corporate and retail customers.

Karvy Investor Services Limited

Registered with SEBI as a Category I Merchant Banker and ranked among the top

10 merchant bankers in the country, the company has built a reputation as a

professional advisor in structuring IPO’s take over assignments and buy back

exercises.

Karvy Computer share Private Limited

37

Karvy Global Services Limited

Karvy Global Services is the global services arm of the Karvy Group of Companies

engaged in the business of offshore business process outsourcing in the areas of

human resource outsourcing, finance and accounting operations outsourcing,

research and analytics and back office processing operations.

Karvy Insurance Broking Private Limited

Karvy Mutual Fund Services

Karvy Securities Limited

The company is into distribution of Financial Products. It distributes a wide range

of financial products and services from insurance to credit cards and loans. The

company provides sound advisory services to suit the different investment needs

of customers.

Karvy Comtrade Limited

38

The company provides investment, advisory and brokerage services in Indian

Commodities Markets. And most importantly, they offer a wide reach through their

branch network of over 225 branches located across 180 cities.

Karvy Comtrade Limited:

At Karvy Commodities, they are focused on taking commodities trading to new

dimensions of reliability and profitability. They have made commodities trading, an

essentially age-old practice, into a sophisticated and scientific investment option.

Here they enable trade in all goods and products of agricultural and mineral origin

that include lucrative commodities like gold and silver and popular items like oil,

pulses and cotton through a well-systematized trading platform.

Their technological and infrastructural strengths and especially their street-smart

skills make them an ideal broker. Their service matrix is holistic with a gamut of

advantages, the first and foremost being their legacy of human resources,

technology and infrastructure that comes from being part of the Karvy Group.

Their wide national network, spanning the length and breadth of India, further

supports these advantages. Regular trading workshops and seminars are

conducted to hone trading strategies to perfection. Every move made is a

calculated one, based on reliable research that is converted into valuable

information through daily, weekly and monthly newsletters, calls and intraday

alerts. Further, personalized service is provided here by a dedicated team

committed to giving hassle-free service while the brokerage rates offered are

extremely competitive. Their commitment to excel in this sector stems from the

immense importance that commodity broking has to a cross-section of investors;

farmers, exporters, importers, manufacturers and the Government of India itself.

39

About Karvy Comtrade Limited:

Commodities market, contrary to the beliefs of many people, has been in

existence in India through the ages. However the recent attempt by the

Government to permit Multi-commodity National levels exchanges has indeed

given it, a shot in the arm.

As a result two exchanges Multi Commodity Exchange (MCX) and National

Commodity and derivatives Exchange (NCDEX) have come into being. These

exchanges, by virtue of their high profile promoters and stakeholders, bundle in

themselves, online trading facilities, robust surveillance measures and a hassle-

free settlement system. The futures contracts available on a wide spectrum of

commodities like Gold, Silver, Cotton, Steel, Soya oil, Soya beans, Wheat, Sugar,

Chana etc., provide excellent opportunities for hedging the risks of the farmers,

importers, exporters, traders and large scale consumers. They also make open an

avenue for quality investments in precious metals. The commodities market, as it

is not affected by the movements of the stock market or debt market provides

tremendous opportunities for better diversification of risk.

Karvy Comtrade Limited is another venture of the prestigious Karvy group. With

our well established presence in the multifarious facets of the modern Financial

services industry from stock broking to registry services, it is indeed a pleasure for

us to make foray into the commodities derivatives market which opens yet another

door for them to deliver their service to their beloved customers and the investor

public at large.

With the high quality infrastructure already in place and a committed Government

providing continuous impetus, it is the responsibility of them, the intermediaries to

deliver these benefits at the door-steps of their esteemed customers.

40

With their expertise in financial services, existence across the lengths and

breadths of the country and an enviable technological edge, they are all set to

bring to you, the pleasure of investing in this burgeoning market, which can touch

upon the lives of a vast majority of the population from the farmer to the corporate

alike. They are confident that the commodity futures can be a good value addition

to your portfolio.

The company provides investment, advisory and brokerage services in Indian

Commodities Markets. And most importantly, they offer a wide reach through their

branch network of over 225 branches located across 180 cities.

Milestones of Karvy:

41

Board of Directors:

Mr. C. Parthasarathy

Chairman

Mr. M. Yugandhar

Director

Mr. M.S. Ramakrishna

Director

Key Personnel at Head Office:

V. Ganesh

V. Mahesh

K. Sridhar

S. Gopichand

J. Ramaswamy

M.S Manohar

S. Ganapathy Subhramanyam

T.R Prasanth Kumar

Ashok. K Mittal

42

Achievements:

Among the top 5 stock brokers in India (4% of NSE volumes)

India's No. 1 Registrar & Securities Transfer Agents

Among the to top 3 Depository Participants

Largest Network of Branches & Business Associates

ISO 9002 certified operations by DNV

Among top 10 Investment bankers

Largest Distributor of Financial Products

Adjudged as one of the top 50 IT uses in India by MIS Asia

Full Fledged IT driven operations

Quality Policy:

To achieve and retain leadership, Karvy shall aim for complete customer

satisfaction, by combining its human and technological resources, to provide

superior quality financial services. In the process, Karvy will strive to

exceed Customer's expectations. 

Quality Objectives:  

As per the Quality Policy, Karvy will: 

43

Build in-house processes that will ensure transparent and harmonious

relationships with its clients and investors to provide high quality of

services.

Establish a partner relationship with its investor service agents and vendors

that will help in keeping up its commitments to the customers.

Provide high quality of work life for all its employees and equip them with

adequate knowledge & skills so as to respond to customer's needs.

Continue to uphold the values of honesty & integrity and strive to establish

unparalleled standards in business ethics.

Use state-of-the art information technology in developing new and

innovative financial products and services to meet the changing needs of

investors and clients.

Strive to be a reliable source of value-added financial products and services

and constantly guide the individuals and institutions in making a judicious

choice of same.

Strive to keep all stake-holders (shareholders, clients, investors,

employees, suppliers and regulatory authorities) proud and satisfied. 

44

4. ANALYSIS AND INTERPRETATION OF DATA

4.1 Analysis and Interpretation of Data through Questionnaire using SPSS Package:

Table 1: Showing Respondent’s Experience in Business

Source: question No. 1 from Questionnaire

Statistics

RESPONDENTS EXPERIENCE IN BUSINESS

N Valid 40

Missing 0

RESPONDENTS EXPERIENCE IN BUSINESS

Frequency Percent Valid PercentCumulative Percent

Valid Less than 1 year 9 22.5 22.5 22.5

1- 2 years 12 30.0 30.0 52.5

More than 3 years 19 47.5 47.5 100.0

Total 40 100.0 100.0

Graph 1:

45

More than 3 years1- 2 yearsLess than 1 year

RESPONDENTS EXPERIENCE IN BUSINESS

20

15

10

5

0

Fre

qu

en

cy

RESPONDENTS EXPERIENCE IN BUSINESS

Analysis:

The Indian financial sector plays an important role in canalizing household savings

to corporate as well government sector primarily for investment in industrial,

infrastructure as well as agriculture and services sectors. Since the process of

liberalization began in 1991, the Indian financial services sector has been

transformed in a vibrant and competitive industry. The introduction of new

instruments and relaxation of investment limits for Foreign Direct Investment (FDI)

and Foreign Institutional Investment (FII) has helped broaden the financial

services sector. There has-been an introduction of new financial products over the

years. Many sectors have been opened up for new private players. The entry of

new players has resulted in a more sophisticated range of financial services being

offered corporate and retail customers which has forced the existing players to

upgrade their products and distribution channels. This is particularly witnessed in

the non-banking financial services sector such as the brokerage industry.

From the above data it is clear that 47.5% of the respondents are settled in

brokerage business more than 3 years.

Table 2: Showing the no of respondents dealing in commodity market

46

Source: question No2 from Questionnaire

Statistics

NO OF RESPONDENTS DEALING IN COMMODITY MARKET

N Valid 40

Missing 0

NO OF RESPONDENTS DEALING IN COMMODITY MARKET

Frequency Percent Valid PercentCumulative Percent

Valid Yes 21 52.5 52.5 52.5

No 19 47.5 47.5 100.0

Total 40 100.0 100.0

Graph – 2:

NoYes

NO OF RESPONDENTS DEALING IN COMMODITY MARKET

Analysis:

Global commodity market is 5 times in volume as compared to stock market. Yet

the percentage of investments in commodities in India is only 23% of the stock

47

market. It is clear from the above table that more than 50% of respondents are

involved only in stocks. The ones dealing with commodities have very low

percentage of business in commodities.

Table 3: Showing daily turnover of respondents

Source: question No. 3 from Questionnaire

Statistics

DAILY TURNOVER OF INVESTORS IN COMMODITY TRADING

N Valid 21

Missing 19

DAILY TURNOVER OF INVESTORS IN COMMODITY TRADING

Frequency Percent Valid PercentCumulative Percent

Valid Less than 25 Lakhs 5 12.5 23.8 23.8

25 Lakhs to 1 Crore 9 22.5 42.9 66.7

More than 1 Crore 7 17.5 33.3 100.0

Total 21 52.5 100.0 Missing System 19 47.5 Total 40 100.0

Graph – 3:

48

More than 1 crore25 Lakhs to 1 CroreLess than 25 Lakhs

DAILY TURNOVER OF INVESTORS IN COMMODITY TRADING

10

8

6

4

2

0

Fre

qu

en

cy

DAILY TURNOVER OF INVESTORS IN COMMODITY TRADING

Analysis:

The Indian financial services industry is witnessing up the trend, with strong

growth catalysts coinciding at an appropriate time. The growths catalysts are

categorized into cultural, demographic, economic and political developments have

changed the perception of India as an investment destination. With a GDP growth

of 8.1% in 2006-07 India is one of the fastest growing free market democracies in

the world. A savings rate of 24.2% and service sector contribution of more than

50% akin to the developed nations is improving the country’s rating in the world

investing community. It can be seen from table majority of brokers are having daily

turnover between 25 lakhs to one crore.

Table 4: Showing increase volume of trade over last year

Source: question No. 4 from Questionnaire

Statistics

INCREASE IN VOLUME OF TRADE OVER LAST YEAR

49

N Valid 21

Missing 19

INCREASE IN VOLUME OF TRADE OVER LAST YEAR

Frequency Percent Valid PercentCumulative Percent

Valid Yes 15 37.5 71.4 71.4

No 6 15.0 28.6 100.0

Total 21 52.5 100.0 Missing System 19 47.5 Total 40 100.0

Graph 4:

NoYes

INCREASE IN VOLUME OF TRADE OVER LAST YEAR

14

12

10

8

6

4

2

0

Fre

qu

en

cy

INCREASE IN VOLUME OF TRADE OVER LAST YEAR

Analysis:

The financial services industry is composed of three primary sectors: banking,

securities and commodities, and insurance. The financial industry’s estimated

annual rate of growth is 12% annually between 2002 and 2012. The 2006 Gross

Domestic Product generated by the financial industry was over $7.5 trillion in

current dollars, a 20.4% share of the total GDP. The following financial services

occupations are expected to increase in employment by over 18% from 2002 to

2012: personal financial advisors (34.6%), financial analysts (18.7%), and credit

50

analysts (18.7%). It is clear from the above table that there is definite increase in

the volume of trade due to increase in number of investors.

Table 5: Showing improvement in number of clients

Source: question No. 5 from Questionnaire

Statistics

IMPROVEMENT IN NO OF CLIENTS

N Valid 21

Missing 19

IMPROVEMENT IN NO OF CLIENTS

Frequency Percent Valid PercentCumulative Percent

Valid Yes 17 42.5 81.0 81.0

No 4 10.0 19.0 100.0

Total 21 52.5 100.0 Missing System 19 47.5 Total 40 100.0

Graph 5:

51

MissingNoYes

IMPROVEMENT IN NO OF CLIENTS

Analysis:

Since 2002 when the first national level commodity exchange started, the

exchanges have conducted brisk business in commodities trading. In the last three

years, there has been a great revival of the commodities trading in India, both in

terms of the number of commodities allowed for futures trading as well as the

value of trading. While in year 2000, trading was allowed in only 8 commodities,

the number jumped to 80 commodities in June 2004. All most all the respondents

have said there is drastic increase in number of investors.

Table 6: Showing investors’ knowledge about commodity market

Source: question No. 6 from Questionnaire

Statistics

INVESTORS TRADING IN COMMODITIES WITH PROPER KNOWLEDGE

N Valid 21

Missing 19

52

INVESTORS TRADING IN COMMODITIES WITH PROPER KNOWLEDGE

Frequency Percent Valid PercentCumulative Percent

Valid Yes 12 30.0 57.1 57.1

No 9 22.5 42.9 100.0

Total 21 52.5 100.0 Missing System 19 47.5 Total 40 100.0

Graph 6:

MissingNoYes

INVESTORS TRADING IN COMMODITIES WITH PROPER KNOWLEDGE

Analysis:

Knowledge about the financial sector have grown tremendously in the last few

years, thanks to the structural changes in the market, and the economy is now

ripe. Once India has skills in the core markets, capabilities in commodities can be

easily applied into unexpected areas. From the above we can make out there is a

mixed opinion regarding investors’ knowledge on commodity market.

Table 7: Showing commodity market is a safe investment avenue for retail

investors

53

Source: question No.7 from Questionnaire

Statistics

COMMODITY MARKET IS SAFE INVESTMENT AVENUE FOR RETAIL INVESTORS

N Valid 21

Missing 19

COMMODITY MARKET IS SAFE INVESTMENT AVENUE FOR RETAIL INVESTORS

Frequency Percent Valid PercentCumulative Percent

Valid Yes 13 32.5 61.9 61.9

No 8 20.0 38.1 100.0

Total 21 52.5 100.0 Missing System 19 47.5 Total 40 100.0

Graph 7:

MissingNoYes

COMMODITY MARKET IS SAFE INVESTMENT AVENUE FOR RETAIL INVESTORS

Analysis:

54

Leverage is very important to the commodities markets. Unlike the stock market,

where you might have to invest Rs.10, 000 to leverage Rs.10, 000. A commodities

trader can leverage tens of thousands of rupees worth of a commodity. Also unlike

stocks, Commodities have intrinsic value and will not go bankrupt. From the above

table it is clear that 61.9% of respondents are telling that it is a safe for Investment

Avenue. And 38.1% are telling that not safe for investment.

Table 8: Showing dealings in specific commodity

Source: question No. 8 from Questionnaire

Statistics

RESPONDENT'S DEALING WITH SPECIFIC COMMODITIES

N Valid 21

Missing 19

RESPONDENT'S DEALING WITH SPECIFIC COMMODITIES

Frequency Percent Valid PercentCumulative Percent

Valid Yes 15 37.5 71.4 71.4

No 6 15.0 28.6 100.0

Total 21 52.5 100.0 Missing System 19 47.5 Total 40 100.0

Graph 8:

55

NoYes

RESPONDENT'S DEALING WITH SPECIFIC COMMODITIES

14

12

10

8

6

4

2

0

Freq

uen

cy

RESPONDENT'S DEALING WITH SPECIFIC COMMODITIES

Analysis:

It is clear from above chart that some brokers dealing with specific commodities

and some are not.

Table 9: Showing commodity wise preferences by respondents

Source: question No. 9 from Questionnaire

Statistics

COMMODITY WISE PREFERENCES BY RESPONDENTS

N Valid 40

Missing 0

COMMODITY WISE PREFERENCES BY RESPONDENTS

Frequency Percent Valid PercentCumulative Percent

Valid Gold 15 37.5 37.5 37.5

Cereals 4 10.0 10.0 47.5

Oil 18 45.0 45.0 92.5

Other 3 7.5 7.5 100.0

Total 40 100.0 100.0

Graph 9:

56

OtherOilCerealsGold

COMMODITY WISE PREFERENCES BY RESPONDENTS

20

15

10

5

0

Fre

qu

en

cy

COMMODITY WISE PREFERENCES BY RESPONDENTS

Analysis:

India is among the top-5 producers of most of the commodities, in addition to

being a major consumer of bullion and energy products. Agriculture contributes

about 22% to the GDP of the Indian economy. It employees around 57% of the

labor force on a total of 163 million hectares of land. Agriculture sector is an

important factor in achieving a GDP growth of 8-10%. But still emphasis is laid on

only on gold and oil trading.

Table 10: Showing reasons for commodity preferences

Source: question No. 10 from Questionnaire

Statistics

REASON FOR COMMODITY PREFERENCES

N Valid 40

Missing 0

REASON FOR COMMODITY PREFERENCES

57

Frequency Percent Valid PercentCumulative Percent

Valid More no of Investors 9 22.5 22.5 22.5

Low Risk 12 30.0 30.0 52.5

High Rate of Return 14 35.0 35.0 87.5

Any Other 5 12.5 12.5 100.0

Total 40 100.0 100.0

Graph 10:

Any OtherHigh Rate of ReturnLow RiskMore no of Investors

REASON FOR COMMODITY PREFERENCES

12.5

10.0

7.5

5.0

2.5

0.0

Fre

qu

en

cy

REASON FOR COMMODITY PREFERENCES

Analysis:

Commodities also give the investor the ability to participate in virtually all sectors

of the world economy and have the potential to produce returns that tend to be

independent of other markets. In fact portfolios that add commodity investments

can actually lower the overall portfolio risk by diversification. From the above table

it is clear that the most of the brokers who prefers specific commodity due to high

rate of return.

Table 11: Showing opinion about commodity market in India

Source: question No. 11 from Questionnaire

58

Statistics

OPINION ABOUT COMMODITY MARKET IN INDIA

N Valid 21

Missing 19

OPINION ABOUT COMMODITY MARKET IN INDIA

Frequency Percent Valid PercentCumulative Percent

Valid Highly Volatile 9 22.5 42.9 42.9

Volatile 6 15.0 28.6 71.4

Stable 4 10.0 19.0 90.5

Un Stable 2 5.0 9.5 100.0

Total 21 52.5 100.0 Missing System 19 47.5 Total 40 100.0

Graph 11:

Un StableStableVolatileHighly Volatile

OPINION ABOUT COMMODITY MARKET IN INDIA

10

8

6

4

2

0

Fre

qu

en

cy

OPINION ABOUT COMMODITY MARKET IN INDIA

Analysis:

59

Commodity trading in India remained in a state of hibernation for nearly four

decades, mainly due to doubts about the benefits. Finally a realization that

commodities do perform a role in risk management led the government to change

its stance. The policy changes favouring commodity Trading were also facilitated

by the enhanced role assigned to free market forces under the new liberalization

policy of the Government. Indeed, it was a timely decision too, since internationally

the commodity cycle is on the upswing and the next decade is being touted as the

decade of commodities. Yet there is lack of clarity of factors leading to price

changes and the commodity market being highly responsive to global markets

the brokers feel Indian commodity market is highly volatile. Instability of

commodity prices has always been a major concern of the producers as well as

the consumers in an agriculture-dominated country like India. Farmers’ direct

exposure to price fluctuations, for instance, makes it too risky for them to invest in

otherwise profitable activities.

Table 12: Showing effect of VAT on commodity market

Source: question No. 12 from Questionnaire

Statistics

EFFECT OF VAT ON COMMODITY MARKET

N Valid 21

Missing 19

EFFECT OF VAT ON COMMODITY MARKET

Frequency Percent Valid PercentCumulative Percent

Valid Positive 13 32.5 61.9 61.9

Negative 6 15.0 28.6 90.5

No impact 2 5.0 9.5 100.0

Total 21 52.5 100.0 Missing System 19 47.5 Total 40 100.0

Graph 12:

60

No impactNegativePositive

EFFECT OF VAT ON COMODITY MARKET

12.5

10.0

7.5

5.0

2.5

0.0

Fre

qu

en

cy

EFFECT OF VAT ON COMODITY MARKET

Analysis:

There are at present restrictions on the movement of certain goods from one state

to another. These need to be removed so that a truly national market could

develop for commodities. Also, regulatory changes are required to bring about

uniformity in octroi and sales taxes etc. VAT has been introduced in the country in

2005, but has not yet been uniformly implemented by all states. It is clear from the

above table that most of the brokers felt that VAT has a positive effect on

commodities market, because it will help in smooth flow of goods in these markets

and enhance the delivery rate too.

Table 13: Showing highest volume of commodity

Source: question No. 13 from Questionnaire

Statistics

HIGHEST VOLUME OF COMMODITY

N Valid 21

Missing 19

HIGHEST VOLUME OF COMMODITY

61

Frequency Percent Valid PercentCumulative Percent

Valid Metals 11 27.5 52.4 52.4

Agro - Based Commodities 10 25.0 47.6 100.0

Total 21 52.5 100.0 Missing System 19 47.5 Total 40 100.0

Graph 13:

Missing

Agro - Based Comodities

Metals

HIGHEST VOLUME OF COMMODITY

Analysis:

It is clear from the above table that most of the brokers have a mixed response.

Table 14: Showing possibilities of Government & Industry would take

responsibility of further growth in commodity market

Source: question No. 14 from Questionnaire

Statistics

FURTHER GROWTH IN COMMODITY MARKET

N Valid 21

Missing 19

FURTHER GROWTH IN COMMODITY MARKET

62

Frequency Percent Valid PercentCumulative Percent

Valid Yes 18 45.0 85.7 85.7

No 3 7.5 14.3 100.0

Total 21 52.5 100.0 Missing System 19 47.5 Total 40 100.0

Graph 14:

NoYes

FURTHER GROWTH IN COMMODITY MARKET

20

15

10

5

0

Fre

qu

en

cy

FURTHER GROWTH IN COMMODITY MARKET

Analysis:

A review of the nature of institutional and policy level constraints facing this

segment calls for more focused and pragmatic approach from government, the

regulator and the exchanges for making the agricultural futures markets a vibrant

segment which can play an important role especially in an agriculture dominated

economy of India.

63

Most of the brokers are feel that commodities market needs positive push from

government and industry.

Table 15: Showing respondent’s opinion about success ratio of commodity trade

in India.

Source: question No. 15 from Questionnaire

Statistics

SUCESS RATIO OF COMMODITY TRADE IN INDIA AS PER YOUR OPINION

N Valid 40

Missing 0

SUCESS RATIO OF COMMODITY TRADE IN INDIA AS PER YOUR OPINION

Frequency Percent Valid PercentCumulative Percent

Valid 3:10 6 15.0 15.0 15.0

5:10 8 20.0 20.0 35.0

7:10 19 47.5 47.5 82.5

10:10 7 17.5 17.5 100.0

Total 40 100.0 100.0

64

Graph 15:

10:107:105:103:10

SUCESS RATIO OF COMMODITY TRADE IN INDIA AS PER YOUR OPINION

Analysis:

Most of the brokers are of the opinion that commodity market in India is in

progressive stage. The Indian economy is witnessing a mini revolution in

commodity market. They feel SEBI and government has to create more

awareness among the investors.

From the above table it is clear that success ratio in Commodity Market is 70%

65

4.2 Calculation of Beta and Volatility:

This part of the chapter provides the calculation of Beta and Volatility.

Table 4.2 (1)

Calculation of Beta and Volatility of Gold futures

Date

GOLD Close (Rs)

RETURN ON GOLD % (Y)

INDX METAL close

RETURN ON INDX METAL

(X) X * Y X * X

1/3/2007 9563 -0.881011609 2687.47 -1.376523864 1.2127335 1.894817949

2/3/2007 9288 -2.641509434 2599.96 -3.342900055 8.830302 11.17498078

3/3/2007 9334 0.387180039 2612.61 0.615025572 0.2381256 0.378256454

5/3/2007 9290 -0.407375643 2586.59 -0.850589164 0.3465093 0.723501926

6/3/2007 9383 -0.191468993 2615.51 1.095796163 -0.209811 1.20076923

7/3/2007 9400 0.524008127 2643.16 0.975309727 0.5110702 0.951229063

8/3/2007 9435 0.25502072 2657.42 0.437668189 0.1116145 0.191553443

9/3/2007 9392 -0.402969247 2630.41 -0.994790804 0.4008701 0.989608744

10/3/2007 9383 -0.191468993 2630.74 -0.002280675 0.0004367 5.20148E-06

12/3/2007 9372 -0.149158321 2648.87 0.640192704 -0.09549 0.409846698

13-03-2007 9327 -0.649765658 2629.42 -0.777352624 0.505097 0.604277102

14-03-2007 9251 -0.601697647 2621.04 -0.081961276 0.0493159 0.006717651

15-03-2007 9315 0.463761864 2670.68 1.652672366 0.7664464 2.731325949

16-03-2007 9379 0.65464692 2685.93 0.564990789 0.3698695 0.319214592

17-03-2007 9384 -0.031959092 2685.93 -0.002606106 8.329E-05 6.79179E-06

19-03-2007 9385 -0.085169807 2687.26 -0.034223899 0.0029148 0.001171275

20-03-2007 9391 -0.063850165 2680.96 -0.273035004 0.0174333 0.074548113

21-03-2007 9381 -0.191509735 2667.53 -0.453783833 0.086904 0.205919767

22-03-2007 9440 0.532481363 2696.93 0.684688586 0.3645839 0.46879846

23-03-2007 9341 -1.017272438 2671.93 -1.068209925 1.0866605 1.141072443

24-03-2007 9339 0.06428801 2677.17 0.021295674 0.0013691 0.000453506

26-03-2007 9359 0.096256684 2697.26 0.51163952 0.0492487 0.261774998

27-03-2007 9332 -0.24585783 2654.84 -0.991265822 0.2437105 0.98260793

28-03-2007 9352 0.171379606 2687.1 0.307593529 0.0527153 0.094613779

29-03-2007 9361 -0.032037591 2700.83 0.338818075 -0.010855 0.114797688

30-03-2007 9339 -0.384 2704.74 0.089182298 -0.034246 0.007953482

TOTAL -5.019058869 -2.314649861 11.617364 5.357603979

n = 26

66

Beta = n * Σxy - (Σx) (Σy)

n * Σx 2-(Σx) 2

Beta = 26 * 11.617364 – (- 2.314649861 * - 5.019058869) 26 * 5.357604 – (- 2.314649861)2

Beta = 302.051 – (11.617)

139.297 – (5.357)

Beta = 290.434

133.94

Beta = 2.16

Volatility = Standard Deviation of Return on Gold

(Standard deviation based on Arithmetical Returns calculated as per Excel

Formulae)

Volatility = 0.656

Inference:

One Percent change in INDX Metal return causes 2% change in the Commodity

return. When there is a decline of 10 % in the index return, the Commodity with a

beta of 2 would give a negative return of 20%. The beta value of Gold is more than

1; it is cleat that Gold futures were more risky in the month of March 2007.

Table 4.2 (2)

67

Calculation of Beta and Volatility of Silver futures

Date

Silver Close (Rs)

RETURN ON Silver % (Y)

INDX METAL close

RETURN ON INDX

METAL (X) X * Y X * X

1/3/2007 19749 -3.5693359 2687.47 -1.3765239 4.913276098 1.8948179

2/3/2007 18609 -6.609455 2599.96 -3.3429001 22.09474743 11.174981

3/3/2007 18842 0.7593583 2612.61 0.61502557 0.467024766 0.3782565

5/3/2007 19734 3.8631579 2586.59 -0.8505892 -3.28596025 0.7235019

6/3/2007 19540 1.8982061 2615.51 1.09579616 2.08004695 1.2007692

7/3/2007 19516 0.3909465 2643.16 0.97530973 0.381293926 0.9512291

8/3/2007 19515 -0.1790281 2657.42 0.43766819 -0.07835492 0.1915534

9/3/2007 19308 -0.9896928 2630.41 -0.9947908 0.984537332 0.9896087

10/3/2007 19333 0.0724675 2630.74 -0.0022807 -0.00016527 5.201E-06

12/3/2007 19452 0.5271318 2648.87 0.6401927 0.337465921 0.4098467

13-03-2007 19266 -0.9460154 2629.42 -0.7773526 0.735387572 0.6042771

14-03-2007 19120 -0.5461638 2621.04 -0.0819613 0.044764286 0.0067177

15-03-2007 19407 1.3367448 2670.68 1.65267237 2.20920122 2.7313259

16-03-2007 19520 0.4063577 2685.93 0.56499079 0.229588356 0.3192146

17-03-2007 19517 -0.0256121 2685.93 -0.0026061 6.67479E-05 6.792E-06

19-03-2007 19552 0.0409333 2687.26 -0.0342239 -0.0014009 0.0011713

20-03-2007 19633 0.3526886 2680.96 -0.273035 -0.09629634 0.0745481

21-03-2007 19571 -0.3513238 2667.53 -0.4537838 0.159425074 0.2059198

22-03-2007 19772 0.9290454 2696.93 0.68468859 0.636106803 0.4687985

23-03-2007 19510 -1.2151899 2671.93 -1.0682099 1.298077883 1.1410724

24-03-2007 19518 0.0358772 2677.17 0.02129567 0.000764029 0.0004535

26-03-2007 19636 0.4912999 2697.26 0.51163952 0.251368444 0.261775

27-03-2007 19499 -0.7684478 2654.84 -0.9912658 0.761736077 0.9826079

28-03-2007 19616 0.5278532 2687.1 0.30759353 0.162364236 0.0946138

29-03-2007 19595 -0.0510074 2700.83 0.33881807 -0.01728223 0.1147977

30-03-2007 19622 0.0867126 2704.74 0.0891823 0.007733227 0.0079535

TOTAL -3.5324914 -2.3146499 34.27551648 24.929823

N = 26

Beta = n * Σxy - (Σx) (Σy)

68

n * Σx 2-(Σx) 2

Beta = 26 * 34.27551648 - (- 2.3146499 * - 3.5324914) 26 * 24.929823 – (-2.3146499)2

Beta = 891.1634285 – (8.17648) 648.175 – 5.3576

Beta = 882.987

642.817

Beta = 1.37

Volatility = Standard Deviation of Return on Silver

(Standard deviation based on Arithmetical Returns calculated as per Excel

Formulae)

Volatility = 1.826

Inference: One percent change in INDX Metal returns causes exactly one

percent change in the Commodity return. Since the Beta value of Silver is more

than 1 it is considered to be risky.

Table 4.2 (3)

Calculation of Beta and Volatility of Aluminium futures

69

DateAluminium Close (Rs)

RETURN ON

Aluminium % (Y)

INDX METAL close

RETURN ON INDX METAL

(X) X * Y X * X

1/3/2007 124.7 -0.399361 2687.47 -1.3765239 0.54973 1.8948179

2/3/2007 122.35 -1.8451665 2599.96 -3.3429001 6.1682071 11.174981

3/3/2007 122.35 0.2868852 2612.61 0.6150256 0.1764418 0.3782565

5/3/2007 120.45 -1.1083744 2586.59 -0.8505892 0.9427712 0.7235019

6/3/2007 120.25 -0.4964832 2615.51 1.0957962 -0.5440444 1.2007692

7/3/2007 121.45 0.4964832 2643.16 0.9753097 0.4842249 0.9512291

8/3/2007 121.9 0.0410341 2657.42 0.4376682 0.0179593 0.1915534

9/3/2007 120.45 -0.9049774 2630.41 -0.9947908 0.9002632 0.9896087

10/3/2007 120.65 0.166044 2630.74 -0.0022807 -0.0003787 5.201E-06

12/3/2007 122.2 1.4107884 2648.87 0.6401927 0.9031764 0.4098467

13-03-2007 121 -0.7790078 2629.42 -0.7773526 0.6055637 0.6042771

14-03-2007 121.75 0.8699254 2621.04 -0.0819613 -0.0713002 0.0067177

15-03-2007 123.55 1.4367816 2670.68 1.6526724 2.3745293 2.7313259

16-03-2007 124.45 0.5250404 2685.93 0.5649908 0.296643 0.3192146

17-03-2007 124.4 0.0804505 2685.93 -0.0026061 -0.0002097 6.792E-06

19-03-2007 125 0.6441224 2687.26 -0.0342239 -0.0220444 0.0011713

20-03-2007 123.45 -1.0420842 2680.96 -0.273035 0.2845255 0.0745481

21-03-2007 121.25 -1.5428339 2667.53 -0.4537838 0.7001131 0.2059198

22-03-2007 122.35 0.4928131 2696.93 0.6846886 0.3374235 0.4687985

23-03-2007 121.45 -0.4508197 2671.93 -1.0682099 0.48157 1.1410724

24-03-2007 121.25 -0.5740057 2677.17 0.0212957 -0.0122238 0.0004535

26-03-2007 119.15 -2.1355236 2697.26 0.5116395 -1.0926183 0.261775

27-03-2007 118.35 -1.1278195 2654.84 -0.9912658 1.117969 0.9826079

28-03-2007 117.9 -0.169348 2687.1 0.3075935 -0.0520904 0.0946138

29-03-2007 121.25 3.3674339 2700.83 0.3388181 1.1409475 0.1147977

30-03-2007 121.7 0 2704.74 0.0891823 0 0.0079535

TOTAL -2.7580026 -2.3146499 15.687149 24.929823

n = 26

Beta = n * Σxy - (Σx) (Σy) n * Σx 2-(Σx) 2

70

Beta = 26 *15.687149 – (-2.3146499 * - 2.7580026) 26 * 24.929823 - (- 2.3146499)2

Beta = 401.482 642.81

Beta = 0.624

Volatility = Standard Deviation of Return on Aluminium

(Standard deviation based on Arithmetical Returns calculated as per Excel

Formulae)

Volatility = 1.157

Inference:

From the above calculations it clearly indicates that the Beta value of Aluminum is

less than 1, it is considered to be less risky.

Table 4.2 (4)

Calculation of Beta and Volatility of Copper futures

71

Date

Copper Close (Rs)

RETURN ON Copper

% (Y)

INDX METAL close

RETURN ON INDX METAL

(X) X * Y X * X

1/3/2007 272.3 -0.21986075 2687.47 -1.376523864 0.3026436 1.894817948

2/3/2007 268.45 -1.66666667 2599.96 -3.342900055 5.5715001 11.17498078

3/3/2007 268.8 0.018604651 2612.61 0.615025572 0.0114423 0.378256454

5/3/2007 265.45 -1.20952735 2586.59 -0.850589164 1.0288109 0.723501926

6/3/2007 269.75 1.067815661 2615.51 1.095796163 1.1701083 1.200769231

7/3/2007 276 2.146558105 2643.16 0.975309727 2.093559 0.951229064

8/3/2007 280.25 1.392908828 2657.42 0.437668189 0.6096319 0.191553444

9/3/2007 275.3 -1.60829164 2630.41 -0.994790804 1.5999137 0.989608744

10/3/2007 275.55 0.2 2630.74 -0.002280675 -0.0004561 5.20148E-06

12/3/2007 280.85 1.757246377 2648.87 0.640192704 1.1249763 0.409846698

13-03-2007 278.45 -1.08348135 2629.42 -0.777352624 0.8422471 0.604277102

14-03-2007 279.75 0.629496403 2621.04 -0.081961276 -0.0515943 0.006717651

15-03-2007 291.4 3.811898824 2670.68 1.652672366 6.2998198 2.731325949

16-03-2007 294.25 0.90877915 2685.93 0.564990789 0.5134518 0.319214592

17-03-2007 294.2 -0.11882533 2685.93 -0.002606106 0.0003097 6.79179E-06

19-03-2007 295.35 0.459183673 2687.26 -0.034223899 -0.0157151 0.001171275

20-03-2007 294.55 -0.42258283 2680.96 -0.273035004 0.1153799 0.074548113

21-03-2007 293.3 -0.27201632 2667.53 -0.453783833 0.1234366 0.205919767

22-03-2007 298 1.533219761 2696.93 0.684688586 1.0497781 0.46879846

23-03-2007 298.55 0.184563758 2671.93 -1.068209925 -0.1971528 1.141072444

24-03-2007 298.85 0.167588403 2677.17 0.021295674 0.0035689 0.000453506

26-03-2007 302.95 1.236424394 2697.26 0.51163952 0.6326036 0.261774998

27-03-2007 295.05 -2.78418451 2654.84 -0.991265822 2.759867 0.98260793

28-03-2007 296.1 0.372881356 2687.1 0.307593529 0.1146959 0.094613779

29-03-2007 299.45 1.199729638 2700.83 0.338818075 0.4064901 0.114797688

30-03-2007 302.7 0.967311541 2704.74 0.089182298 0.0862671 0.007953482

TOTAL 8.668773775 -2.314649859 26.195583 24.92982302

n = 26

Beta = n * Σxy - (Σx) (Σy) n * Σx 2-(Σx) 2

72

Beta = 26 * 26.195583 – (-2.314649859 * 8.668773775) 26 * 24.92982302 - (- 2.314649859)2

Beta = 681.085 – (-20.065176) 648.175 – 5.3576

Beta = 701.15

642.817794

Beta = 1.09

Volatility = Standard Deviation of Return on Copper

(Standard deviation based on Arithmetical Returns calculated as per Excel

Formulae)

Volatility = 1.363

Inference:

One percent change in INDX Metal returns causes exactly one percent change in

the Commodity return. Since the Beta value of Copper is more than 1 it is

considered to be risky.

Table 4.2 (5)

Calculation of Beta and Volatility of Crude Oil futures

Date

Crude Oil

Close (Rs)

RETURN ON Crude Oil %

(Y)

INDX Energy close

RETURN ON INDX

Energy (X) X * Y X * X

73

1/3/2007 2721 0.777777778 2222.17 0.004950361 0.003850281 2.45061E-05

2/3/2007 2728 0.110091743 2228.97 0.162671041 0.017908738 0.026461867

3/3/2007 2723 0.036737693 2221.05 -0.12680597 -0.004658559 0.016079755

5/3/2007 2675 -1.582045622 2198.71 -0.52076264 0.823870253 0.271193726

6/3/2007 2691 0.410447761 2218.25 0.771372889 0.316608275 0.595016134

7/3/2007 2738 1.59554731 2246.47 1.0212433 1.629441999 1.042937877

8/3/2007 2734 -0.400728597 2239.67 -0.58503673 0.234440949 0.342267977

9/3/2007 2697 -1.317233809 2213.96 -0.9223251 1.214917805 0.850683591

10/3/2007 2668 -0.854700855 2196.6 1.053038354 -0.900032781 1.108889775

12/3/2007 2621 -1.68792198 2157.34 -1.18449982 1.999343277 1.403039816

13-03-2007 2618 -0.418410042 2163.91 0.186120589 -0.077874724 0.034640874

14-03-2007 2569 -1.268255188 2149.71 0.318261787 -0.403637162 0.101290565

15-03-2007 2567 -0.233190828 2133.54 -0.9581372 0.223428808 0.9180269

16-03-2007 2653 -0.075329567 2128.14 0.316296083 -0.023826447 0.100043212

17-03-2007 2646 0.379362671 2123.12 0.305671698 0.115960432 0.093435187

19-03-2007 2645 -0.075557235 2116.9 -0.32301202 0.024405895 0.104336763

20-03-2007 2614 -1.209372638 2098.13 -0.91662967 1.108546847 0.840209959

21-03-2007 2612 -0.267277587 2104.01 0.128014772 -0.034215479 0.016387782

22-03-2007 2674 2.178066488 2154.51 1.843045681 4.014276035 3.396817384

23-03-2007 2710 1.043997017 2188.11 0.478488674 0.499540748 0.228951411

24-03-2007 2716 0.147492625 2201.23 0.095037151 0.014017279 0.00903206

26-03-2007 2723 0.110294118 2214.55 0.132029318 0.014562057 0.017431741

27-03-2007 295.05 -2.784184514 2188.38 0.135443073 -0.377098506 0.018344826

28-03-2007 2764 1.356802347 2275.91 1.411620021 1.915289358 1.992671084

29-03-2007 2871 3.871201158 2343.85 2.409664875 9.328297455 5.806484811

30-03-2007 2860 -0.659951372 2344.64 -0.58681863 0.387271759 0.344356103

TOTAL -0.816341125 4.648941883 22.06463459 19.67905569

n = 26

Beta = n * Σxy - (Σx) (Σy) n * Σx 2-(Σx) 2

Beta = 26 * 22.06463459 – (4.648941883 * - 0.816341125) 26 * 19.67905569 – (4.648941883)2

74

Beta = 573.68 –(- 3.7951) 511.654 – 21.61266

Beta = 577.475

490.04

Beta = 1.17

Volatility = Standard Deviation of Return on Crude Oil

(Standard deviation based on Arithmetical Returns calculated as per Excel

Formulae)

Volatility = 1.352

Inference:

It is cleared from the above calculations that the beta value of Crude Oil is more

than 1 hence it is more volatile and it is considered to be risky.

Table 4.2 (6)

Calculation of Beta and Volatility of Chana futures

Date

Chana Close (Rs)

RETURN ON Chana % (Y)

INDX AGRI close

RETURN ON INDX AGRI(X) X * Y X * X

75

1/3/2007 2087 -0.713606089 1714.85 0.575942945 -0.41099639 0.331710276

2/3/2007 2055 1.1816839 1691.01 -1.44021169 -1.70187497 2.074209711

3/3/2007 2039 1.392342118 1690.8 0.018929535 0.026356389 0.000358327

5/3/2007 2057 -0.145631068 1687.05 -0.491335276 0.071553681 0.241410353

6/3/2007 2075 0.484261501 1676.01 -0.92981191 -0.45027211 0.864550187

7/3/2007 2130 0.235294118 1680.34 0.212311693 0.049955692 0.045076255

8/3/2007 2129 2.208353337 1693.96 0.759581011 1.67742326 0.576963312

9/3/2007 2161 -0.184757506 1707.91 0.848518488 -0.15677016 0.719983624

10/3/2007 2182 1.018518519 1714.31 0.365912204 0.372688356 0.133891741

12/3/2007 2156 0.279069767 1711.75 -0.273820968 -0.07641515 0.074977922

13-03-2007 2208 0.454959054 1730.63 0.86843501 0.39510237 0.754179367

14-03-2007 2216 2.926149559 1705.48 -1.38256842 -4.04560197 1.911495436

15-03-2007 2258 0.803571429 1709.49 0.441250779 0.354576518 0.19470225

16-03-2007 2233 -1.412803532 1720.36 0.703017532 -0.99322565 0.49423365

17-03-2007 2190 -1.128668172 1723.67 0.241929387 -0.273058 0.058529828

19-03-2007 2152 0.093023256 1701.47 -1.323443272 -0.123111 1.751502095

20-03-2007 2257 2.590909091 1695.46 -0.292865376 -0.75878757 0.085770128

21-03-2007 2182 1.77238806 1702.91 0.408613309 0.72422135 0.166964836

22-03-2007 2216 0.271493213 1701.14 -0.066969006 -0.01818163 0.004484848

23-03-2007 2264 3.143507973 1719.49 0.813785097 2.558139942 0.662246185

24-03-2007 2295 -0.217391304 1729.09 0.355783071 -0.07734415 0.126581594

26-03-2007 2290 1.327433628 1724 -0.510145195 -0.67718389 0.26024812

27-03-2007 2291 -0.391304348 1701.53 -0.623174863 0.243851033 0.38834691

28-03-2007 2330 2.869757174 1740.36 1.079702864 3.09848504 1.165758274

29-03-2007 2352 -0.759493671 1746.32 0.058442675 -0.04438684 0.003415546

30-03-2007 2404 5.207877462 1750.65 0.147591344 0.768637632 0.021783205

TOTAL 23.30693747 0.565400968 0.533781786 13.11337398

n = 26

Beta = n * Σxy - (Σx) (Σy) n * Σx 2-(Σx) 2

Beta = 26 * 0.533781786 – (0.565400968 * 23.30693747) 26 * 13.11337398 – (0.565400968)2

Beta = 13.8762 – 13.177

76

340.9458 - 0.3197

Beta = 0.6992

340.626

Beta = 0.002

Volatility = Standard Deviation of Return on Chana

(Standard deviation based on Arithmetical Returns calculated as per Excel

Formulae)

Volatility = 1.545

Inference: Since the Beta value of Chana Commodity it is considered to be less

risky and volatility is high due to price fluctuations.

Table 4.2 (7)

Calculation of Beta and Volatility of Pepper futures

Date

Pepper Close (Rs)

RETURN ON Pepper % (Y)

INDX AGRI close

RETURN ON INDX

AGRI(X) X * Y X * X

1/3/2007 12388 1.209150327 1714.85 0.575942945 0.696401601 0.3317103

2/3/2007 12368 2.980849292 1691.01 -1.44021169 -4.293053996 2.0742097

77

3/3/2007 12199 1.522969374 1690.8 0.018929535 0.028829102 0.0003583

5/3/2007 11752 0.273037543 1687.05 -0.491335276 -0.134152976 0.2414104

6/3/2007 11792 -1.322175732 1676.01 -0.92981191 1.229374742 0.8645502

7/3/2007 11695 -0.042735043 1680.34 0.212311693 -0.009073149 0.0450763

8/3/2007 11697 -0.247313662 1693.96 0.759581011 -0.187854761 0.5769633

9/3/2007 11619 -1.148545176 1707.91 0.848518488 -0.974561816 0.7199836

10/3/2007 11665 0.995670996 1714.31 0.365912204 0.364328169 0.1338917

12/3/2007 11554 -1.332194705 1711.75 -0.273820968 0.364782843 0.0749779

13-03-2007 11614 1.77898519 1730.63 0.86843501 1.544933021 0.7541794

14-03-2007 11572 0.64359019 1705.48 -1.38256842 -0.889807472 1.9114954

15-03-2007 11703 3.566371681 1709.49 0.441250779 1.573664281 0.1947022

16-03-2007 12196 3.355932203 1720.36 0.703017532 2.359279174 0.4942336

17-03-2007 12195 1.388427004 1723.67 0.241929387 0.335901294 0.0585298

19-03-2007 12302 2.516666667 1701.47 -1.323443272 -3.330665569 1.7515021

20-03-2007 12296 -0.437246964 1695.46 -0.292865376 0.128054496 0.0857701

21-03-2007 12651 -0.753118381 1702.91 0.408613309 -0.307734194 0.1669648

22-03-2007 12809 0.541601256 1701.14 -0.066969006 -0.036270498 0.0044848

23-03-2007 12779 3.031524631 1719.49 0.813785097 2.467009567 0.6622462

24-03-2007 12811 -0.070202808 1729.09 0.355783071 -0.024976971 0.1265816

26-03-2007 12873 0.5703125 1724 -0.510145195 -0.290942182 0.2602481

27-03-2007 13163 2.03875969 1701.53 -0.623174863 -1.27050379 0.3883469

28-03-2007 13131 0.236641221 1740.36 1.079702864 0.255502204 1.1657583

29-03-2007 12930 -2.341389728 1746.32 0.058442675 -0.136837078 0.0034155

30-03-2007 13228 0.593155894 1750.65 0.147591344 0.087544675 0.0217832

TOTAL 19.54872346 0.565400968 -0.450829281 13.113374

n = 26

Beta = n * Σxy - (Σx) (Σy) n * Σx 2-(Σx) 2

Beta = 26 * - 0.4508 – (0.5654 * 19.5487) 26 * 13.113 – (0.5654)2

Beta = -11.7208 – (11.0528)

78

340.938 – 0.3196

Beta = - 22.7736

340.61

Beta = -0.067

Volatility = Standard Deviation of Return on Pepper

(Standard deviation based on Arithmetical Returns calculated as per Excel

Formulae)

Volatility = 1.554

Inference: Negative Beta value indicates that the Commodity return moves in the

opposite direction to the Index return. A Commodity with negative beta of -1 would

provide a return on 10 % if the Index return declines by 10% and vice versa. But

usually the negative beta value can be seen rare in the market.

Table 4.2 (8)

Calculation of Beta and Volatility of Jeera futures

Date

Jeera Close (Rs)

RETURN ON Jeera % (Y)

INDX AGRI close

RETURN ON INDX AGRI(X) X * Y X * X

1/3/2007 10256 -2.323809524 1714.85 0.575942945 -1.338381701 0.331710276

2/3/2007 10068 1.185929648 1691.01 -1.44021169 -1.707989742 2.074209711

3/3/2007 9876 0.775510204 1690.8 0.018929535 0.014680047 0.000358327

5/3/2007 10116 2.679658952 1687.05 -0.491335276 -1.316610971 0.241410353

6/3/2007 10117 0.059341311 1676.01 -0.92981191 -0.055176258 0.864550187

79

7/3/2007 10168 -0.31372549 1680.34 0.212311693 -0.06660759 0.045076255

8/3/2007 10448 2.03125 1693.96 0.759581011 1.542898929 0.576963312

9/3/2007 10809 1.971698113 1707.91 0.848518488 1.673022302 0.719983624

10/3/2007 10929 1.194444444 1714.31 0.365912204 0.4370618 0.133891741

12/3/2007 10889 -2.340807175 1711.75 -0.273820968 0.640962086 0.074977922

13-03-2007 10893 2.764150943 1730.63 0.86843501 2.400485453 0.754179367

14-03-2007 10510 0.815347722 1705.48 -1.38256842 -1.127274012 1.911495436

15-03-2007 10621 1.152380952 1709.49 0.441250779 0.508488992 0.19470225

16-03-2007 11040 -0.540540541 1720.36 0.703017532 -0.380009477 0.49423365

17-03-2007 10964 0.03649635 1723.67 0.241929387 0.00882954 0.058529828

19-03-2007 11109 -0.340898897 1701.47 -1.323443272 0.451160351 1.751502095

20-03-2007 11205 1.863636364 1695.46 -0.292865376 -0.545794564 0.085770128

21-03-2007 11366 1.482142857 1702.91 0.408613309 0.605623297 0.166964836

22-03-2007 11508 0.947368421 1701.14 -0.066969006 -0.063444322 0.004484848

23-03-2007 11597 0.406926407 1719.49 0.813785097 0.331150646 0.662246185

24-03-2007 11552 0.147377547 1729.09 0.355783071 0.052434436 0.126581594

26-03-2007 11593 2.140969163 1724 -0.510145195 -1.092205132 0.26024812

27-03-2007 11809 1.061189559 1701.53 -0.623174863 -0.661306658 0.38834691

28-03-2007 11893 0.362869198 1740.36 1.079702864 0.391790913 1.165758274

29-03-2007 11826 -0.946477929 1746.32 0.058442675 -0.055314702 0.003415546

30-03-2007 11888 -0.100840336 1750.65 0.147591344 -0.014883161 0.021783205

TOTAL   16.17158827   0.565400968 0.633590503 13.11337398

n = 26            

Beta = n * Σxy - (Σx) (Σy) n * Σx 2-(Σx) 2

Beta = 26 * 0.6336 – (0.5654 *16.171) 26 * 13.11337 – (0.5654)2

Beta = 16.4736 – (9.143) 340.94 – 0.31967

80

Beta = 7.3306

340.62

Beta = 0.021

Volatility = Standard Deviation of Return on Jeera

(Standard deviation based on Arithmetical Returns calculated as per Excel

Formulae)

Volatility = 1.313

Inference: Since the beta value is less than 1 Jeera futures is less risky in the

month of March.

Table 4.2(9)

List of Beta value for 8 Commodity Futures

Commodity Beta Value

Gold 2.16

Silver 1.37

Aluminium 0.624

Copper 1.09

Crude Oil 1.17

Chana 0.002

Pepper - 0.067

Jeera 0.021

81

Graph 4.2(9)

Showing the beta values for 8 commodity Futures

Beta Value

-0.5

0

0.5

1

1.5

2

2.5

Go

ld

Silve

r

Alu

min

ium

Co

pp

er

Cru

de

Oil

Ch

an

a

Pe

pp

er

Jee

ra

Beta Value

Table 4.2(10)

List of Volatility for 8 Commodity Futures

Commodity Volatility

Gold 0.656

Silver 1.826

Aluminium 1.157

Copper 1.363

Crude Oil 1.352

Chana 1.545

Pepper 1.554

Jeera 1.313

82

Graph 4.2(10)

Showing the beta values for 8 commodity Futures

5. SUMMARY OF FINDINGS AND SUGGESTIONS

Findings:

Farmers, traders, producers, investors lack knowledge about the course of prices

and overall commodities markets.

Prices of Agriculture commodities mostly follow a cyclical pattern, unlike

stocks. Therefore the prices are expected to fall at some point of time, and

do not attract investors.

83

There is no adequate infrastructure such as roads, railways, waterways or

other means of transport as well as cold storage facilities to haul

commodities from one part of the country to another at the least cost to

benefit final consumer.

The present restrictions on the movement of certain goods from one state

to another, affects the prices largely.

Gold, aluminium, copper zinc etc have scaled dizzy heights. This has

created anxiety in the minds of stakeholders such as farmers, traders,

producers, investors and final consumers.

The Beta value is more than 1 in case of Gold and Silver it indicates that

the investors can safely invest when the Beta is high

When Beta value is low Hedging protection will be less

The beta value is less than 1, in case of Aluminium, it shows that the price

variation is high and the return is comparatively low or some times an

investor has to incur a loss due to fluctuation of price.

The beta value is also negative incase of Pepper futures for the month of

March, because of high price fluctuation.

The Crude futures are considered to be risky investment in the month of

March since the beta value is more than 1.

84

Beta value is less than 1 in case of Jeera futures it is considered to be less

risky in the month of March.

Commodities can be effectively used by Farmers, Procurers etc to hedge

their positions according to the needs. This calls for a scientific

understanding of returns.

Suggestions

The recommendations are based on the suggestions provided by the respondents.

Investor should carefully study the market and risk involved before investing

Corporates and physical market players should participate in the commodity

exchanges, which would streamline trading by bringing into the market

information on the fundamentals and further improving the price discovery

process to make it more efficient

85

In order to match up with this phenomenal growth and pace, there is always

going to be a need for passionate, trained commodities professionals. In

addition, the fast changing commodities sector demands that professionals

learn new skills, improve their efficiency, learn to compete and think out of

the box. All this requires an education that is intensive, comprehensive and

closely linked to the commodities derivatives market, through experiential

learning.

If transport network and storage facilities improve across the board in the

country it would be easy to cut down on transactions costs and give

consumers quality goods at reasonable prices. That will also help

commodity trade.

It is imperative that the Government should grant more powers to the FMC

to ensure an orderly development of the commodity markets. The SEBI and

FMC also need to work closely with each other due to the inter-relationship

between the two markets.

Government can create awareness among investors about commodity

market.

For commodity market to work efficiently, it is necessary to have a

sophisticated, cost-effective, reliable and convenient warehousing system in

the country.

Mutual funds companies should come forward and invest more in

commodity market ( i,e percentage of investment should go up)

More brokers should come in commodity market and set their business.

86

Only few commodities like Gold, Oil, and Silver are getting popularized so,

concentrate on other commodities also to increase volume of trade.

Government and industry should take further steps for future growth of

commodities market.

A review of the nature of institutional and policy level constraints facing this

segment calls for more focused and pragmatic approach from government, the

regulator and the exchanges for making the agricultural commodity markets a

vibrant segment for investment which can play an important role especially in an

agriculture dominated economy of India.

The analysis of data shows that the level of awareness is low among investors and

brokers due to various reasons including lack of knowledge among farmers,

producers, brokers, etc improper information flow, high volatility of the prices of

commodities, lack of proper regulations, etc. Right policies pursued we can

strengthen our commodity base and sustainable investment flow into spot and

futures of commodities which will stabilize it and ensure a fair return to investors.

For this to happen it is imperative that there is a flow of right information to

stakeholders.

CONCLUSION

India is one of the top producers of a large number of commodities, and also has a

long history of trading in commodities. The commodities market has seen ups and

down. The market has made enormous progress in terms of technology,

transparency and the trading activity. The management of price risk is going to

assume even greater importance in future with the promotion of free trade and

removal of trade barriers in the world.

87

The study is an investigation into the commodities markets in India. The study has

surveyed the brokers. The study has outlined the status of commodities markets in

Bangalore and commodities in the Indian context. The study is aimed to know the

awareness level of commodities market among brokers and investors.

The analysis of data shows that the level of awareness is low among investors and

brokers due to various reasons including lack of knowledge among farmers,

producers, brokers, etc improper information flow, high volatility of the prices of

commodities, lack of information flow.

BIBILOGRAPHY

A) BOOKS:

Punithavathy Pandian, “Security Analysis and Portfolio

Management”, Vikas Publishing House.

Fischer and Jordan, “Security Analysis and Portfolio Management”.

88

Bodie, Kane and Marcus, “Investments”, 5th Edition Tata McGraw-

Hill.

B) WEB SITES:

www.karvy.com

www.karvycomtrade.com

www.mcxindia.com

www.ncdex.com

www.indianmba.com

www.icfaipress.org/books/commoditiesmarket

www.finance.indiamart.com/markets/commodity/

traders_derivatives_market.html

ANNEXURE

Questionnaire:

Dear Sir/ Madam,

I am Kalyani.K pursuing my 4th semester MBA from Kristu Jayanti College of Management and Technology. As a part of the course, I am doing a project titled “Investment Pattern in Commodities and Associated Risks”.

I would be grateful if you would answer the following questions. Your valuable time spared will assist me in collecting relevant data for my project. Information collected is assured of confidentiality and will be strictly used for the project only.

89

Kalyani.K. ------------------------------------------------------------------------------------------------------------

PERSONAL DETAILS:

Name : ________________________________________________

E-Mail ID : ________________________________________________

Contact no : ________________________________________________

Designation : ________________________________________________

-----------------------------------------------------------------------------------------------------------

Questionnaire for the survey on “Investment Pattern in Commodities and Associated Risks”. (Please put your answer in the ‘box’)

1. As a dealer how many years of experience do you have in the trading business( both stock market or commodity market)

a. Less than 1 year b. 1-2 year’s c. More than 3 year’s

2. Are you dealing in commodity market

a. Yes b. No

3. According to your idea what is the daily turnover of investors in commodity trading

a. Less than 25 lakhs b. 25 lakhs to 1 crore c. More than 1 crore

4. Whether there is increase in volume of trade over last year?

a. Yes b. No

5. Is there any improvement in no of clients at your company?

90

a. Yes b. No

6. Investors are trading in commodities with proper knowledge?

a. Yes b. No

7. Whether commodity market is a safe investment avenue for retail investors?

a. Yes b. No

8. Are you dealing with specific commodities

a. Yes b. No

9. Give Commodity wise preferences on which investors prefers to invest

a. Gold

b. Cereals

c. Oil

d. Other

10.Give reason why you prefer to invest in specific commodities?

a. More no of investors

b. Low risk

c. High rate of return

d. Any other

11.Give your opinion about commodity market in India

a. Highly volatile

91

b. Volatile

c. Stable

d. Un Stable

12.What is the effect of VAT on commodity market

a. Positive

b. Negative

c. No impact

13.Show which of the following has the highest volume of commodity

a. Bullion Marketb. Metalsc. Agro - based commodities

14. Does Government or Industry will take responsibility for further growth in commodity market?

a. Yes b. No

15. What is the success ratio of commodity trade in India as per your opinion?

a. 3:10 b. 5:10 c. 7:10 d. 10:10

92