Volume 1 Issue 1 2008 Hyderabad Pages 32 July

Spurt in Crude Oil Prices - Reasons & Repercussions

Spurt in Crude Oil Prices - Reasons & Repercussions

Karvy Comtrade's Invest and Harvest

A C o m p r e h e n s i v e E n g l i s h M o n t h l y M a g a z i n e o n C o m m o d i t y F u t u r e s

Article - ATF

Article - Monsoon

Bullion & Metals Review

Agri Market Review & Outlook

National Spot Exchange

Article - ATF

National Spot Exchange

Article - Monsoon

Bullion & Metals Review

Agri Market Review & Outlook

Editorial |

Dear Reader,

With the Crude Oil prices on NYMEX hitting all time high of $145.85 a barrel, the attraction of global economies has turned to find solutions to this price rally. Since most of the countries are dependant on import of petroleum products to meet their demand and is forming large chunk of expenditure of the government. In the recent past, Crude Oil has become an investment avenue following turmoil in global equity market. Since commodity market is inversely related to equity market, the global equity investors including major hedge funds have started diverting their funds into commodity market to get rid of turbulence in equity market. The Cover Story Spurt in Crude Oil Prices - Reasons & Repercussions attempts to find reasons for rally in crude oil prices, supply demand dynamics and how crude oil has emerged as a new investment avenue.

Re-launching of Commodity futures trading in 2003 opened one more investment avenue for Indian investors. Apart from normal investor, commodity market also opened the door for physical traders and corporate houses related to commodities either directly or indirectly. Success of futures trading in commodities attracted attention for setting up of National Spot Exchange on the same lines. The concept of National Spot Exchange emerged to provide single platform for commodities trading expiring on daily basis and contracts culminating into delivery upon expiry of the contract. The article on National Spot Exchange throws light on importance of setting up of National Spot Exchange, its benefits and operational mechanism.

The rally in Crude Oil prices has left no room for airline companies from its adversities because these companies are using Aviation Turbine Fuel to run their aircrafts. Of the total operational cost, expenditure on fuel is around 40% of it. With the operational cost increasing manifold most of the airline companies are cutting flights and postponing plans for fleet acquisition due to lower revenues. The best medicine available to protect the companies from rising oil prices in hedging. In an article Hedging- A Life Saving Drug for Aviation Companies we have discussed importance of hedging.

With much awaited South West Monsoon setting over Indian mainland and its good performance in the month of June has resulted into gearing up of kharif sowing across the country. The article on monsoon throws light on performance of monsoon and sowing progress across the country.

In other segments like Class Room section on Technical Analysis, we will take the readers' through construction of Point and Figure charting technique; its basics, construction and commandments behind such construction. Apart from this, monthly commodity review will update the recent happenings in each of the commodity segments; factors influenced the market and outlook for the coming days.

Ashok MittalEditor

July 2008 | 03

Editor

Ashok Mittal

Research Team

Amand Rajalaxmi

Aurobinda Prasad Gayan

Bhavana Glory

Bitupan Majumdar

Chowdareddy M V

Harish Galipelli

Mithun Maity

Vamsikrishna Kona

Veeresh Hiremath

Vishal Maniyar

Designer

Kumaraswamy B.

Corporate Office

Karvy Comtrade Ltd.

Karvy Centre,

#46, Avenue 4, Street 1

Banjara Hills

Hyderabad - 500 034

Visit Us:

www.karvycomtrade.com

Mail Us:

commodity@karvy.com

Printed & Published by S. Gopichand on behalf of Karvy Consultants Limited, Karvy House, 46, Avenue 4, Street No. 1, Banjara Hills, Hyderabad-500 034, A. P. Printed at Harshita Printers, 6-2-985, Yousuf Building, Adj. Railway Gate, Khairatabad, Hyderabad-500 004, A. P. Published at Hyderabad, Editor: Ashok Mittal

Invest & Harvest March 2008 15| “Karvy Centre”, 46, Avenue 4, Street No.1, Banjara Hills, Hyderabad - 500 034.Tel: 040-23388707/23431569/23440653, Fax : 040 - 6625 9955.

An ISO 9001:2000 company

When you trade with Karvy, you trade with a trusted name in the Commodities Market.

Visit us at: www.karvycomtrade.com, email: commodity@karvy.com

It’s all about turning the right opportunity into gold

COMTRADE LIMITED

Karvy Comtrade's Invest and Harvest

The Karvy Advantages

Member of NCDEX and MCXNational networkPersonalized servicesBacked by researchSMS alertsDealing facility during night sessionsSingle access number anywhere in India

Editorial |

Dear Reader,

With the Crude Oil prices on NYMEX hitting all time high of $145.85 a barrel, the attraction of global economies has turned to find solutions to this price rally. Since most of the countries are dependant on import of petroleum products to meet their demand and is forming large chunk of expenditure of the government. In the recent past, Crude Oil has become an investment avenue following turmoil in global equity market. Since commodity market is inversely related to equity market, the global equity investors including major hedge funds have started diverting their funds into commodity market to get rid of turbulence in equity market. The Cover Story Spurt in Crude Oil Prices - Reasons & Repercussions attempts to find reasons for rally in crude oil prices, supply demand dynamics and how crude oil has emerged as a new investment avenue.

Re-launching of Commodity futures trading in 2003 opened one more investment avenue for Indian investors. Apart from normal investor, commodity market also opened the door for physical traders and corporate houses related to commodities either directly or indirectly. Success of futures trading in commodities attracted attention for setting up of National Spot Exchange on the same lines. The concept of National Spot Exchange emerged to provide single platform for commodities trading expiring on daily basis and contracts culminating into delivery upon expiry of the contract. The article on National Spot Exchange throws light on importance of setting up of National Spot Exchange, its benefits and operational mechanism.

The rally in Crude Oil prices has left no room for airline companies from its adversities because these companies are using Aviation Turbine Fuel to run their aircrafts. Of the total operational cost, expenditure on fuel is around 40% of it. With the operational cost increasing manifold most of the airline companies are cutting flights and postponing plans for fleet acquisition due to lower revenues. The best medicine available to protect the companies from rising oil prices in hedging. In an article Hedging- A Life Saving Drug for Aviation Companies we have discussed importance of hedging.

With much awaited South West Monsoon setting over Indian mainland and its good performance in the month of June has resulted into gearing up of kharif sowing across the country. The article on monsoon throws light on performance of monsoon and sowing progress across the country.

In other segments like Class Room section on Technical Analysis, we will take the readers' through construction of Point and Figure charting technique; its basics, construction and commandments behind such construction. Apart from this, monthly commodity review will update the recent happenings in each of the commodity segments; factors influenced the market and outlook for the coming days.

Ashok MittalEditor

July 2008 | 03

Editor

Ashok Mittal

Research Team

Amand Rajalaxmi

Aurobinda Prasad Gayan

Bhavana Glory

Bitupan Majumdar

Chowdareddy M V

Harish Galipelli

Mithun Maity

Vamsikrishna Kona

Veeresh Hiremath

Vishal Maniyar

Designer

Kumaraswamy B.

Corporate Office

Karvy Comtrade Ltd.

Karvy Centre,

#46, Avenue 4, Street 1

Banjara Hills

Hyderabad - 500 034

Visit Us:

www.karvycomtrade.com

Mail Us:

commodity@karvy.com

Printed & Published by S. Gopichand on behalf of Karvy Consultants Limited, Karvy House, 46, Avenue 4, Street No. 1, Banjara Hills, Hyderabad-500 034, A. P. Printed at Harshita Printers, 6-2-985, Yousuf Building, Adj. Railway Gate, Khairatabad, Hyderabad-500 004, A. P. Published at Hyderabad, Editor: Ashok Mittal

Invest & Harvest March 2008 15| “Karvy Centre”, 46, Avenue 4, Street No.1, Banjara Hills, Hyderabad - 500 034.Tel: 040-23388707/23431569/23440653, Fax : 040 - 6625 9955.

An ISO 9001:2000 company

When you trade with Karvy, you trade with a trusted name in the Commodities Market.

Visit us at: www.karvycomtrade.com, email: commodity@karvy.com

It’s all about turning the right opportunity into gold

COMTRADE LIMITED

Karvy Comtrade's Invest and Harvest

The Karvy Advantages

Member of NCDEX and MCXNational networkPersonalized servicesBacked by researchSMS alertsDealing facility during night sessionsSingle access number anywhere in India

Cover Story |

July 02008 5|

Spurt in Crude Oil Prices - Reasons & Repercussions

uman beings are selfish by Nature. According Hto Adam Smith, founder of Capitalism, if each

and every individual tries to maximize their welfare,

then the social welfare will be maximized. Few of us

may not agree with this view as we still believe in a

socialist action. The recent oil price spike explains

basic human behavior - profit motive or in social

term - welfare. From a country perspective, we need

energy resources to sustain in a globalized world.

But the concern is how much oil is left to consume

and how long we can sustain the growth? Many

Capitalists write, the increased consumption in

India and China is leading to supply demand

mismatch in Crude oil. However, if we look at

figures, India and China consume 10% and 36%

respectively of what USA as a country consumes.

However, China and India are the drivers of Asian

growth story and most importantly they need

energy resources to sustain the level. But when the

energy resources are very highly priced it is difficult

for a developing country to look at its country's

balance sheet and adjust the items.

West Texas light crude oil prices rose to historic

highs of $145.85 per barrel after a series of geo-

political tensions stir up in Nigeria, Iraq, Turkey,

Iran and Venezuela and increasing investment flows

into commodities segment. Now, at a time when

entire world economy is struggling to curtail the

inflation caused by higher oil prices, it would be

important to understand the causes of this rally and

possible future course of action.

What caused the price rally? The price of any commodity is determined by

assessing the demand – supply situation and the

perception of market participants. To understand

the rally in Crude prices, we must also look at the

activity of market participants like commercials and

non commercials along with the supply-demand

dynamics. The oil supply side can be determined by

considering two cartels, The OPEC and Non

OPEC.

The Organization of Petroleum Exporting country

is a cartel of 12 nations whose revenue is solely

dependent on the exports of oil products. The

OPEC-12 nations together pumped in 32.17 million

bpd in the first quarter of 2008 of oil. This cartel

contributes 37% total global supplies in 2008. The

dominance of these nations in the world oil supply

has been a major factor in the global oil price

determination. The cartel has a surplus production

capacity of 1.42 million barrels. There has been a

stagnation in the production from September 2007

to early 2008 resulting in supply tightening.

Oil Production in Saudi Arabia, the largest from

OPEC, has witnessed a decline since 2005 despite

rise in the oil rigs. Oil production fell by nearly 8%

since 2006 till 2007. Many still believe that Saudi still

can pump 10 million barrel per day or more today if

they want but they are cutting back production and

exploration. Another factor signaling the present

condition is the decline in the production in Ghawar

Contents |

Spurt in Crude Oil Prices - Reasons & Repercussions 05

National Spot Exchange – An Alternate Channel for Physical Traders 11

ATF 14

Monsoon 17

Bullion & Metals Review 19

Agri Market Review & Outlook 22

Class Room 25

Economic Calendar 28

Recommendations 30

July 2008 04| Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

Cover Story |

July 02008 5|

Spurt in Crude Oil Prices - Reasons & Repercussions

uman beings are selfish by Nature. According Hto Adam Smith, founder of Capitalism, if each

and every individual tries to maximize their welfare,

then the social welfare will be maximized. Few of us

may not agree with this view as we still believe in a

socialist action. The recent oil price spike explains

basic human behavior - profit motive or in social

term - welfare. From a country perspective, we need

energy resources to sustain in a globalized world.

But the concern is how much oil is left to consume

and how long we can sustain the growth? Many

Capitalists write, the increased consumption in

India and China is leading to supply demand

mismatch in Crude oil. However, if we look at

figures, India and China consume 10% and 36%

respectively of what USA as a country consumes.

However, China and India are the drivers of Asian

growth story and most importantly they need

energy resources to sustain the level. But when the

energy resources are very highly priced it is difficult

for a developing country to look at its country's

balance sheet and adjust the items.

West Texas light crude oil prices rose to historic

highs of $145.85 per barrel after a series of geo-

political tensions stir up in Nigeria, Iraq, Turkey,

Iran and Venezuela and increasing investment flows

into commodities segment. Now, at a time when

entire world economy is struggling to curtail the

inflation caused by higher oil prices, it would be

important to understand the causes of this rally and

possible future course of action.

What caused the price rally? The price of any commodity is determined by

assessing the demand – supply situation and the

perception of market participants. To understand

the rally in Crude prices, we must also look at the

activity of market participants like commercials and

non commercials along with the supply-demand

dynamics. The oil supply side can be determined by

considering two cartels, The OPEC and Non

OPEC.

The Organization of Petroleum Exporting country

is a cartel of 12 nations whose revenue is solely

dependent on the exports of oil products. The

OPEC-12 nations together pumped in 32.17 million

bpd in the first quarter of 2008 of oil. This cartel

contributes 37% total global supplies in 2008. The

dominance of these nations in the world oil supply

has been a major factor in the global oil price

determination. The cartel has a surplus production

capacity of 1.42 million barrels. There has been a

stagnation in the production from September 2007

to early 2008 resulting in supply tightening.

Oil Production in Saudi Arabia, the largest from

OPEC, has witnessed a decline since 2005 despite

rise in the oil rigs. Oil production fell by nearly 8%

since 2006 till 2007. Many still believe that Saudi still

can pump 10 million barrel per day or more today if

they want but they are cutting back production and

exploration. Another factor signaling the present

condition is the decline in the production in Ghawar

Contents |

Spurt in Crude Oil Prices - Reasons & Repercussions 05

National Spot Exchange – An Alternate Channel for Physical Traders 11

ATF 14

Monsoon 17

Bullion & Metals Review 19

Agri Market Review & Outlook 22

Class Room 25

Economic Calendar 28

Recommendations 30

July 2008 04| Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

July 02008 7|

Cover Story |

conditions. Reserves-to-production (R/P) ratio– If the

reserves remaining at the end of any year are divided by the

production in that year, the result is the length of time that those

remaining reserves would last if production were to continue at

that rate.

Ceteris paribus the proven conventional oil reserves

can serve the world one more century with present

production capacity. However, there can be likely

addition in the oil reserves in the coming days with

advancement of technology and rise in the prices.

And at the same time we may see a growing

popularity of other alternative sources of energy

with crude oil as a scare resource.

Demand Dynamics

Like Supply, demand for Crude oil has witnessed

sharp increase in the last three decades. Overall,

Global Oil demand has increased by nearly 11.40%

since 2000, 28% since 1990 and more than 80%

since 1970.

Crude oil demand from 2003 has increased annually

by 1.68 %. Demand from OECD countries

increased by 0.13 % and 3.98 % from Non-OECD

countries. Major growth is seen from China where

demand averaged at 7.20 million barrels per day in

2007 with CAGR of 7.51 % since 2003. Demand

from USA the world largest consumer averaged at

20.70 million barrels per day in 2007 with a CAGR

of marginal 0.63%.

The demand in the OECD countries despite slower

than that of the other countries still accounts to

57% of the total world consumption.

USA consumes nearly 20 million barrel per day of

Crude oil, while China and India consumes nearly

7.5 million barrel per day and 2.45 million barrel per

day, respectively. India consumes 10% and China

consumes 36% of what USA as a country

consumes. Most of us have read about Chinese

appetite for energy and after looking at the figures it

is most evident that US appetite for resource is

much higher than China and India. USA produces

nearly 18.60 million barrel per day and meets the

demand from imports. USA conventional reserves

may deplete in 15 years if they maintain their

present production rate. After few years US

importance on imports is likely to be very high and

we may see the structure changing from next 6-7

years.

Total Demand and Supply at a glance

Cover Story |

oil field. It produced more than five million barrels a

day, more than 6 % of global production.

Non-OPEC production has been more or less

growing since 2002. Non- OPEC production from

early 2006 to late 2007 has been constant and started

to increase marginally from late 2007. Many non-

OPEC producers are now concerned with the

depletion of oil from wells and putting pressure on

OPEC to increase production. Major Non-OPEC

producers, such as the United States, Mexico and

Norway, have experienced a decline in production in

recent years.

However, overall numbers for non-OPEC

producers are bolstered by the significant increases

in production from Brazil, Canada, Russia, and a

few other former Soviet states. In Quarter 1 2008,

total Non OPEC production stood at 48.94 million

barrels per day contributing to the 57% of total

global supply.

Global Oil Reserves

World Crude oil reserves have increased since 1986

from 877000 million barrels to 1208,000 million

barrels as per BP estimates of 2007. Though the

reserves have increased there has been a significant

production change in the producing countries. In the

Non-OPEC arena, Brazil and Canada's reserves are

growing. Brazil total reserves stands at 17.2 billion

barrels. Canadian Oil Sands reserves stand at 163,

500 million barrel as per BP 2007 report. Reserves

are declining in other countries like Norway, Britain,

USA, Mexico, and China. OPEC still holds the

largest conventional oil reserves with 905,000

million barrels. There have been talks of Brazil

joining OPEC and if it happens the power of OPEC

in the oil market will boost further.

Wo r l d P r ove n O i l Re s e r ve s

(Conventional)

Source:

Note: Proven reserves of oil – Generally taken to be those

quantities that geological and engineering information indicates

with reasonable certainty can be recovered in the future from

known reservoirs under existing economic and operating

: BP oil Statistics 2007

July 2008 06| Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

July 02008 7|

Cover Story |

conditions. Reserves-to-production (R/P) ratio– If the

reserves remaining at the end of any year are divided by the

production in that year, the result is the length of time that those

remaining reserves would last if production were to continue at

that rate.

Ceteris paribus the proven conventional oil reserves

can serve the world one more century with present

production capacity. However, there can be likely

addition in the oil reserves in the coming days with

advancement of technology and rise in the prices.

And at the same time we may see a growing

popularity of other alternative sources of energy

with crude oil as a scare resource.

Demand Dynamics

Like Supply, demand for Crude oil has witnessed

sharp increase in the last three decades. Overall,

Global Oil demand has increased by nearly 11.40%

since 2000, 28% since 1990 and more than 80%

since 1970.

Crude oil demand from 2003 has increased annually

by 1.68 %. Demand from OECD countries

increased by 0.13 % and 3.98 % from Non-OECD

countries. Major growth is seen from China where

demand averaged at 7.20 million barrels per day in

2007 with CAGR of 7.51 % since 2003. Demand

from USA the world largest consumer averaged at

20.70 million barrels per day in 2007 with a CAGR

of marginal 0.63%.

The demand in the OECD countries despite slower

than that of the other countries still accounts to

57% of the total world consumption.

USA consumes nearly 20 million barrel per day of

Crude oil, while China and India consumes nearly

7.5 million barrel per day and 2.45 million barrel per

day, respectively. India consumes 10% and China

consumes 36% of what USA as a country

consumes. Most of us have read about Chinese

appetite for energy and after looking at the figures it

is most evident that US appetite for resource is

much higher than China and India. USA produces

nearly 18.60 million barrel per day and meets the

demand from imports. USA conventional reserves

may deplete in 15 years if they maintain their

present production rate. After few years US

importance on imports is likely to be very high and

we may see the structure changing from next 6-7

years.

Total Demand and Supply at a glance

Cover Story |

oil field. It produced more than five million barrels a

day, more than 6 % of global production.

Non-OPEC production has been more or less

growing since 2002. Non- OPEC production from

early 2006 to late 2007 has been constant and started

to increase marginally from late 2007. Many non-

OPEC producers are now concerned with the

depletion of oil from wells and putting pressure on

OPEC to increase production. Major Non-OPEC

producers, such as the United States, Mexico and

Norway, have experienced a decline in production in

recent years.

However, overall numbers for non-OPEC

producers are bolstered by the significant increases

in production from Brazil, Canada, Russia, and a

few other former Soviet states. In Quarter 1 2008,

total Non OPEC production stood at 48.94 million

barrels per day contributing to the 57% of total

global supply.

Global Oil Reserves

World Crude oil reserves have increased since 1986

from 877000 million barrels to 1208,000 million

barrels as per BP estimates of 2007. Though the

reserves have increased there has been a significant

production change in the producing countries. In the

Non-OPEC arena, Brazil and Canada's reserves are

growing. Brazil total reserves stands at 17.2 billion

barrels. Canadian Oil Sands reserves stand at 163,

500 million barrel as per BP 2007 report. Reserves

are declining in other countries like Norway, Britain,

USA, Mexico, and China. OPEC still holds the

largest conventional oil reserves with 905,000

million barrels. There have been talks of Brazil

joining OPEC and if it happens the power of OPEC

in the oil market will boost further.

Wo r l d P r ove n O i l Re s e r ve s

(Conventional)

Source:

Note: Proven reserves of oil – Generally taken to be those

quantities that geological and engineering information indicates

with reasonable certainty can be recovered in the future from

known reservoirs under existing economic and operating

: BP oil Statistics 2007

July 2008 06| Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

July 02008 9| July 2008 08|

Cover Story |

Inspite of demand crunch experienced in the

OECD countries the total demand for oil still

exceeds the supply supporting the higher oil prices.

In Q1 2008 the demand outpaced supply by 0.29

million barrels per day. Hence any supply disrutpion

to the existing sources is likely to cause an uptrend

in prices.

Investment Demand

Commodities as an asset class have returns

independent to the other asset classes. They are

positively correlated with inflation unlike equities

being negatively correlated. Hence, a completely

new dimension to the fundamentals of

commodities prices has evolved. Apart from the

demand and supply being neck on neck, the factors

like flow of investment into commodities by large

hedge funds, pension funds have given a new

dimension to the market. This has majorly

accounted to the surge in prices apart from the usual

demand and supply dynamics. The poor

performance of the equity markets has resulted in

the transfer of funds into the commodity complex.

The S&P GSCI commodity index, which takes into

account the 24 commodities with the major

component comprising of the Energy sector, has

outperformed the equity index. For the period of

Jan 1 2008 to June 26th 2008, the returns in the

GSCI index stood at 31% against the negative

returns of the Dow Industrial Average index of

13%. This shows that the participation in the

commodity index has been seen as an investment

opportunity yielding positive returns.

Geopolitical Tension

The decline in the oil production in the Mexico and

the recent political tiff with the Venezuela have

posed a significant threat to the US energy security.

Any political disputes from Venezuela may create

significant disturbance in the trade flows for US and

may see a sharp rally in the oil prices. Venezuela

pumps 2.15 million barrel per day and nearly 1.35

million barrel per day goes US refineries.

Iran's Standoff against West on

Nuclear Issue

Iran's nuclear program started in 1950's and

continued into the 1970s with the support,

encouragement and participation of the United

States and Western European governments. After

the Iranian Revolution in 1979, the Iranian

government temporarily disbanded elements of the

program, and then revived it with less Western

assistance than during the pre-revolution era. On 31

July 2006, the United Nations Security Council

demanded Iran to suspend all enrichment and

reprocessing related activities. In December 2006, it

imposed a series of sanctions on Iran for its non-

compliance with the earlier Security Council

resolution deciding that Iran suspends enrichment-

related activities without delay. These sanctions were

primarily targeted against the transfer of nuclear and

ballistic missile technologies and, in response to

concerns of China and Russia, were lighter than that

sought by the United States. The sanctions were

further extended in March 2008 to cover additional

financial institutions, restrict travel of additional

Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

persons, and bar exports of nuclear- and missile-

related dual-use goods to Iran.

The recent political comment from the western

leaders and most recently from Israel is creating

nervous market sentiments. Iran is the fourth largest

producer and also ranks fourth in world's oil reserve.

Iran is producing nearly 3.8 million barrels per day

which is near to 5% of the world oil production. Any

possible attack on Iran may lead to shortage of

crude oil in the world energy market.

Nigerian Oil crisis

The extraction and drilling of petroleum in Nigeria

is the largest industry and main generator of GDP in

the West Africa. Nigeria holds nearly 3.6 billion

barrels of crude oil which makes it the tenth most

petroleum-rich nation. Most of the country's

reserves are concentrated in and around the delta of

the Niger River. The Nigerian government, along

with foreign oil companies, has reaped enormous

profits over the years from the sale of oil and gas

reserves, while the residents of the Niger Delta live

in abject poverty. This has resulted in agitation by

the MEND against the oil fields. Successive military

dictatorships have been accused by Nigeria's anti-

corruption commission of embezzling $400bn in

oil windfalls. According to the Berlin-based anti-

corruption watchdog Transparency International,

Nigeria is one of the most corrupt countries in the

world - where graft is seen as "rampant". Political

instability and attack on oil facilities by the Nigerian

rebels has resulted significant disruption of Crude

oil last year. The frequent attacks of rebels had sent

25 % of oil production offline last year. The

continuing geopolitical tensions in the Niger belt

have resulted in Angola taking its position as the

largest producing African nation.

Weakness of American Dollar

US dollar has depreciated significantly against all

other major European and Asian currencies. The

housing woes, Credit market turmoil, rising

unemployment led the US dollar to depreciate to

historic lows against Euro, 11 years low against JPY

and near 7 years low against GBP. Crude oil is priced

in Dollar in major international trading and volatility

in the USD rates may cause considerable effect on

prices. Recent surge in oil prices is also attributed to

the decline in the USD apart from ongoing geo-

political tensions. In 2008, Light sweet oil prices in

Dollar terms went up by 40.81 % while it has

declined in euro terms by nearly 5.85 % and rose

nearly 34 % in terms of JPY.

Conclusion

The geo-political tension and falling dollar is

guiding string of fund based investment in the

commodities market. There has not been actual

deficiency in the oil supply and market players are

betting on the potential supply disruption which is

creating risk premium to the prices. However,

whether the price is justified or not but it is causing

serious consequences to the global economy. In the

futures market, Crude oil prices are trading above

$140 dollar a barrel and market players are betting

on $200 a barrel in the near future is having its

serious repercussion on the global growth rate. With

the majority of nation's dependant on imports for

their energy uses the continuous rise in prices is

burdening these governments in order to meet their

needs. It seems unbearable for oil importing

countries like USA, Japan, China, and India to bear

such a high prices. It leads to high consumer

inflation with trickle down effect. The increase in

price to $140 levels are on back of the geopolitical

Cover Story |

July 02008 9| July 2008 08|

Cover Story |

Inspite of demand crunch experienced in the

OECD countries the total demand for oil still

exceeds the supply supporting the higher oil prices.

In Q1 2008 the demand outpaced supply by 0.29

million barrels per day. Hence any supply disrutpion

to the existing sources is likely to cause an uptrend

in prices.

Investment Demand

Commodities as an asset class have returns

independent to the other asset classes. They are

positively correlated with inflation unlike equities

being negatively correlated. Hence, a completely

new dimension to the fundamentals of

commodities prices has evolved. Apart from the

demand and supply being neck on neck, the factors

like flow of investment into commodities by large

hedge funds, pension funds have given a new

dimension to the market. This has majorly

accounted to the surge in prices apart from the usual

demand and supply dynamics. The poor

performance of the equity markets has resulted in

the transfer of funds into the commodity complex.

The S&P GSCI commodity index, which takes into

account the 24 commodities with the major

component comprising of the Energy sector, has

outperformed the equity index. For the period of

Jan 1 2008 to June 26th 2008, the returns in the

GSCI index stood at 31% against the negative

returns of the Dow Industrial Average index of

13%. This shows that the participation in the

commodity index has been seen as an investment

opportunity yielding positive returns.

Geopolitical Tension

The decline in the oil production in the Mexico and

the recent political tiff with the Venezuela have

posed a significant threat to the US energy security.

Any political disputes from Venezuela may create

significant disturbance in the trade flows for US and

may see a sharp rally in the oil prices. Venezuela

pumps 2.15 million barrel per day and nearly 1.35

million barrel per day goes US refineries.

Iran's Standoff against West on

Nuclear Issue

Iran's nuclear program started in 1950's and

continued into the 1970s with the support,

encouragement and participation of the United

States and Western European governments. After

the Iranian Revolution in 1979, the Iranian

government temporarily disbanded elements of the

program, and then revived it with less Western

assistance than during the pre-revolution era. On 31

July 2006, the United Nations Security Council

demanded Iran to suspend all enrichment and

reprocessing related activities. In December 2006, it

imposed a series of sanctions on Iran for its non-

compliance with the earlier Security Council

resolution deciding that Iran suspends enrichment-

related activities without delay. These sanctions were

primarily targeted against the transfer of nuclear and

ballistic missile technologies and, in response to

concerns of China and Russia, were lighter than that

sought by the United States. The sanctions were

further extended in March 2008 to cover additional

financial institutions, restrict travel of additional

Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

persons, and bar exports of nuclear- and missile-

related dual-use goods to Iran.

The recent political comment from the western

leaders and most recently from Israel is creating

nervous market sentiments. Iran is the fourth largest

producer and also ranks fourth in world's oil reserve.

Iran is producing nearly 3.8 million barrels per day

which is near to 5% of the world oil production. Any

possible attack on Iran may lead to shortage of

crude oil in the world energy market.

Nigerian Oil crisis

The extraction and drilling of petroleum in Nigeria

is the largest industry and main generator of GDP in

the West Africa. Nigeria holds nearly 3.6 billion

barrels of crude oil which makes it the tenth most

petroleum-rich nation. Most of the country's

reserves are concentrated in and around the delta of

the Niger River. The Nigerian government, along

with foreign oil companies, has reaped enormous

profits over the years from the sale of oil and gas

reserves, while the residents of the Niger Delta live

in abject poverty. This has resulted in agitation by

the MEND against the oil fields. Successive military

dictatorships have been accused by Nigeria's anti-

corruption commission of embezzling $400bn in

oil windfalls. According to the Berlin-based anti-

corruption watchdog Transparency International,

Nigeria is one of the most corrupt countries in the

world - where graft is seen as "rampant". Political

instability and attack on oil facilities by the Nigerian

rebels has resulted significant disruption of Crude

oil last year. The frequent attacks of rebels had sent

25 % of oil production offline last year. The

continuing geopolitical tensions in the Niger belt

have resulted in Angola taking its position as the

largest producing African nation.

Weakness of American Dollar

US dollar has depreciated significantly against all

other major European and Asian currencies. The

housing woes, Credit market turmoil, rising

unemployment led the US dollar to depreciate to

historic lows against Euro, 11 years low against JPY

and near 7 years low against GBP. Crude oil is priced

in Dollar in major international trading and volatility

in the USD rates may cause considerable effect on

prices. Recent surge in oil prices is also attributed to

the decline in the USD apart from ongoing geo-

political tensions. In 2008, Light sweet oil prices in

Dollar terms went up by 40.81 % while it has

declined in euro terms by nearly 5.85 % and rose

nearly 34 % in terms of JPY.

Conclusion

The geo-political tension and falling dollar is

guiding string of fund based investment in the

commodities market. There has not been actual

deficiency in the oil supply and market players are

betting on the potential supply disruption which is

creating risk premium to the prices. However,

whether the price is justified or not but it is causing

serious consequences to the global economy. In the

futures market, Crude oil prices are trading above

$140 dollar a barrel and market players are betting

on $200 a barrel in the near future is having its

serious repercussion on the global growth rate. With

the majority of nation's dependant on imports for

their energy uses the continuous rise in prices is

burdening these governments in order to meet their

needs. It seems unbearable for oil importing

countries like USA, Japan, China, and India to bear

such a high prices. It leads to high consumer

inflation with trickle down effect. The increase in

price to $140 levels are on back of the geopolitical

Cover Story |

July 2008 11| July 2008 10| Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

Focus |

Re-launching of Commodity futures trading in 2003

opened one more investment avenue for Indian

investors. Apart from normal investor, commodity

market also opened the door for physical traders and

corporate houses related to commodities either

directly or indirectly. Success of futures trading in

commodities attracted attention for setting up of

National Spot Exchange on the same lines.

The concept of National Spot Exchange emerged

to provide single platform for commodities trading

expiring on daily basis and contracts culminating

into delivery upon expiry of the contract. This

concept is intended to meet needs of physical

traders. It is national level institutionalized,

electronic and transparent exchange. It is a state-of

the-art unique market place providing customized

solutions to various problems faced by the farmers,

traders, processors, exporters, importers,

arbitrageurs, investors and the general mass.

Promoters

The National Spot Exchange is promoted by Multi

Commodity Exchange of India, Financial

Technologies India Ltd. and National Agricultural

Cooperative Marketing Federation of India Ltd.

MCX (Multi Commodity Exchange of India

Limited), the leading commodity exchange in India,

provides futures trading in more than 70

commodities. It is also amongst the top three

Exchanges in the world in bullion futures.

FTIL (Financial Technologies India Limited) is

among the very few companies globally that offers

exhaustive solutions library for Exchanges, provides

technology solutions to financial markets and

facilitates expansion of stock broking terminals.

NAFED (National Agricultural Cooperative

Marketing Federation of India Limited), the leading

Government agency, engages in food procurement,

distribution and storage activities.

Objectives

1. To develop a Common Indian Market, by

setting up a national level electronic spot

market and providing a state of art trading,

delivery and settlement facilities in various

commodities, which can be accessed from

across the country.

2. To provide an effective method of spot price

discovery in various commodities, in a

transparent manner from across the country.

3. To create a market where farmers can sell their

produce and realize sale proceeds at the best

prevailing price.

4. To create a market where the processors, end

users, exporters, corporates (both private and

government) and other upcountry traders can

procure agricultural produces at the most

competitive price, without any counter party

and quality risk.

5. To create a transparent market where financiers,

investors and arbitrageurs can invest money in

buying various commodities across the country

without going through the hassles of physical

market.

6. To provide authentic spot price of various

commodities that can be used by the futures

market as the benchmark price for settlement

of their contracts on the date of expiry.

National Spot Exchange – An Alternate Channel for Physical Traders

Subscribe for commodity alerts

through SMS

Logon to www.karvycomtrade.com

tension in the oil exporting nations thereby spurting

the supply concerns. In tune it's leading to the rise in

fuel costs across the world hence impacting the

growth rates by increasing inflationary pressures.

A global standoff on the higher oil prices is likely to

come by if there is a continued increase in prices.

This might lead to use of alternatives or discover

the new sources of energy. Will this hold ahead a

future for innovation or substitution of oil for the

energy consumption is yet to be discovered.

Cover Story |

July 2008 11| July 2008 10| Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

Focus |

Re-launching of Commodity futures trading in 2003

opened one more investment avenue for Indian

investors. Apart from normal investor, commodity

market also opened the door for physical traders and

corporate houses related to commodities either

directly or indirectly. Success of futures trading in

commodities attracted attention for setting up of

National Spot Exchange on the same lines.

The concept of National Spot Exchange emerged

to provide single platform for commodities trading

expiring on daily basis and contracts culminating

into delivery upon expiry of the contract. This

concept is intended to meet needs of physical

traders. It is national level institutionalized,

electronic and transparent exchange. It is a state-of

the-art unique market place providing customized

solutions to various problems faced by the farmers,

traders, processors, exporters, importers,

arbitrageurs, investors and the general mass.

Promoters

The National Spot Exchange is promoted by Multi

Commodity Exchange of India, Financial

Technologies India Ltd. and National Agricultural

Cooperative Marketing Federation of India Ltd.

MCX (Multi Commodity Exchange of India

Limited), the leading commodity exchange in India,

provides futures trading in more than 70

commodities. It is also amongst the top three

Exchanges in the world in bullion futures.

FTIL (Financial Technologies India Limited) is

among the very few companies globally that offers

exhaustive solutions library for Exchanges, provides

technology solutions to financial markets and

facilitates expansion of stock broking terminals.

NAFED (National Agricultural Cooperative

Marketing Federation of India Limited), the leading

Government agency, engages in food procurement,

distribution and storage activities.

Objectives

1. To develop a Common Indian Market, by

setting up a national level electronic spot

market and providing a state of art trading,

delivery and settlement facilities in various

commodities, which can be accessed from

across the country.

2. To provide an effective method of spot price

discovery in various commodities, in a

transparent manner from across the country.

3. To create a market where farmers can sell their

produce and realize sale proceeds at the best

prevailing price.

4. To create a market where the processors, end

users, exporters, corporates (both private and

government) and other upcountry traders can

procure agricultural produces at the most

competitive price, without any counter party

and quality risk.

5. To create a transparent market where financiers,

investors and arbitrageurs can invest money in

buying various commodities across the country

without going through the hassles of physical

market.

6. To provide authentic spot price of various

commodities that can be used by the futures

market as the benchmark price for settlement

of their contracts on the date of expiry.

National Spot Exchange – An Alternate Channel for Physical Traders

Subscribe for commodity alerts

through SMS

Logon to www.karvycomtrade.com

tension in the oil exporting nations thereby spurting

the supply concerns. In tune it's leading to the rise in

fuel costs across the world hence impacting the

growth rates by increasing inflationary pressures.

A global standoff on the higher oil prices is likely to

come by if there is a continued increase in prices.

This might lead to use of alternatives or discover

the new sources of energy. Will this hold ahead a

future for innovation or substitution of oil for the

energy consumption is yet to be discovered.

Cover Story |

July 2008 13| July 2008 12| Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

Focus |

7. To help the futures exchanges, Forward

Markets Commission (FMC) and the

Government in achieving the target of

compulsory delivery in all agricultural produces

by way of creating a structured and

standardized spot market. 8. To promote grading and standardization of

agricultural produces and create a market,

where banks and money lending agencies can

provide warehouse receipt financing to farmers

and traders.

Facilities

National Spot Exchange offers electronic spot

trading facility in multiple commodities with

specific delivery centers. The exchange assures

deliver of quality produce to the buyers as it has

system of grading, quality certification and

standardization of commodities. It also facilitates

collateral financing and borrowing against

warehouse receipts. The participants in this

exchange are eligible to get customized services like

storage, transportation, logistics handling and

shipment of the produce. Through this exchange

participants can procure and dispose commodities

through online trading system.

Benefits

National Spot Exchange is beneficial for number of

participants in agri business starting from farmers

to end users. Through this exchange, farmers of the

country will come to know about prevailing price

for his crop in major trading centres at the time of

sale. Since the Indian farmers are prone to

exploitation by market middlemen, this exchange

tries to remove this system by way of guaranteeing

trade and payment. Till date, the farmer of

particular locality are selling his produce in nearby

market but with the commencement of spot

exchange he will be able to access national level

transparent market where direct selling to

processors or end users would be feasible. The

exchange increases the holding capacity due to

acceptance of warehouse receipt for financing.

Since the producer can view prevailing price for his

crop in major trading centres of the country he can

bargain best price in his nearby physical market.

On the other hand of physical trade, traders are

buyers of produce from farmers. Once the spot

exchange comes into operation, it will provide series

of benefits to traders. This exchange will provide

common platform for traders to buy and sell

commodities and there will not be counterparty risk

as the exchange assures payment in due course of

time.

Corporate houses/Exporters/Importers engaged

in agri based business can procure the produce in

bulk without counterparty risk zregarding payment

and the company will get assured quality of the

produce. Along with above mentioned facility, spot

exchange also provided storage and logistic services.

This system completely removes bottlenecks

relating to physical market operations.

The benefits of National Spot Exchange are

extended to Arbitrageurs as well by way cash futures

arbitrage on electronic platform. Arbitrageurs can

offload the deliveries received on futures market.

As an exchange, it also has few benefits like

transparent spot price for Due Date Rate

calculation. Ease of moving towards compulsory

delivery contracts through structured spot market.

Healthy growth of futures market ensured through

development of the structured spot market.

Conclusion

Exchange markets and operations will undergo a

paradigm shift in their behavior and would be

increasingly driven for providing integrated

processes and services to the trading community.

Moreover, Exchanges need to deliver highest levels

of service backed by strong technology to bring

increased participation at lowest possible cost.

National Spot Exchange gets the strategic

advantage of having Financial Technologies (India)

Ltd. as its technology partner for delivering

technologically advanced solutions to market

participants. FTIL is proven class of end-to-end

Exchange Trading technologies, addressing Trading

/ Surveillance / Clearing and Settlement

operations. It would deliver a cutting-edge to the

National Spot Exchange Trade Life Cycle i.e. Pre-

Trade, Trade and Post-Trade operations.

Online Commodity

Trading

Logon to www.karvycomtrade.com

Focus |

July 2008 13| July 2008 12| Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

Focus |

7. To help the futures exchanges, Forward

Markets Commission (FMC) and the

Government in achieving the target of

compulsory delivery in all agricultural produces

by way of creating a structured and

standardized spot market. 8. To promote grading and standardization of

agricultural produces and create a market,

where banks and money lending agencies can

provide warehouse receipt financing to farmers

and traders.

Facilities

National Spot Exchange offers electronic spot

trading facility in multiple commodities with

specific delivery centers. The exchange assures

deliver of quality produce to the buyers as it has

system of grading, quality certification and

standardization of commodities. It also facilitates

collateral financing and borrowing against

warehouse receipts. The participants in this

exchange are eligible to get customized services like

storage, transportation, logistics handling and

shipment of the produce. Through this exchange

participants can procure and dispose commodities

through online trading system.

Benefits

National Spot Exchange is beneficial for number of

participants in agri business starting from farmers

to end users. Through this exchange, farmers of the

country will come to know about prevailing price

for his crop in major trading centres at the time of

sale. Since the Indian farmers are prone to

exploitation by market middlemen, this exchange

tries to remove this system by way of guaranteeing

trade and payment. Till date, the farmer of

particular locality are selling his produce in nearby

market but with the commencement of spot

exchange he will be able to access national level

transparent market where direct selling to

processors or end users would be feasible. The

exchange increases the holding capacity due to

acceptance of warehouse receipt for financing.

Since the producer can view prevailing price for his

crop in major trading centres of the country he can

bargain best price in his nearby physical market.

On the other hand of physical trade, traders are

buyers of produce from farmers. Once the spot

exchange comes into operation, it will provide series

of benefits to traders. This exchange will provide

common platform for traders to buy and sell

commodities and there will not be counterparty risk

as the exchange assures payment in due course of

time.

Corporate houses/Exporters/Importers engaged

in agri based business can procure the produce in

bulk without counterparty risk zregarding payment

and the company will get assured quality of the

produce. Along with above mentioned facility, spot

exchange also provided storage and logistic services.

This system completely removes bottlenecks

relating to physical market operations.

The benefits of National Spot Exchange are

extended to Arbitrageurs as well by way cash futures

arbitrage on electronic platform. Arbitrageurs can

offload the deliveries received on futures market.

As an exchange, it also has few benefits like

transparent spot price for Due Date Rate

calculation. Ease of moving towards compulsory

delivery contracts through structured spot market.

Healthy growth of futures market ensured through

development of the structured spot market.

Conclusion

Exchange markets and operations will undergo a

paradigm shift in their behavior and would be

increasingly driven for providing integrated

processes and services to the trading community.

Moreover, Exchanges need to deliver highest levels

of service backed by strong technology to bring

increased participation at lowest possible cost.

National Spot Exchange gets the strategic

advantage of having Financial Technologies (India)

Ltd. as its technology partner for delivering

technologically advanced solutions to market

participants. FTIL is proven class of end-to-end

Exchange Trading technologies, addressing Trading

/ Surveillance / Clearing and Settlement

operations. It would deliver a cutting-edge to the

National Spot Exchange Trade Life Cycle i.e. Pre-

Trade, Trade and Post-Trade operations.

Online Commodity

Trading

Logon to www.karvycomtrade.com

Focus |

July 2008 15|

come from excellent academic background and have

vast experience. So was it a fear of accounting for

“Hedging loss” in the books of accounts? The

important point to remember here is that hedging is

a tool that neither gives profits nor makes losses but

fixes the cost and protects the margins. If they had

fixed the cost of ATF to some extent they not only

could have continued their operations with cost

almost fixed for their operations but also kept their

customers happy offering them very competitive

prices. Almost 74% of 40% that is about 30% of the

total operational cost (which is the cost of fuel)

would have been fixed and there was no need to

worry for increase/ decrease or volatility in aviation

fuel prices. Most of the other costs any way are fixed

in terms of ground handling cost, manpower cost,

lease and rentals etc.

So how can airlines hedge their ATF risks especially

when ATF is not traded on any commodity

exchange across the world? The answer lies in

surrogate hedging which basically means choosing

an alternate commodity which has a high degree of

price correlation with the original commodity. In

this case since ATF is unavailable, we will have to

look forwards to hedging in either crude oil or

heating oil.

The viability of surrogate hedging can be

established from the fact that there is strong

correlation between Arabian Gulf Jet Fuel Prices

(this is the basis taken by India oil marketing

companies for declaring their ATF prices) and

NYMEX WTI Crude prices. The price correlation

between these two has ranged from 0.96 to 0.98 over

the previous five years. In the case of Indian airline

companies, they should go for surrogate hedging on

MCX Crude Oil contracts, because hedging on the

NYMEX would also involve hedging foreign

currency risk thereby involving additional costing.

MCX is India's largest commodity exchange, and in

terms of liquidity is the fourth largest commodity

exchange in the world as far as volumes in crude oil

is concerned. Indian airline companies willing to

hedge on MCX Crude will be exposed to the same

volatility as NYMEX WTI Crude as the price

correlation between these two has ranged from 0.97

to 0.99 over the past three years since the launch of

crude contracts on the MCX platform.

However, before an airline undertakes a programme

of hedging or surrogate hedging as the case may be,

it has to understand that surrogate hedging in crude

will not fully cover the ATF price risk, as nearly 74

per cent of ATF price contribution is directly linked

to an international benchmark, while 19 per cent is

indirectly linked to it, as the other components are

computed as a notional %age while pricing.

So how will an Indian airline company go about

designing its hedging programme? Primarily the

company has to calculate the hedge ratio (a

statistical calculation which decides on the number

of contracts to be traded in the futures market). In

this case the hedge ratio will be based on surrogate

hedging. Once the number of contracts has been

decided, the company will have to buy an equivalent

number of MCX Crude Oil contracts to safeguard

against ATF price volatility. The day the airline

companies will get to know the monthly average

price decided by the Indian Oil Marketing

companies, they will have to square off all the future

contracts on the MCX platform.

All the above is fine in case Crude prices go up.

However if crude prices come down, there will be a

loss in the derivatives transaction and people may

worry about a “Hedge Loss” as was recently

mentioned in media in regards to Larsen & Toubro.

Hedge programme results in neither a profit nor

loss. Even if crude prices had gone up, there would

July 2008 14|

Of late airline companies in India have been crying

hoarse against rise in fuel prices and have responded

by increasing the fuel surcharge. So are the hunky-

dory days of Low Cost airlines over? That seems to

be the case with rising fuel costs forcing airlines to

increase airfares, slash discounts. Even premium

airlines are also feeling the heat. Indian airline

companies are cutting flights and postponing plans

for fleet acquisition due to lower revenues caused by

rising fuel prices. In fact, over the previous eight

months crude prices have increased over 70 %, from

nearly $80 per barrel in October, 2007 to $135 per

barrel in May, 2008. A similar increase was seen in

the case of Arabian Gulf Jet prices. Even with this

price increase, IATA has forecast the loss in aviation

sector to be nearly USD 2.3 billion (more than 9500

crores) in 2008.

Aviation Turbine Fuel more popularly known as

ATF, continues to be the single largest cost factor

for airlines constituting nearly 40 per cent of the

total operating costs. Hence, as ATF prices start to

increase, airlines typically respond by raising fuel

surcharges. Only Rs 225 of the surcharge is payable

to AAI (Airports Authority of India); the balance

goes to the airlines. In the past six months alone, fuel

surcharge has increased from nearly Rs 950 to Rs

2,350. That's nearly an increase of more than

hundred %. Considering a basic fare of Rs 1,000 and

other charges, cost of flying has nearly doubled.

That is deterring the low and middle income group

travelers who were beginning to switch to air travel

mode from travelling by railways.

So is there a way out or will the era of low cost

carriers come to an end overburdened with rising

fuel costs? With relentless oil price fluctuations, the

only answer for Indian Airline companies is to take a

leaf out of the book of their global counterparts and

incorporate a sustained hedging programme to

maintain fuel cost as a %age of total expenditure.

The best example is that of Southwest Airlines

whose hedging against rising fuel costs has helped

the discount carrier soar high above its competitors.

Southwest treasurer Scott Topping mentioned in an

interview that with their hedging advantage, they

have enjoyed more flexibility in managing revenues.

Southwest locked in oil at $51 a barrel prior to

crude's yearlong run-up. For the first nine months of

'07, the Dallas-based carrier realized gains of $427

million. Those hedging profits, a result of a shrewd

call by Southwest CEO Gary Kelly, have kept costs

down.

So why were Indian companies reluctant to follow

the same especially when the RBI had allowed Indian

airline companies to hedge their ATF price risk as

early as May 2007 when crude prices were trading at

nearly $70 per barrel? The question arises here is why

these Indian airline companies did not take a

decision to hedge their price risk through derivatives

– was it lack of understanding of the hedging

mechanism or something else? In my view that lack

of understanding would not have been the case as

the managerial personnel of these Indian companies

Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

Article | Article |

Hedging- A Life Saving Drug for Aviation Companies- Ashok Mittal

July 2008 15|

come from excellent academic background and have

vast experience. So was it a fear of accounting for

“Hedging loss” in the books of accounts? The

important point to remember here is that hedging is

a tool that neither gives profits nor makes losses but

fixes the cost and protects the margins. If they had

fixed the cost of ATF to some extent they not only

could have continued their operations with cost

almost fixed for their operations but also kept their

customers happy offering them very competitive

prices. Almost 74% of 40% that is about 30% of the

total operational cost (which is the cost of fuel)

would have been fixed and there was no need to

worry for increase/ decrease or volatility in aviation

fuel prices. Most of the other costs any way are fixed

in terms of ground handling cost, manpower cost,

lease and rentals etc.

So how can airlines hedge their ATF risks especially

when ATF is not traded on any commodity

exchange across the world? The answer lies in

surrogate hedging which basically means choosing

an alternate commodity which has a high degree of

price correlation with the original commodity. In

this case since ATF is unavailable, we will have to

look forwards to hedging in either crude oil or

heating oil.

The viability of surrogate hedging can be

established from the fact that there is strong

correlation between Arabian Gulf Jet Fuel Prices

(this is the basis taken by India oil marketing

companies for declaring their ATF prices) and

NYMEX WTI Crude prices. The price correlation

between these two has ranged from 0.96 to 0.98 over

the previous five years. In the case of Indian airline

companies, they should go for surrogate hedging on

MCX Crude Oil contracts, because hedging on the

NYMEX would also involve hedging foreign

currency risk thereby involving additional costing.

MCX is India's largest commodity exchange, and in

terms of liquidity is the fourth largest commodity

exchange in the world as far as volumes in crude oil

is concerned. Indian airline companies willing to

hedge on MCX Crude will be exposed to the same

volatility as NYMEX WTI Crude as the price

correlation between these two has ranged from 0.97

to 0.99 over the past three years since the launch of

crude contracts on the MCX platform.

However, before an airline undertakes a programme

of hedging or surrogate hedging as the case may be,

it has to understand that surrogate hedging in crude

will not fully cover the ATF price risk, as nearly 74

per cent of ATF price contribution is directly linked

to an international benchmark, while 19 per cent is

indirectly linked to it, as the other components are

computed as a notional %age while pricing.

So how will an Indian airline company go about

designing its hedging programme? Primarily the

company has to calculate the hedge ratio (a

statistical calculation which decides on the number

of contracts to be traded in the futures market). In

this case the hedge ratio will be based on surrogate

hedging. Once the number of contracts has been

decided, the company will have to buy an equivalent

number of MCX Crude Oil contracts to safeguard

against ATF price volatility. The day the airline

companies will get to know the monthly average

price decided by the Indian Oil Marketing

companies, they will have to square off all the future

contracts on the MCX platform.

All the above is fine in case Crude prices go up.

However if crude prices come down, there will be a

loss in the derivatives transaction and people may

worry about a “Hedge Loss” as was recently

mentioned in media in regards to Larsen & Toubro.

Hedge programme results in neither a profit nor

loss. Even if crude prices had gone up, there would

July 2008 14|

Of late airline companies in India have been crying

hoarse against rise in fuel prices and have responded

by increasing the fuel surcharge. So are the hunky-

dory days of Low Cost airlines over? That seems to

be the case with rising fuel costs forcing airlines to

increase airfares, slash discounts. Even premium

airlines are also feeling the heat. Indian airline

companies are cutting flights and postponing plans

for fleet acquisition due to lower revenues caused by

rising fuel prices. In fact, over the previous eight

months crude prices have increased over 70 %, from

nearly $80 per barrel in October, 2007 to $135 per

barrel in May, 2008. A similar increase was seen in

the case of Arabian Gulf Jet prices. Even with this

price increase, IATA has forecast the loss in aviation

sector to be nearly USD 2.3 billion (more than 9500

crores) in 2008.

Aviation Turbine Fuel more popularly known as

ATF, continues to be the single largest cost factor

for airlines constituting nearly 40 per cent of the

total operating costs. Hence, as ATF prices start to

increase, airlines typically respond by raising fuel

surcharges. Only Rs 225 of the surcharge is payable

to AAI (Airports Authority of India); the balance

goes to the airlines. In the past six months alone, fuel

surcharge has increased from nearly Rs 950 to Rs

2,350. That's nearly an increase of more than

hundred %. Considering a basic fare of Rs 1,000 and

other charges, cost of flying has nearly doubled.

That is deterring the low and middle income group

travelers who were beginning to switch to air travel

mode from travelling by railways.

So is there a way out or will the era of low cost

carriers come to an end overburdened with rising

fuel costs? With relentless oil price fluctuations, the

only answer for Indian Airline companies is to take a

leaf out of the book of their global counterparts and

incorporate a sustained hedging programme to

maintain fuel cost as a %age of total expenditure.

The best example is that of Southwest Airlines

whose hedging against rising fuel costs has helped

the discount carrier soar high above its competitors.

Southwest treasurer Scott Topping mentioned in an

interview that with their hedging advantage, they

have enjoyed more flexibility in managing revenues.

Southwest locked in oil at $51 a barrel prior to

crude's yearlong run-up. For the first nine months of

'07, the Dallas-based carrier realized gains of $427

million. Those hedging profits, a result of a shrewd

call by Southwest CEO Gary Kelly, have kept costs

down.

So why were Indian companies reluctant to follow

the same especially when the RBI had allowed Indian

airline companies to hedge their ATF price risk as

early as May 2007 when crude prices were trading at

nearly $70 per barrel? The question arises here is why

these Indian airline companies did not take a

decision to hedge their price risk through derivatives

– was it lack of understanding of the hedging

mechanism or something else? In my view that lack

of understanding would not have been the case as

the managerial personnel of these Indian companies

Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

Article | Article |

Hedging- A Life Saving Drug for Aviation Companies- Ashok Mittal

have been a profit in the derivatives position but a

simultaneous loss would have occurred in the Spot

market for ATF. Hence, in case crude prices comes

down, there would be a loss in the futures market

but the company will get compensated for that by

getting a benefit in the spot market as they will buy

ATF at a lesser rate. As per the recent guidelines of

the ICAI any profit/ loss on account of hedging

transactions in relation to the company's business

can be setoff against normal business profit/ loss

(AS 30). This point was also clarified by the L&T

management that losses on account of their

hedging strategy had not hit their balance sheets or

profitability.

To conclude we can say that in an era of volatile

crude prices, an airline company has no option but

to opt for a hedging programme. It is as necessary as

an insurance programme for the company's flights.

Therefore if low cost carriers - or for that matter all

the airline companies - desire to maintain

uninterrupted operations and keep the costs stable,

they must adopt a Hedging strategy after taking into

account the hedge ratio and other parameters which

will allow them to lock in the cost of ATF and then

decide their pricing policies without the fear of

uncertain fuel prices. Fixing the cost and margins

irrespective of fuel price volatility would not burden

the customer every time in the form of a fuel

surcharge. This would be a win-win situation for

everyone be it an airline company the Government

or the customer.

This article originally published in The Economic Times

dated 13th June 2008

July 2008 17| July 2008 16| Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

South West Monsoon – Farmers' Fortune in Thin Air

Article |

Introduction

India is the major agrarian economy growing at the

rate of 8.5% year on year basis. Its farming

community is getting ready to bet their luck on South

West Monsoon, which is lifeline of millions of

farmers. Till date, India is largely dependant on

monsoon for its large chunk of food grain

production to feed the growing population. The SW

monsoon season starts from June and continue till

September month. These four months are popularly

called as rainy season in common nomenclature,

kharif season in agriculture terminology. On an

average India receives 110-120 cm of rain in a year

and South West Monsoon alone accounts for 88-90

cm. The country witnesses two monsoons every year

namely, South West Monsoon and North East

Monsoon. Of these two monsoons, South West

brings maximum rainfall to the country than that of

other. It plays a crucial role in deciding overall

agriculture growth of the country. South West

Monsoon normally hits the Indian mainland on June

1st and covers entire India by July 15th every year.

The other North East monsoon hits India in

October and terminates in the month of December.

Northeast Monsoon season is the major period of

rainfall activity over south peninsula, particularly in

Coastal Andhra Pradesh, Rayalaseema and

Tamilnadu-Pondicherry. For Tamilnadu this is the

main rainy season accounting for about 48% of the

annual rainfall.

Monsoon 2007

In the last couple of years, South West monsoon is

hitting Indian subcontinent few days prior to normal

date of its commencement. In 2007, the monsoon

hit Kerala coast on May 28th, four days prior to

normal onset date. The country had received 105%

Long Period Average rainfall during 2007. The 2007

monsoon seasonal rainfall over the country was

more than the predicted value. Despite the adequate

rains the states like West Uttar Pradesh, Haryana,

Chandigarh and Delhi, Punjab, Himachal Pradesh

and East Madhya Pradesh experienced moderate

drought conditions (rainfall deficiency of 26% to

50%) at the end of the season. The southwest

monsoon covered the entire country on 4th July

2007. Timely arrival and well distribution of rainfall

in 2007 has resulted into bumper harvest of most of

the crops like Maize, Paddy, Sugar Cane and

Oilseeds.

Monsoon 2008

Before start of each monsoon season, the Indian

Meteorological Department, a premiere weather

forecasting agency in India, releases its rainfall

forecast report in the month of April based on

statistical analysis. For the current year, it has

projected 99% Long Period Average rainfall for the

country as a whole against 95% projected for 2007.

This forecast sent relief signal to the farmers and

encouraged them to grow more food grains. At the

same time, it also offered comfort to the

government to fight against the higher inflation and

soaring food prices. The onset of the monsoon over

Kerala coast was 1 day prior to normal date. Though

its progress towards north was rapid, it failed to

bring enough rainfall because of unfavourable

climatic conditions. For the better harvest, crops

require equivalent distribution throughout its crop

cycle.

The unequal distribution of rainfall has dual effect.

The region that receives higher rainfall may lead to

flooding condition which in turn wash away already

sown crop. These areas may not be congenial

sowing as this condition might results into outbreak

Article |

have been a profit in the derivatives position but a

simultaneous loss would have occurred in the Spot

market for ATF. Hence, in case crude prices comes

down, there would be a loss in the futures market

but the company will get compensated for that by

getting a benefit in the spot market as they will buy

ATF at a lesser rate. As per the recent guidelines of

the ICAI any profit/ loss on account of hedging

transactions in relation to the company's business

can be setoff against normal business profit/ loss

(AS 30). This point was also clarified by the L&T

management that losses on account of their

hedging strategy had not hit their balance sheets or

profitability.

To conclude we can say that in an era of volatile

crude prices, an airline company has no option but

to opt for a hedging programme. It is as necessary as

an insurance programme for the company's flights.

Therefore if low cost carriers - or for that matter all

the airline companies - desire to maintain

uninterrupted operations and keep the costs stable,

they must adopt a Hedging strategy after taking into

account the hedge ratio and other parameters which

will allow them to lock in the cost of ATF and then

decide their pricing policies without the fear of

uncertain fuel prices. Fixing the cost and margins

irrespective of fuel price volatility would not burden

the customer every time in the form of a fuel

surcharge. This would be a win-win situation for

everyone be it an airline company the Government

or the customer.

This article originally published in The Economic Times

dated 13th June 2008

July 2008 17| July 2008 16| Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

South West Monsoon – Farmers' Fortune in Thin Air

Article |

Introduction

India is the major agrarian economy growing at the

rate of 8.5% year on year basis. Its farming

community is getting ready to bet their luck on South

West Monsoon, which is lifeline of millions of

farmers. Till date, India is largely dependant on

monsoon for its large chunk of food grain

production to feed the growing population. The SW

monsoon season starts from June and continue till

September month. These four months are popularly

called as rainy season in common nomenclature,

kharif season in agriculture terminology. On an

average India receives 110-120 cm of rain in a year

and South West Monsoon alone accounts for 88-90

cm. The country witnesses two monsoons every year

namely, South West Monsoon and North East

Monsoon. Of these two monsoons, South West

brings maximum rainfall to the country than that of

other. It plays a crucial role in deciding overall

agriculture growth of the country. South West

Monsoon normally hits the Indian mainland on June

1st and covers entire India by July 15th every year.

The other North East monsoon hits India in

October and terminates in the month of December.

Northeast Monsoon season is the major period of

rainfall activity over south peninsula, particularly in

Coastal Andhra Pradesh, Rayalaseema and

Tamilnadu-Pondicherry. For Tamilnadu this is the

main rainy season accounting for about 48% of the

annual rainfall.

Monsoon 2007

In the last couple of years, South West monsoon is

hitting Indian subcontinent few days prior to normal

date of its commencement. In 2007, the monsoon

hit Kerala coast on May 28th, four days prior to

normal onset date. The country had received 105%

Long Period Average rainfall during 2007. The 2007

monsoon seasonal rainfall over the country was

more than the predicted value. Despite the adequate

rains the states like West Uttar Pradesh, Haryana,

Chandigarh and Delhi, Punjab, Himachal Pradesh

and East Madhya Pradesh experienced moderate

drought conditions (rainfall deficiency of 26% to

50%) at the end of the season. The southwest

monsoon covered the entire country on 4th July

2007. Timely arrival and well distribution of rainfall

in 2007 has resulted into bumper harvest of most of

the crops like Maize, Paddy, Sugar Cane and

Oilseeds.

Monsoon 2008

Before start of each monsoon season, the Indian

Meteorological Department, a premiere weather

forecasting agency in India, releases its rainfall

forecast report in the month of April based on

statistical analysis. For the current year, it has

projected 99% Long Period Average rainfall for the

country as a whole against 95% projected for 2007.

This forecast sent relief signal to the farmers and

encouraged them to grow more food grains. At the

same time, it also offered comfort to the

government to fight against the higher inflation and

soaring food prices. The onset of the monsoon over

Kerala coast was 1 day prior to normal date. Though

its progress towards north was rapid, it failed to

bring enough rainfall because of unfavourable

climatic conditions. For the better harvest, crops

require equivalent distribution throughout its crop

cycle.

The unequal distribution of rainfall has dual effect.

The region that receives higher rainfall may lead to

flooding condition which in turn wash away already

sown crop. These areas may not be congenial

sowing as this condition might results into outbreak

Article |

July 2008 19| July 2008 18| Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

Market Review |

Bullion

Bullion prices were seen trading range bound in the

month of June before making a high of $937.70 per

troy ounce surpassing the previous month's high of

$935.The appeal of the metal as an alternative

investment was enhanced due to the weakening U.S

dollar as U.S economy gripped under the dark

gloom. However, with the economic indices

showing a recovery the U.S dollar was seen to uplift

from its lows against the majors. The economic

indices for the month of June were seen to have a

mixed impact on the markets. The ISM

manufacturing and the services for the month of

May were seen showing signs of recovery. The

housing sector was still in the shackles recording a

poor performance. The housing starts decline to

925K from previous levels of 1,008K along with

lower number of building permits being submitted.

The unemployment rate for the month of May

increased substantially to 5.5% shattered the

performance of the Job market. On back of all this

the increasing inflation numeral posed a threat to the

economic growth, driving economy into stagflation.

The consumer price Index recorded a YoY increase

of 4.2% against the previous levels of 3.90% and

PPI from the 6.50% to 7.20%. These rising numbers

increased the bets of an interest rate hike by the

FOMC leading to an appreciating dollar and

resulting in dip in bullion prices. However, with the

industrial indices for the month of June like the

Empire manufacturing falling to yearly lows along

with declining housing index and lower consumer

confidence weighed down the stance of the Fed, as

they leave the interest rates steady at 2.00%.

Nevertheless, the Fed's comments not pointing

towards any eminent rate hike in near future, dollar

was seen losing its sheen. This coupled with record

Bullion, Energy & Base Metals Review

crude oil prices, which went up to $145.85 per barrel

in the month led to a major rebound in bullion

prices. Until June 30th 2008, gold futures gained by

4.6% to make a closing at $928.30. Silver also mirrored

gold's move to close at $17.42 gaining by 3.2%.

Outlook

Gold prices are expected to trade on a firm note in

near term supported by the crude oil and continued

geopolitical tension which would instigate

investment demand into the metal. With the

European Central Bank likely to increase rates

leading to greater yield differentials, euro is likely to

gain against the dollar. Moreover, growth rate of

major economies still being in the gloom, bullion is

likely to emerge as an alternative investment. On the

technical front the supports are seen at $890, $845

resistances are at $960 and $1000.

Crude oil

Crude oil prices spiked to a new life time high of

$145.85 per barrel amid increasing geopolitical and

supply concerns followed by a weakening US dollar.

During the month, the International Energy

Agency lowered its estimates for Non-OPEC

production by 300,000 bpd to 50.4 million bpd.

Though the global oil demand was revised lower by

70,000 bpd to 86.77 million bpd, the series of

production losses in Nigeria raised supply concerns.

The increasing production in Saudi Arabia on June

22nd by 200,000 bpd has been offset by the decline

in production in Nigeria due to the ongoing

geopolitical tension. It is estimated that Nigeria's

output has been cut by around 300,000 barrels a day

as a result of the violence. The series of decline in

this output has now resulted in Angola taking over

as the largest producer in Africa.

of pests and diseases. On the contrary, in deficit

rainfall areas, the yield levels will come down due to

delayed sowing. In the current year, the rainfall

activity over southern peninsula was excellent

paving the way for commencement of early sowing

but later the sowing actively witnessed laggardness

because of lull in rainfall.

Sowing Details

In the current kharif season, sowing activity geared

momentum in full swing during initial days of June

month following good rainfall received in Southern

states but later during third week of June sowing

was sluggish due to lull in monsoon progress.

However, later with the revival of monsoon the

sowing operation geared up to overcome the

shortage.

Acreage under Kharif crops

Crop 7/4/2007 7/4/2008 % change

Rice 4.7 5.6 19.15

Cotton 2 1.8 -10.00

Sugarcane 5.2 4.3 -17.31

Maize 2.1 2.6 23.81

Coarse Cereals 4.7 6.7 42.55

Groundnut 1.9 2.1 10.53

Soybean 2.2 2.5 13.64

Total Oilseeds 4.9 5 2.04

The area under cotton cultivation declined during

the current kharif season despite of higher

remuneration and lower seed price, which fell to

Rs.750 a kg from Rs.1800 a kg. As on July 4th, the

area brought under cotton cultivation was 1.8

million hectares against 2 million hectares planted in

the same period last year due to shortage of rainfall

in Maharashtra, which is one of the major

producing centers.

As on 4th July 2008, total acreage brought under

coarse grain cultivation was 6.7 million hectares, up

in Million ha

by 42.55% compared to last year's area of 4.7

million hectares. Of the coarse cereals area under

maize sowing rose to 2.6 million hectares, up by

23.81% from last year's area of 2.1 million hectares.

Sugar cane, one of the importance cash crops of

India, sowing figures witnessed a significant decline

compared to last year because farmers are not happy

with cane pricing last year. Unattractive sugar prices

coupled with huge inventory led to decline in

acreage under cane cultivation. According to the

Ministry of Agriculture, as on first week of July, area

sown was 4.3 million hectares, lower than last year's

figure of 5.2 million hectares.

Sowing of oilseeds has shown a tremendous rise

compared to previous years because of sharp rally

in prices of oilseeds last season. Sharp rise in prices

prompted the farmers to grow more oilseeds rather

than other crops. According to latest Weather

Watch Report released by Union Ministry of

Agriculture area covered with oilseeds cultivation

was 5 million hectares compared to 4.9 million

hectares in the same period a year. Of the total

oilseeds, 2.5 million hectares of area is under

soybean and 2.1 million hectares is under

groundnut.

Conclusion

With the much awaited South West Monsoon hitting

Indian subcontinent one day prior to normal date of

its onset, Indian farmers betting their luck once again

on monsoon. Being an agrarian economy, its

foodgrain production is largely dependant on

monsoon. About 60% of the India's production

comes from kharif season. At this point it is

immaterial to comment on production figure for

2008-09 because the sowing will continue till mid of

August and climatic condition in the months of July

and August play a crucial role in deciding final output.

However, in the current year production is expected

to be higher compared to last year because of more

area likely to be brought under cultivation of various

kharif grown crops.

Article |

July 2008 19| July 2008 18| Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

Market Review |

Bullion

Bullion prices were seen trading range bound in the

month of June before making a high of $937.70 per

troy ounce surpassing the previous month's high of

$935.The appeal of the metal as an alternative

investment was enhanced due to the weakening U.S

dollar as U.S economy gripped under the dark

gloom. However, with the economic indices

showing a recovery the U.S dollar was seen to uplift

from its lows against the majors. The economic

indices for the month of June were seen to have a

mixed impact on the markets. The ISM

manufacturing and the services for the month of

May were seen showing signs of recovery. The

housing sector was still in the shackles recording a

poor performance. The housing starts decline to

925K from previous levels of 1,008K along with

lower number of building permits being submitted.

The unemployment rate for the month of May

increased substantially to 5.5% shattered the

performance of the Job market. On back of all this

the increasing inflation numeral posed a threat to the

economic growth, driving economy into stagflation.

The consumer price Index recorded a YoY increase

of 4.2% against the previous levels of 3.90% and

PPI from the 6.50% to 7.20%. These rising numbers

increased the bets of an interest rate hike by the

FOMC leading to an appreciating dollar and

resulting in dip in bullion prices. However, with the

industrial indices for the month of June like the

Empire manufacturing falling to yearly lows along

with declining housing index and lower consumer

confidence weighed down the stance of the Fed, as

they leave the interest rates steady at 2.00%.

Nevertheless, the Fed's comments not pointing

towards any eminent rate hike in near future, dollar

was seen losing its sheen. This coupled with record

Bullion, Energy & Base Metals Review

crude oil prices, which went up to $145.85 per barrel

in the month led to a major rebound in bullion

prices. Until June 30th 2008, gold futures gained by

4.6% to make a closing at $928.30. Silver also mirrored

gold's move to close at $17.42 gaining by 3.2%.

Outlook

Gold prices are expected to trade on a firm note in

near term supported by the crude oil and continued

geopolitical tension which would instigate

investment demand into the metal. With the

European Central Bank likely to increase rates

leading to greater yield differentials, euro is likely to

gain against the dollar. Moreover, growth rate of

major economies still being in the gloom, bullion is

likely to emerge as an alternative investment. On the

technical front the supports are seen at $890, $845

resistances are at $960 and $1000.

Crude oil

Crude oil prices spiked to a new life time high of

$145.85 per barrel amid increasing geopolitical and

supply concerns followed by a weakening US dollar.

During the month, the International Energy

Agency lowered its estimates for Non-OPEC

production by 300,000 bpd to 50.4 million bpd.

Though the global oil demand was revised lower by

70,000 bpd to 86.77 million bpd, the series of

production losses in Nigeria raised supply concerns.

The increasing production in Saudi Arabia on June

22nd by 200,000 bpd has been offset by the decline

in production in Nigeria due to the ongoing

geopolitical tension. It is estimated that Nigeria's

output has been cut by around 300,000 barrels a day

as a result of the violence. The series of decline in

this output has now resulted in Angola taking over

as the largest producer in Africa.

of pests and diseases. On the contrary, in deficit

rainfall areas, the yield levels will come down due to

delayed sowing. In the current year, the rainfall

activity over southern peninsula was excellent

paving the way for commencement of early sowing

but later the sowing actively witnessed laggardness

because of lull in rainfall.

Sowing Details

In the current kharif season, sowing activity geared

momentum in full swing during initial days of June

month following good rainfall received in Southern

states but later during third week of June sowing

was sluggish due to lull in monsoon progress.

However, later with the revival of monsoon the

sowing operation geared up to overcome the

shortage.

Acreage under Kharif crops

Crop 7/4/2007 7/4/2008 % change

Rice 4.7 5.6 19.15

Cotton 2 1.8 -10.00

Sugarcane 5.2 4.3 -17.31

Maize 2.1 2.6 23.81

Coarse Cereals 4.7 6.7 42.55

Groundnut 1.9 2.1 10.53

Soybean 2.2 2.5 13.64

Total Oilseeds 4.9 5 2.04

The area under cotton cultivation declined during

the current kharif season despite of higher

remuneration and lower seed price, which fell to

Rs.750 a kg from Rs.1800 a kg. As on July 4th, the

area brought under cotton cultivation was 1.8

million hectares against 2 million hectares planted in

the same period last year due to shortage of rainfall

in Maharashtra, which is one of the major

producing centers.

As on 4th July 2008, total acreage brought under

coarse grain cultivation was 6.7 million hectares, up

in Million ha

by 42.55% compared to last year's area of 4.7

million hectares. Of the coarse cereals area under

maize sowing rose to 2.6 million hectares, up by

23.81% from last year's area of 2.1 million hectares.

Sugar cane, one of the importance cash crops of

India, sowing figures witnessed a significant decline

compared to last year because farmers are not happy

with cane pricing last year. Unattractive sugar prices

coupled with huge inventory led to decline in

acreage under cane cultivation. According to the

Ministry of Agriculture, as on first week of July, area

sown was 4.3 million hectares, lower than last year's

figure of 5.2 million hectares.

Sowing of oilseeds has shown a tremendous rise

compared to previous years because of sharp rally

in prices of oilseeds last season. Sharp rise in prices

prompted the farmers to grow more oilseeds rather

than other crops. According to latest Weather

Watch Report released by Union Ministry of

Agriculture area covered with oilseeds cultivation

was 5 million hectares compared to 4.9 million

hectares in the same period a year. Of the total

oilseeds, 2.5 million hectares of area is under

soybean and 2.1 million hectares is under

groundnut.

Conclusion

With the much awaited South West Monsoon hitting

Indian subcontinent one day prior to normal date of

its onset, Indian farmers betting their luck once again

on monsoon. Being an agrarian economy, its

foodgrain production is largely dependant on

monsoon. About 60% of the India's production

comes from kharif season. At this point it is

immaterial to comment on production figure for

2008-09 because the sowing will continue till mid of

August and climatic condition in the months of July

and August play a crucial role in deciding final output.

However, in the current year production is expected

to be higher compared to last year because of more

area likely to be brought under cultivation of various

kharif grown crops.

Article |

July 2008 21| July 2008 20| Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

However, the rise in production by Saudi Arabia

along with the increase in fuel prices in developing

nations like China, limited the uptrend in prices. The

rising fuel prices send a signal of potential change in

consumption patterns in these nations which were

forecasted to account for the increase in demand.

Hence any setback in the demand from the

developing nations limited the uptrend in prices.

Nevertheless, the brewing geopolitical tension

between Iran and Israel with threats of attacks on

Iran due to uranium enrichment program increased

worries of the Middle Eastern supplies. The

potential threat caused to the OPEC second largest

producer has resulted in surge in prices to record

high levels.

During the month the DOE crude oil inventory levels

declined by 1.6% to stand at 301 million barrels which

is below the three year simple average until May. This

along with declining gasoline stocks which fell by

0.15% to 208 million bpd supported the uptrend in

prices.

Outlook

Crude oil futures are likely to stay firm in the wake

of the continuing geopolitical tension in the oil

producing nations. The rising concern of the

stability in oil supplies will continue to work as a

premium for the prices. On the technical front,

strong supports are seen at $130 and resistances are

at $148 then $155 per barrel.

Base Metals

Base metals were mostly mixed in the month of June

with Copper and Aluminium favoring bulls, while

others residing in the bear's home.

LME 3 month forward copper increased

substantially by 7.24% to $8510 per ton as labor

unions in Peru announced a nationwide strike,

demanding for better pay benefits. Operations at

Peru's biggest copper and zinc pit, Anta Mina,

owned by BHP Billiton and Xstrata were halted. This

followed by a potential supply disruption in Mexican

copper mines fueled the rally in copper prices.

Earlier in the month supply issues in Peru like strike

at Southern Copper's Cuajone mine provided a

strong support to the copper prices.

Moreover, declining LME and Shanghai inventories

(down by 1.88% and 27% respectively) followed

with a weakening greenback, which had shed over

1.25% of its value against Euro, led to the bullish

sentiment in world copper market. A weakening

American currency attracts overseas demand for the

metal like copper, as then the metal will become

cheaper for the holder of foreign currency.

On the production front, Chile produced 463,233

tons of the metal in May, down 3.8 % from the same

month last year. During the month, International

Copper Study Group (ICSG) reported that the

world consumption of refined copper exceeded

production by 67,000 tons in the first quarter of the

current year. However, the poor Chinese refined

copper imports figures which fell by 26.4 % on

month and 19 % on year in May, acted as a limiting

factor for the upside movement in prices.

Aluminium was seen gaining this month after

electricity costs and outages have shuttered more

smelters worldwide. Aluminium moved to $3,169

per ton due to higher electricity costs which accounts

for about one-third of aluminum's total production

cost. U.S. based aluminum giant Alcoa temporarily

halted half of the production at its Rockdale, Texas,

cutting three of its six operating pot lines - a cut of

about 120,000 metric tons per year of production -

after its dedicated power supply was unable to keep

power to those lines. Additionally hike in power fee

Market Review | Market Review |

in China coupled with record high crude oil prices

supported the ongoing momentum in aluminum

prices.

Nickel prices remained on the lower side and went

down by 0.68% to $21,950 per ton as China cuts its

production of stainless steel, a key demand driver.

However, prices initially saw a jump towards $24,000

levels after a gas explosion in Western Australia

resulted in closure of BHP Billiton's Kalgoorlie

nickel smelter, thereby reducing nickel output by

around 28,000 tons or 2 % of global supplies.

Lead and Zinc were driven down mainly because of

their rising stockpiles at London Metal Exchange

warehouses which in 2008 alone have risen by

around 124% and 72% respectively. In its latest

monthly report, International Lead and Zinc Study

Group (ILZSG) pointed out that the global zinc

market was in surplus by 78,000 tons during the first

four months of this year and during the same period

lead supply deficit was narrowed to 8,000 tons. The

deficit was 20,000 tons in the same period of 2007.

Outlook

In July, base metals such as copper and aluminium

look fundamentally strong backed by the prevailing

supply side problems. Zinc is expected to be on a

sideways move on account of reduced demand and

potential output disruption in Latin American

countries. Lead and Nickel are expected to be in the

downside territory. However, any short covering in

these metals can result in to a pullback towards

higher side.

Clearing &Forwarding

ServicesLogon to www.karvycomtrade.com

July 2008 21| July 2008 20| Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

However, the rise in production by Saudi Arabia

along with the increase in fuel prices in developing

nations like China, limited the uptrend in prices. The

rising fuel prices send a signal of potential change in

consumption patterns in these nations which were

forecasted to account for the increase in demand.

Hence any setback in the demand from the

developing nations limited the uptrend in prices.

Nevertheless, the brewing geopolitical tension

between Iran and Israel with threats of attacks on

Iran due to uranium enrichment program increased

worries of the Middle Eastern supplies. The

potential threat caused to the OPEC second largest

producer has resulted in surge in prices to record

high levels.

During the month the DOE crude oil inventory levels

declined by 1.6% to stand at 301 million barrels which

is below the three year simple average until May. This

along with declining gasoline stocks which fell by

0.15% to 208 million bpd supported the uptrend in

prices.

Outlook

Crude oil futures are likely to stay firm in the wake

of the continuing geopolitical tension in the oil

producing nations. The rising concern of the

stability in oil supplies will continue to work as a

premium for the prices. On the technical front,

strong supports are seen at $130 and resistances are

at $148 then $155 per barrel.

Base Metals

Base metals were mostly mixed in the month of June

with Copper and Aluminium favoring bulls, while

others residing in the bear's home.

LME 3 month forward copper increased

substantially by 7.24% to $8510 per ton as labor

unions in Peru announced a nationwide strike,

demanding for better pay benefits. Operations at

Peru's biggest copper and zinc pit, Anta Mina,

owned by BHP Billiton and Xstrata were halted. This

followed by a potential supply disruption in Mexican

copper mines fueled the rally in copper prices.

Earlier in the month supply issues in Peru like strike

at Southern Copper's Cuajone mine provided a

strong support to the copper prices.

Moreover, declining LME and Shanghai inventories

(down by 1.88% and 27% respectively) followed

with a weakening greenback, which had shed over

1.25% of its value against Euro, led to the bullish

sentiment in world copper market. A weakening

American currency attracts overseas demand for the

metal like copper, as then the metal will become

cheaper for the holder of foreign currency.

On the production front, Chile produced 463,233

tons of the metal in May, down 3.8 % from the same

month last year. During the month, International

Copper Study Group (ICSG) reported that the

world consumption of refined copper exceeded

production by 67,000 tons in the first quarter of the

current year. However, the poor Chinese refined

copper imports figures which fell by 26.4 % on

month and 19 % on year in May, acted as a limiting

factor for the upside movement in prices.

Aluminium was seen gaining this month after

electricity costs and outages have shuttered more

smelters worldwide. Aluminium moved to $3,169

per ton due to higher electricity costs which accounts

for about one-third of aluminum's total production

cost. U.S. based aluminum giant Alcoa temporarily

halted half of the production at its Rockdale, Texas,

cutting three of its six operating pot lines - a cut of

about 120,000 metric tons per year of production -

after its dedicated power supply was unable to keep

power to those lines. Additionally hike in power fee

Market Review | Market Review |

in China coupled with record high crude oil prices

supported the ongoing momentum in aluminum

prices.

Nickel prices remained on the lower side and went

down by 0.68% to $21,950 per ton as China cuts its

production of stainless steel, a key demand driver.

However, prices initially saw a jump towards $24,000

levels after a gas explosion in Western Australia

resulted in closure of BHP Billiton's Kalgoorlie

nickel smelter, thereby reducing nickel output by

around 28,000 tons or 2 % of global supplies.

Lead and Zinc were driven down mainly because of

their rising stockpiles at London Metal Exchange

warehouses which in 2008 alone have risen by

around 124% and 72% respectively. In its latest

monthly report, International Lead and Zinc Study

Group (ILZSG) pointed out that the global zinc

market was in surplus by 78,000 tons during the first

four months of this year and during the same period

lead supply deficit was narrowed to 8,000 tons. The

deficit was 20,000 tons in the same period of 2007.

Outlook

In July, base metals such as copper and aluminium

look fundamentally strong backed by the prevailing

supply side problems. Zinc is expected to be on a

sideways move on account of reduced demand and

potential output disruption in Latin American

countries. Lead and Nickel are expected to be in the

downside territory. However, any short covering in

these metals can result in to a pullback towards

higher side.

Clearing &Forwarding

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Jeera

Jeera prices have gained about 15% in the month of

June on strong export demand and declined arrivals

in physical markets. Most active September contract

moved up from Rs.11200 to Rs.12800 a quintal

levels. Initially, prices were moving in range bound

level and a good technical break out has resulted into

sharp rally in later part of the month. In spot

markets, improved demand with declining arrivals

and higher export demand boosted the price rally.

Daily average arrivals fell below 10000 bags at Unjha

spot market compared to 18000 bags in previous

month. According to latest trade estimates, India has

produced about 1.35 lakh tons (22.5 lakh bags) of

jeera higher than last year's output of 0.96 lakh

tonnes (15-16 lakh bags). Earlier in the beginning of

the season, domestic output was estimated higher at

1.5-1.7 lakh tonnes (25-28 lakh bags). Meantime,

trade sources are projecting global jeera production

would fall by 30% to 1.69 lakh tons due to lesser

acreage and crop loss in Syria and Turkey due to

weather vagaries. Syria output is likely to decline to

6000 tonnes from normal output of 28000 tonnes.

Turkey production also estimated lower at 6000

tonnes compared to normal production of 10000

tonnes. Output in other countries like Iran,

Afghanistan and China estimated at 3000, 4000 and

12000 tons respectively. Global output other than

India is estimated at 34000 tons in the current year.

World market other than India annually requires

about 98000 tons of Jeera and a shortage of nearly

64000 tons is anticipated in the current year. India

has exported about 28000 tons during 2007-08, up

by 8 % from previous year. Arrivals in domestic

markets stood at 20 lakh bags till end of June. Due to

global shortage with declining output in Syria and

Turkey, exporters in India are getting better

opportunities in the current year. Prices in other

Agri Market Review

major producing countries also increased sharply

towards $3800-4000 per tonne, while export prices

from India quoting at $2800 per tonne.

Price outlook

Prices may gain further in the month of July on

higher export demand and poor arrivals.

Meanwhile, fresh arrival in Turkey starts in next

couple of weeks and may hinder sharp rise as seen

last month. Broad range for September NCDEX is

seen at Rs.12200-13500 per quintal. Any fresh

trigger or trading above Rs.13500 levels may lead to

sharp rally towards Rs.15000 per quintal. We

recommend staying on buying side for coming

weeks.

Guar seed

Guar seed prices continued to trade in sideways

direction tracking monsoon progress. Most active

September contract Guar Seed futures traded in the

range of Rs.1775-1935 for most part of last month.

Market participants were closely watching progress

of monsoon, which gave no major trigger to the

market. Indian Meteorological Department (IMD)

has released its update on southwest monsoon

forecast for 2008-09 on 30th of June. It has

increased the southwest monsoon (June-

September) forecast to 100% of LPA with model

error of ±4% from earlier forecast of 99% of LPA.

Rainfall the country as a whole for month of July is

forecasted at 98% with model error of ±9%. For

northwest region, where guar seed is mostly

cultivated, it has forecasted rainfall at 96% of LPA

with model error of ±8%.

Southwest monsoon set over Kerala on 31st of

May, which is almost normal, but moved rapidly

into mainland and covered most of the country two

weeks earlier than normal schedule. Monsoon has

covered half of Rajasthan by 16th of June which is

almost two weeks earlier than normal schedule.

This rapid movement in monsoon led to

inequitable distribution over most parts of the

country.

Most parts of guar seed cultivation states have

received early rains in the current year and sowing

has already started in Haryana and northern

Rajasthan. Haryana Department of Agriculture

has estimated production at 400000 bags, up by

nearly 18% from last year. Sowing in Rajasthan

especially western and central parts is yet to pick

up and sowing in these regions can be seen in mid-

July. Rainfall in July month is crucial for total

sowing. According to trade sources, area is likely to

decline in the current year due to anticipated shift

to other Kharif crops especially oil seeds. Prices of

most of the Kharif crops have doubled in last one

year, while guar seed prices are still quoting at two

years low. Farmers may shift to these Kharif crops,

which gives better returns.

Government has said export of guar gum for

human and animal consumption will have to

undergo quality check before export to Europe.

This clearance would be given by Shellac and

Forest Products Export Promotion Council, a

nodal agency for promoting export of forest

processed products including guar gum.

Meanwhile, exporters have opposed this move,

since this procedure takes long time. Europe had

banned import of guar gum last year after reports

of gum had excess dioxin and later accepted with

quality certification from laboratories. Export

demand remained higher especially from China

that is buying good amount of guar gum. Rupee

has depreciated once again and fell to below

INR43 levels against USD. This depreciation

supported export of guar gum.

Outlook

Guar seed prices are likely to remain range bound with marginal upside bias on good buying support at these lower levels. However, progress in monsoon may have major impact on price movement on daily basis. Major decline is not seen even monsoon progresses well due to expected decline in sowing area and lack of selling from traders below Rs.1600 levels. Rupee depreciation against USD is also providing some support to prices. Government clarification on quality certification on export of guar gum is likely to benefit the exporters in long term. Broad range for September NCDEX contract is seen at Rs.1750-2100 levels for this month. In case of insufficient rains in July month may lead to further upside rally towards Rs.2200 levels.

Maize

Maize prices are trading at historical highs in

domestic as well as international market on the

shadow of other cereals like rice, wheat and barley.

Dwindling inventories coupled with escalating

demand from food, feed and fuel sector and lower

production forecast due to unfavourable weather

condition supported the surge in maize prices. Most

of the developed countries are using food based bio-

fuel as an alternate to crude oil. Maize is one of such

crops that is used in manufacturing of bio-fuel.

Robust demand for corn for bio-fuel resulted into

unprecedented rally in its prices on Chicago Board

of Trade to historical highs of $7.66 a bushel in the

month of June. Domestically, the rally in maize

prices started in the month of May following

emergence of fresh export demand from Middle

East and South East Asian countries.

On supply side, major global corn producers

stopped shipment of corn to contain price rise in

their countries. This gave an excellent opportunity

for Indians to take advantage of global supply

shortage creating tremendous export avenues for

July 2008 22|

Market Review |

July 2008 23|

Market Review |

Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

Logon towww.karvycomtrade.com

Jeera

Jeera prices have gained about 15% in the month of

June on strong export demand and declined arrivals

in physical markets. Most active September contract

moved up from Rs.11200 to Rs.12800 a quintal

levels. Initially, prices were moving in range bound

level and a good technical break out has resulted into

sharp rally in later part of the month. In spot

markets, improved demand with declining arrivals

and higher export demand boosted the price rally.

Daily average arrivals fell below 10000 bags at Unjha

spot market compared to 18000 bags in previous

month. According to latest trade estimates, India has

produced about 1.35 lakh tons (22.5 lakh bags) of

jeera higher than last year's output of 0.96 lakh

tonnes (15-16 lakh bags). Earlier in the beginning of

the season, domestic output was estimated higher at

1.5-1.7 lakh tonnes (25-28 lakh bags). Meantime,

trade sources are projecting global jeera production

would fall by 30% to 1.69 lakh tons due to lesser

acreage and crop loss in Syria and Turkey due to

weather vagaries. Syria output is likely to decline to

6000 tonnes from normal output of 28000 tonnes.

Turkey production also estimated lower at 6000

tonnes compared to normal production of 10000

tonnes. Output in other countries like Iran,

Afghanistan and China estimated at 3000, 4000 and

12000 tons respectively. Global output other than

India is estimated at 34000 tons in the current year.

World market other than India annually requires

about 98000 tons of Jeera and a shortage of nearly

64000 tons is anticipated in the current year. India

has exported about 28000 tons during 2007-08, up

by 8 % from previous year. Arrivals in domestic

markets stood at 20 lakh bags till end of June. Due to

global shortage with declining output in Syria and

Turkey, exporters in India are getting better

opportunities in the current year. Prices in other

Agri Market Review

major producing countries also increased sharply

towards $3800-4000 per tonne, while export prices

from India quoting at $2800 per tonne.

Price outlook

Prices may gain further in the month of July on

higher export demand and poor arrivals.

Meanwhile, fresh arrival in Turkey starts in next

couple of weeks and may hinder sharp rise as seen

last month. Broad range for September NCDEX is

seen at Rs.12200-13500 per quintal. Any fresh

trigger or trading above Rs.13500 levels may lead to

sharp rally towards Rs.15000 per quintal. We

recommend staying on buying side for coming

weeks.

Guar seed

Guar seed prices continued to trade in sideways

direction tracking monsoon progress. Most active

September contract Guar Seed futures traded in the

range of Rs.1775-1935 for most part of last month.

Market participants were closely watching progress

of monsoon, which gave no major trigger to the

market. Indian Meteorological Department (IMD)

has released its update on southwest monsoon

forecast for 2008-09 on 30th of June. It has

increased the southwest monsoon (June-

September) forecast to 100% of LPA with model

error of ±4% from earlier forecast of 99% of LPA.

Rainfall the country as a whole for month of July is

forecasted at 98% with model error of ±9%. For

northwest region, where guar seed is mostly

cultivated, it has forecasted rainfall at 96% of LPA

with model error of ±8%.

Southwest monsoon set over Kerala on 31st of

May, which is almost normal, but moved rapidly

into mainland and covered most of the country two

weeks earlier than normal schedule. Monsoon has

covered half of Rajasthan by 16th of June which is

almost two weeks earlier than normal schedule.

This rapid movement in monsoon led to

inequitable distribution over most parts of the

country.

Most parts of guar seed cultivation states have

received early rains in the current year and sowing

has already started in Haryana and northern

Rajasthan. Haryana Department of Agriculture

has estimated production at 400000 bags, up by

nearly 18% from last year. Sowing in Rajasthan

especially western and central parts is yet to pick

up and sowing in these regions can be seen in mid-

July. Rainfall in July month is crucial for total

sowing. According to trade sources, area is likely to

decline in the current year due to anticipated shift

to other Kharif crops especially oil seeds. Prices of

most of the Kharif crops have doubled in last one

year, while guar seed prices are still quoting at two

years low. Farmers may shift to these Kharif crops,

which gives better returns.

Government has said export of guar gum for

human and animal consumption will have to

undergo quality check before export to Europe.

This clearance would be given by Shellac and

Forest Products Export Promotion Council, a

nodal agency for promoting export of forest

processed products including guar gum.

Meanwhile, exporters have opposed this move,

since this procedure takes long time. Europe had

banned import of guar gum last year after reports

of gum had excess dioxin and later accepted with

quality certification from laboratories. Export

demand remained higher especially from China

that is buying good amount of guar gum. Rupee

has depreciated once again and fell to below

INR43 levels against USD. This depreciation

supported export of guar gum.

Outlook

Guar seed prices are likely to remain range bound with marginal upside bias on good buying support at these lower levels. However, progress in monsoon may have major impact on price movement on daily basis. Major decline is not seen even monsoon progresses well due to expected decline in sowing area and lack of selling from traders below Rs.1600 levels. Rupee depreciation against USD is also providing some support to prices. Government clarification on quality certification on export of guar gum is likely to benefit the exporters in long term. Broad range for September NCDEX contract is seen at Rs.1750-2100 levels for this month. In case of insufficient rains in July month may lead to further upside rally towards Rs.2200 levels.

Maize

Maize prices are trading at historical highs in

domestic as well as international market on the

shadow of other cereals like rice, wheat and barley.

Dwindling inventories coupled with escalating

demand from food, feed and fuel sector and lower

production forecast due to unfavourable weather

condition supported the surge in maize prices. Most

of the developed countries are using food based bio-

fuel as an alternate to crude oil. Maize is one of such

crops that is used in manufacturing of bio-fuel.

Robust demand for corn for bio-fuel resulted into

unprecedented rally in its prices on Chicago Board

of Trade to historical highs of $7.66 a bushel in the

month of June. Domestically, the rally in maize

prices started in the month of May following

emergence of fresh export demand from Middle

East and South East Asian countries.

On supply side, major global corn producers

stopped shipment of corn to contain price rise in

their countries. This gave an excellent opportunity

for Indians to take advantage of global supply

shortage creating tremendous export avenues for

Indian maize. Till June 2008, India had exported 2.5

million tons of corn compared to 0.45 million tons

shipped in the same period a year ago. Though

India's production has been projected higher at 18.5

million tons, prices were on higher side because of

strong demand from poultry feed manufacturers.

Spot prices in Nizamabad market went up by Rs.50

to test highest level of Rs.960 a quintal on strong

demand from Poultry Feed Manufactures and

starch industry. On NCDEX, the active July

contract futures surged sharply to 993 levels from

930 levels taking strong cues from physical market.

After testing high of 993 levels, prices fell

moderately following long liquidation on fears of

government intervention due to higher inflation

and on fears of export ban on Maize. But prices

failed to sustain at lower levels and once again

resumed their bullish trend on strong buying

interest. However, quick decision taken by the

government to ban export of maize till October

15th, 2008 created panic situation the market

thereby resulting into sharp fall in prices.

Outlook

Maize prices are forecast to continue its downward

trend following government move to ban export of

maize. Stockists who are hoarding the stock in

anticipation of excellent export opportunities may

release the inventory into the market, which will

create supply glut in the market.

Soybean

Soybean futures staged a strong rally in the month

of June taking strong cues from international

market coupled with strong soy meal prices. The

global benchmark CBOT soybean futures

continued its upward trend on supply worries and

on forecast of tight ending stocks. Incessant

precipitation in Midwest region of US has adversely

affected the sown area and also resulted into delay in

further sowing in the region. United States

Department of Agriculture has projected crop loss

to the extent of 20%. Though progressive planting

report released in the month of March showed a

record planting of soybean, final production is likely

to lower due to fall in yield levels. On the other

hand, tug of war between farmers and government

in Argentina over export tax on farm products also

supported the price rally. Along with supply

constraint, unprecedented rally in Crude Oil prices

attracted appeal of oilseeds based bio-fuel as an

alternate energy source boosted the price rally in oil

and oilseeds prices across the board. NYMEX

Crude Oil prices tested all time high of $145.85 a

barrel. On domestic front, robust demand for

Indian soy meal from South East Asian countries

created additional demand for soybean from

crushers. Normally, demand for Indian soy meal

eases from June onwards as the fresh harvesting

commences in South American countries. But the

month long farmers' agitation resulted into supply

disruption thereby creating an opportunity of India

to export more soy meal to South East Asian

countries. As a result of continued buying, soy meal

prices in Indian market tested a whopping Rs.20000

a ton level. At the same, commencement of kharif

season in India resulted into robust demand for

seeds for sowing purpose.

Outlook

Soybean futures are forecast to trade on negative

note in the current month on account of long

liquidation coupled with emergence of selling

pressure on speculation of record bean sowing.

Since the Indian Meteorological Department has

projected 100% Long Period Average rainfall,

Indian farmers may plant more soybeans. Record

prices seen for previous season crop is attracting

farmers to grow more soybeans. According to latest

Weather Watch Report released by Union Ministry

of Agriculture, till July 4th, area brought under

soybean cultivation is 2.5 million hectares

compared to 2.2 million hectares sown in the same

period a year ago.

July 2008 24|

Market Review |

July 2008 25|

Class Room |

Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

In our previous issue we had discussed about the

basics of Technical Analysis and implications of

various moving averages in the technical charts. We

also commenced a topic on Point & Figure chart and

why it's legendary in financial markets. In this issue

we will be looking into the detailed construction of

Point & Figure charts and its analytics.

Point & Figure Chart

Outline of Point & Figure Chart

A point and figure chart is used for technical analysis

of securities. Unlike most other investment charts,

point and figure charts do not present a linear

representation of time. Instead, they show trends in

price. The aim of point and figure charting is to filter

out the unimportant price movement and focus on

the main direction of the price trend and normally

used for longer term price movements. The P&F

chart shows only the underlying supply and demand

of the security. There are two typical ways to plot

point and figure charts - using closing prices, or with

high/low prices. The most common method

nowadays is high/low prices of specific timeframe,

normally daily prices.

Construction of P&F Chart

Point and figure charts are composed of a number

of columns that either consists of a series of

stacked Xs or Os. A column of Xs is used to

illustrate a rising price, while Os represent a falling

price. This type of chart is used to filter out non-

significant price movements, and enables the trader

to easily determine critical support and resistance

levels. Traders will place orders when the price

moves beyond identified support/resistance levels.

Class Room Series on Technical Analysis

Additional points are added to the chart once the

price changes by more than a predefined amount

(known as the box size). For example, if the box size

is set to equal one and the price of the asset is 50,

then another X would be added to the stack of Xs

once the price surpasses 51. Each column consists

of only one letter (either X or O) - never both. New

columns are placed to the right of the previous

column and are only added once the price changes

direction by more than a predefined reversal

amount. Since only price changes are recorded, if no

price change occurs then the chart is left untouched.

Key Points:

X's represent increasing prices (demand). O's

represent decreasing prices (supply).

You can only have X's or Os in any one column, not

both.

The reversal distance is equal to the box size

multiplied by the reversal amount

The best way to really understand P&F charts is to

create one by hand. All you need is a grid (graph

paper is perfect), a pencil, and stock quotes. Only

high and low prices are charted - the open and close

are ignored.

Example:

Note: Prices are into a minor down trend

Indian maize. Till June 2008, India had exported 2.5

million tons of corn compared to 0.45 million tons

shipped in the same period a year ago. Though

India's production has been projected higher at 18.5

million tons, prices were on higher side because of

strong demand from poultry feed manufacturers.

Spot prices in Nizamabad market went up by Rs.50

to test highest level of Rs.960 a quintal on strong

demand from Poultry Feed Manufactures and

starch industry. On NCDEX, the active July

contract futures surged sharply to 993 levels from

930 levels taking strong cues from physical market.

After testing high of 993 levels, prices fell

moderately following long liquidation on fears of

government intervention due to higher inflation

and on fears of export ban on Maize. But prices

failed to sustain at lower levels and once again

resumed their bullish trend on strong buying

interest. However, quick decision taken by the

government to ban export of maize till October

15th, 2008 created panic situation the market

thereby resulting into sharp fall in prices.

Outlook

Maize prices are forecast to continue its downward

trend following government move to ban export of

maize. Stockists who are hoarding the stock in

anticipation of excellent export opportunities may

release the inventory into the market, which will

create supply glut in the market.

Soybean

Soybean futures staged a strong rally in the month

of June taking strong cues from international

market coupled with strong soy meal prices. The

global benchmark CBOT soybean futures

continued its upward trend on supply worries and

on forecast of tight ending stocks. Incessant

precipitation in Midwest region of US has adversely

affected the sown area and also resulted into delay in

further sowing in the region. United States

Department of Agriculture has projected crop loss

to the extent of 20%. Though progressive planting

report released in the month of March showed a

record planting of soybean, final production is likely

to lower due to fall in yield levels. On the other

hand, tug of war between farmers and government

in Argentina over export tax on farm products also

supported the price rally. Along with supply

constraint, unprecedented rally in Crude Oil prices

attracted appeal of oilseeds based bio-fuel as an

alternate energy source boosted the price rally in oil

and oilseeds prices across the board. NYMEX

Crude Oil prices tested all time high of $145.85 a

barrel. On domestic front, robust demand for

Indian soy meal from South East Asian countries

created additional demand for soybean from

crushers. Normally, demand for Indian soy meal

eases from June onwards as the fresh harvesting

commences in South American countries. But the

month long farmers' agitation resulted into supply

disruption thereby creating an opportunity of India

to export more soy meal to South East Asian

countries. As a result of continued buying, soy meal

prices in Indian market tested a whopping Rs.20000

a ton level. At the same, commencement of kharif

season in India resulted into robust demand for

seeds for sowing purpose.

Outlook

Soybean futures are forecast to trade on negative

note in the current month on account of long

liquidation coupled with emergence of selling

pressure on speculation of record bean sowing.

Since the Indian Meteorological Department has

projected 100% Long Period Average rainfall,

Indian farmers may plant more soybeans. Record

prices seen for previous season crop is attracting

farmers to grow more soybeans. According to latest

Weather Watch Report released by Union Ministry

of Agriculture, till July 4th, area brought under

soybean cultivation is 2.5 million hectares

compared to 2.2 million hectares sown in the same

period a year ago.

July 2008 24|

Market Review |

July 2008 25|

Class Room |

Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

In our previous issue we had discussed about the

basics of Technical Analysis and implications of

various moving averages in the technical charts. We

also commenced a topic on Point & Figure chart and

why it's legendary in financial markets. In this issue

we will be looking into the detailed construction of

Point & Figure charts and its analytics.

Point & Figure Chart

Outline of Point & Figure Chart

A point and figure chart is used for technical analysis

of securities. Unlike most other investment charts,

point and figure charts do not present a linear

representation of time. Instead, they show trends in

price. The aim of point and figure charting is to filter

out the unimportant price movement and focus on

the main direction of the price trend and normally

used for longer term price movements. The P&F

chart shows only the underlying supply and demand

of the security. There are two typical ways to plot

point and figure charts - using closing prices, or with

high/low prices. The most common method

nowadays is high/low prices of specific timeframe,

normally daily prices.

Construction of P&F Chart

Point and figure charts are composed of a number

of columns that either consists of a series of

stacked Xs or Os. A column of Xs is used to

illustrate a rising price, while Os represent a falling

price. This type of chart is used to filter out non-

significant price movements, and enables the trader

to easily determine critical support and resistance

levels. Traders will place orders when the price

moves beyond identified support/resistance levels.

Class Room Series on Technical Analysis

Additional points are added to the chart once the

price changes by more than a predefined amount

(known as the box size). For example, if the box size

is set to equal one and the price of the asset is 50,

then another X would be added to the stack of Xs

once the price surpasses 51. Each column consists

of only one letter (either X or O) - never both. New

columns are placed to the right of the previous

column and are only added once the price changes

direction by more than a predefined reversal

amount. Since only price changes are recorded, if no

price change occurs then the chart is left untouched.

Key Points:

X's represent increasing prices (demand). O's

represent decreasing prices (supply).

You can only have X's or Os in any one column, not

both.

The reversal distance is equal to the box size

multiplied by the reversal amount

The best way to really understand P&F charts is to

create one by hand. All you need is a grid (graph

paper is perfect), a pencil, and stock quotes. Only

high and low prices are charted - the open and close

are ignored.

Example:

Note: Prices are into a minor down trend

July 2008 26| July 2008 27|

Class Room | Class Room |

Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

Day 1: High-15 Low-11

To begin, chart the difference between the first day's

high and low. Since prices are falling, we'll start with

a column of Os.

Day 2: High-12 Low-11

Now look for one of two things to happen. First, if

the low moves lower by at least the box amount (in

this case, one) we mark another O in the same

column. Since that didn't happen on Day 2, look to

see if the high is higher than the bottom of the

current column plus the reversal distance

(11+3=14). That didn't happen either. So for Day 2,

we do nothing (!).Note: Doing nothing is totally acceptable (and

common) action to take for a P&F chart.

Day 3: High-12 Low-10 Again, we look to see if the low moves lower by at

least the box amount. So we add another O to the

column. (If the low had moved down two points, we

would mark two O's.)

Day 4: High-15 Low-11

Since we are still in a column of O's, we check the

low first. It does not move past the previous low, so

we do not add another O. Then we see if the high

was greater than or equal to the bottom of the

column plus the reversal distance (i.e., 10+3=13).

Since the high was 15, that means that the chart did

reverse and we add five X's starting one above the

low of the previous column.

Day 5: High-15 Low-12

Now we are in a column of X's, so we check the high

first. It did not move up by a full box, so we next

check the low. Since the low has moved down to the

reversal threshold (i.e., the top of the column minus

the reversal distance (15-3=12)), we reverse one

more time and add three O's to the next column.

Over time, our chart might look something like this:

This is important to remember that P&F charts do

not show time in a linear fashion. Each column can

represent one day, or many days, depending on the

price movement. Because P&F charts filter out the

noise associated with more traditional charting

methods, every mark on the chart is significant. Four Things to look for:

• Support levels• Resistance levels• Upward trend lines• Downward trend lines

Support and resistance levels are always horizontal

lines and trend lines always appear at 45° angles. We

can spot support levels on P&F charts by looking for

a horizontal row of Os that each marks the bottom

of their respective columns.

Like support levels, resistance levels are horizontal

lines on P&F charts. They mark the upper level for

trading, or a price at which sellers typically

outnumber buyers. Find them by looking for a row

of X's.

Upward Trend Lines

To plot an upward trend line, first put a + under the

first column of Os. Then move over one box and up

one box and draw another +. Repeat this until you

hit another column of Os followed by a row of X's

which does not continue the pattern.

Downward Trend Lines

Let's look for a downward trend line. Start at a wall

of X's, and use the same plotting technique as

before, but at a downward angle. Remember, trend

lines always appear at a 45° angle.

Note: Point & Figure charts can be constructed on

normal as well as Logarithm scale.

July 2008 26| July 2008 27|

Class Room | Class Room |

Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

Day 1: High-15 Low-11

To begin, chart the difference between the first day's

high and low. Since prices are falling, we'll start with

a column of Os.

Day 2: High-12 Low-11

Now look for one of two things to happen. First, if

the low moves lower by at least the box amount (in

this case, one) we mark another O in the same

column. Since that didn't happen on Day 2, look to

see if the high is higher than the bottom of the

current column plus the reversal distance

(11+3=14). That didn't happen either. So for Day 2,

we do nothing (!).Note: Doing nothing is totally acceptable (and

common) action to take for a P&F chart.

Day 3: High-12 Low-10 Again, we look to see if the low moves lower by at

least the box amount. So we add another O to the

column. (If the low had moved down two points, we

would mark two O's.)

Day 4: High-15 Low-11

Since we are still in a column of O's, we check the

low first. It does not move past the previous low, so

we do not add another O. Then we see if the high

was greater than or equal to the bottom of the

column plus the reversal distance (i.e., 10+3=13).

Since the high was 15, that means that the chart did

reverse and we add five X's starting one above the

low of the previous column.

Day 5: High-15 Low-12

Now we are in a column of X's, so we check the high

first. It did not move up by a full box, so we next

check the low. Since the low has moved down to the

reversal threshold (i.e., the top of the column minus

the reversal distance (15-3=12)), we reverse one

more time and add three O's to the next column.

Over time, our chart might look something like this:

This is important to remember that P&F charts do

not show time in a linear fashion. Each column can

represent one day, or many days, depending on the

price movement. Because P&F charts filter out the

noise associated with more traditional charting

methods, every mark on the chart is significant. Four Things to look for:

• Support levels• Resistance levels• Upward trend lines• Downward trend lines

Support and resistance levels are always horizontal

lines and trend lines always appear at 45° angles. We

can spot support levels on P&F charts by looking for

a horizontal row of Os that each marks the bottom

of their respective columns.

Like support levels, resistance levels are horizontal

lines on P&F charts. They mark the upper level for

trading, or a price at which sellers typically

outnumber buyers. Find them by looking for a row

of X's.

Upward Trend Lines

To plot an upward trend line, first put a + under the

first column of Os. Then move over one box and up

one box and draw another +. Repeat this until you

hit another column of Os followed by a row of X's

which does not continue the pattern.

Downward Trend Lines

Let's look for a downward trend line. Start at a wall

of X's, and use the same plotting technique as

before, but at a downward angle. Remember, trend

lines always appear at a 45° angle.

Note: Point & Figure charts can be constructed on

normal as well as Logarithm scale.

July 2008 28| July 2008 29|

Economic Calendar |

Economic Calendar

Date Time Event Survey Prior

07/02/2008 16:30 MBA Mortgage Applications 28-Jun - - -9.30%

07/02/2008 19:30 Factory Orders MAY 0.50% 1.10%

07/03/2008 18:00 Change in Nonfarm Payrolls JUN -60k -49k

07/03/2008 18:00 Unemployment Rate JUN 5.40% 5.50%

07/03/2008 18:00 Change in Manufact. Payrolls JUN -30K -26K

07/03/2008 18:00 Initial Jobless Claims 29-Jun 385K 384K

07/03/2008 18:00 Continuing Claims 22-Jun 3125K 3139K

07/03/2008 19:30 ISM Non-Manf. Composite JUN 51 51.7

07/08/2008 19:30 Pending Home Sales MoM MAY -3.00% 6.30%

07/08/2008 19:30 Wholesale Inventories MAY 0.60% 1.30%

07/09/2008 16:30 MBA Mortgage Applications 5-Jul - - 3.60%

07/10/2008 18:00 Initial Jobless Claims 6-Jul 395K 404K

07/10/2008 18:00 Continuing Claims 29-Jun 3140K 3116K

07/11/2008 18:00 Trade Balance MAY -$62.5B -$60.9B

07/11/2008 18:00 Import Price Index (MoM) JUN 2.00% 2.30%

07/11/2008 18:00 Import Price Index (YoY) JUN 18.60% 17.80%

07/15/2008 18:00 Producer Price Index (MoM) JUN 1.40% 1.40%

07/15/2008 18:00 PPI Ex Food & Energy (MoM) JUN 0.30% 0.20%

07/15/2008 18:00 Producer Price Index (YoY) JUN 8.80% 7.20%

07/15/2008 18:00 PPI Ex Food & Energy (YoY) JUN 3.20% 3.00%

07/15/2008 18:00 Advance Retail Sales JUN 0.40% 1.00%

07/15/2008 18:00 Retail Sales Less Autos JUN 1.00% 1.20%

07/15/2008 18:00 Empire Manufacturing JUL -7 -8.7

07/15/2008 19:30 Bernanke Report on

Economy & Fed Policy 15-Jul

07/15/2008 19:30 Business Inventories MAY 0.50% 0.50%

07/16/2008 16:30 MBA Mortgage Applications 12-Jul - - - -

07/16/2008 18:00 Consumer Price Index (MoM) JUN 0.70% 0.60%

07/16/2008 18:00 CPI Ex Food & Energy (MoM) JUN 0.20% 0.20%

07/16/2008 18:00 Consumer Price Index (YoY) JUN 4.50% 4.20%

07/16/2008 18:00 CPI Ex Food & Energy (YoY) JUN 2.30% 2.30%

07/16/2008 18:00 CPI Core Index SA JUN - - 214.832

Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

Economic Calendar |

Date Time Event Survey Prior

07/16/2008 18:00 Consumer Price Index NSA JUN 217.9 216.632

07/16/2008 18:30 Net Long-term TIC Flows MAY - - $115.1B

07/16/2008 18:30 Total Net TIC Flows MAY - - $60.6B

07/16/2008 18:45 Industrial Production JUN 0.10% -0.20%

07/16/2008 18:45 Capacity Utilization JUN 79.40% 79.40%

07/16/2008 23:30 Minutes of June 24-25

FOMC Meeting 16-Jul

07/17/2008 18:00 Housing Starts JUN 965K 975K

07/17/2008 18:00 Initial Jobless Claims 13-Jul - - - -

07/17/2008 18:00 Building Permits JUN 970K 969K

07/17/2008 18:00 Continuing Claims 6-Jul - - - -

07/21/2008 19:30 Leading Indicators JUN - - 0.10%

07/23/2008 16:30 MBA Mortgage Applications 19-Jul - - - -

07/24/2008 18:00 Initial Jobless Claims 20-Jul - - - -

07/24/2008 18:00 Continuing Claims 13-Jul - - - -

07/24/2008 19:30 Existing Home Sales JUN - - 4.99M

07/24/2008 19:30 Existing Home Sales MoM JUN - - 2.00%

07/25/2008 18:00 Durable Goods Orders JUN - - 0.00%

07/25/2008 18:00 Durables Ex Transportation JUN - - -0.90%

07/25/2008 19:30 New Home Sales JUN - - 512K

07/25/2008 19:30 New Home Sales MoM JUN - - -2.50%

07/29/2008 19:30 Consumer Confidence JUL - - 50.4

07/30/2008 16:30 MBA Mortgage Applications 26-Jul - - - -

07/31/2008 18:00 GDP QoQ (Annualized) 2Q A - - 1.00%

07/31/2008 18:00 Personal Consumption 2Q A - - 1.10%

07/31/2008 18:00 GDP Price Index 2Q A - - 2.70%

07/31/2008 18:00 Core PCE QoQ 2Q A - - 2.30%

07/31/2008 18:00 Initial Jobless Claims 27-Jul - - - -

07/31/2008 18:00 Continuing Claims 20-Jul - - - -

July 2008 28| July 2008 29|

Economic Calendar |

Economic Calendar

Date Time Event Survey Prior

07/02/2008 16:30 MBA Mortgage Applications 28-Jun - - -9.30%

07/02/2008 19:30 Factory Orders MAY 0.50% 1.10%

07/03/2008 18:00 Change in Nonfarm Payrolls JUN -60k -49k

07/03/2008 18:00 Unemployment Rate JUN 5.40% 5.50%

07/03/2008 18:00 Change in Manufact. Payrolls JUN -30K -26K

07/03/2008 18:00 Initial Jobless Claims 29-Jun 385K 384K

07/03/2008 18:00 Continuing Claims 22-Jun 3125K 3139K

07/03/2008 19:30 ISM Non-Manf. Composite JUN 51 51.7

07/08/2008 19:30 Pending Home Sales MoM MAY -3.00% 6.30%

07/08/2008 19:30 Wholesale Inventories MAY 0.60% 1.30%

07/09/2008 16:30 MBA Mortgage Applications 5-Jul - - 3.60%

07/10/2008 18:00 Initial Jobless Claims 6-Jul 395K 404K

07/10/2008 18:00 Continuing Claims 29-Jun 3140K 3116K

07/11/2008 18:00 Trade Balance MAY -$62.5B -$60.9B

07/11/2008 18:00 Import Price Index (MoM) JUN 2.00% 2.30%

07/11/2008 18:00 Import Price Index (YoY) JUN 18.60% 17.80%

07/15/2008 18:00 Producer Price Index (MoM) JUN 1.40% 1.40%

07/15/2008 18:00 PPI Ex Food & Energy (MoM) JUN 0.30% 0.20%

07/15/2008 18:00 Producer Price Index (YoY) JUN 8.80% 7.20%

07/15/2008 18:00 PPI Ex Food & Energy (YoY) JUN 3.20% 3.00%

07/15/2008 18:00 Advance Retail Sales JUN 0.40% 1.00%

07/15/2008 18:00 Retail Sales Less Autos JUN 1.00% 1.20%

07/15/2008 18:00 Empire Manufacturing JUL -7 -8.7

07/15/2008 19:30 Bernanke Report on

Economy & Fed Policy 15-Jul

07/15/2008 19:30 Business Inventories MAY 0.50% 0.50%

07/16/2008 16:30 MBA Mortgage Applications 12-Jul - - - -

07/16/2008 18:00 Consumer Price Index (MoM) JUN 0.70% 0.60%

07/16/2008 18:00 CPI Ex Food & Energy (MoM) JUN 0.20% 0.20%

07/16/2008 18:00 Consumer Price Index (YoY) JUN 4.50% 4.20%

07/16/2008 18:00 CPI Ex Food & Energy (YoY) JUN 2.30% 2.30%

07/16/2008 18:00 CPI Core Index SA JUN - - 214.832

Karvy Comtrade's Invest and Harvest Karvy Comtrade's Invest and Harvest

Economic Calendar |

Date Time Event Survey Prior

07/16/2008 18:00 Consumer Price Index NSA JUN 217.9 216.632

07/16/2008 18:30 Net Long-term TIC Flows MAY - - $115.1B

07/16/2008 18:30 Total Net TIC Flows MAY - - $60.6B

07/16/2008 18:45 Industrial Production JUN 0.10% -0.20%

07/16/2008 18:45 Capacity Utilization JUN 79.40% 79.40%

07/16/2008 23:30 Minutes of June 24-25

FOMC Meeting 16-Jul

07/17/2008 18:00 Housing Starts JUN 965K 975K

07/17/2008 18:00 Initial Jobless Claims 13-Jul - - - -

07/17/2008 18:00 Building Permits JUN 970K 969K

07/17/2008 18:00 Continuing Claims 6-Jul - - - -

07/21/2008 19:30 Leading Indicators JUN - - 0.10%

07/23/2008 16:30 MBA Mortgage Applications 19-Jul - - - -

07/24/2008 18:00 Initial Jobless Claims 20-Jul - - - -

07/24/2008 18:00 Continuing Claims 13-Jul - - - -

07/24/2008 19:30 Existing Home Sales JUN - - 4.99M

07/24/2008 19:30 Existing Home Sales MoM JUN - - 2.00%

07/25/2008 18:00 Durable Goods Orders JUN - - 0.00%

07/25/2008 18:00 Durables Ex Transportation JUN - - -0.90%

07/25/2008 19:30 New Home Sales JUN - - 512K

07/25/2008 19:30 New Home Sales MoM JUN - - -2.50%

07/29/2008 19:30 Consumer Confidence JUL - - 50.4

07/30/2008 16:30 MBA Mortgage Applications 26-Jul - - - -

07/31/2008 18:00 GDP QoQ (Annualized) 2Q A - - 1.00%

07/31/2008 18:00 Personal Consumption 2Q A - - 1.10%

07/31/2008 18:00 GDP Price Index 2Q A - - 2.70%

07/31/2008 18:00 Core PCE QoQ 2Q A - - 2.30%

07/31/2008 18:00 Initial Jobless Claims 27-Jul - - - -

07/31/2008 18:00 Continuing Claims 20-Jul - - - -

July 2008 30|

Recommendations |

Technical Recommendations

DisclaimerThe report contains the opinions of the author, which are not to be construed as investment advices. The author, directors and other employees of Karvy and its affiliates cannot be held responsible for the accuracy of the information presented herein or for the results of the positions taken based on the opinions expressed above. The above mentioned opinions are based on the information which is believed to be accurate and no assurance can be given for the accuracy of this information. There is risk of loss in trading in derivatives. The author, directors and other employees of Karvy and its affiliates cannot be held responsible for any losses in trading.

Commodity derivatives trading involve substantial risk. The valuation of underlying may fluctuate, and as a result, clients may lose entire of their original investment. In no event should the content of this research report be construed as an express or an implied promise, guarantee or implication by or from Karvy Comtrade that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Information provided on this report is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

We do not offer any sort of portfolio advisory, portfolio management or investment advisory services. The reports are only for information purpose and not to be construed as investment advices.

For Detailed disclaimer please go to following URL's:

Http://www.karvycomtrade.com/disclaimer.asp Http://www.karvycomtrade.com/riskDisclaimer.asp

Karvy Comtrade's Invest and Harvest

Commodity Contract Sup 2 Sup 1 Res 1 Res 2 RecommendationGold (MCX) Aug 2008 11526 12203 13276 13672 Buy at 12550-600 TP

13200, 13500 SL 12380Silver (MCX) Sep 2008 22342 23520 25513 26328 Buy around 25250 – 25150

SL 24400 TP 26500Copper (MCX) Aug 2008 318 342 380 393 Buy at 320-325 TP 375 SL

308Zinc (MCX) Aug 2008 79 82 88 91 Sell at 83-85 TP 70 with

SL 90 Aluminium (MCX) Aug 2008 119 126 138 143 Buy around 128 – 127 SL

122 TP 140Nickel (MCX) Aug 2008 864 916 1052 1136 Sell at 980-990 TP 850, 820

SL 1051 Chilli (NCDEX) Aug 2008 4975 5096 5448 5679Pepper (NCDEX) Aug 2008 13218 13608 14699 15400 Sell around 14300 – 14400

SL 15000 TP 13000Jeera (NCDEX) Sep 2008 10552 11598 13303 13962 Buy around 11250 – 11200

SL 10600 TP 12250Turmeric (NCDEX) Aug 2008 3884 4182 4662 4844 Sell around 4550 – 4600 SL

4800 TP 3900Soybean (NCDEX) Aug 2008 2220 2479 2874 3010 Sell around 2680 -2700 SL

2800 TP 2400RM Seed (NCDEX) Sep 2008 635 659 700 716 Sell around 670 – 675 SL

700 TP 625Castor Seed (NCDEX) Aug 2008 512 546 600 620 Buy around 540 – 530 SL

500 TP 600Guar Seed (NCDEX) Sep 2008 1688 1795 1990 2078Mentha Oil (MCX) Aug 2008 433 487 575 610 Buy around 550 – 540 SL

490 TP 650

Trust someone who knows the market inside outWhen you trade with Karvy, you trade with a trusted name in the Commodities Market.

The Karvy Advantages

Member of NCDEX and MCXNational networkPersonalized servicesBacked by researchSMS alertsDealing facility during night sessionsSingle access number anywhere in India

Visit us at: www.karvycomtrade.com email: commodity@karvy.com

“Karvy House”, 46, Avenue 4, Street No.1 Banjara Hills, Hyderabad - 500 034

Tel: 040 - 23388707 / 23431569 Fax: 040 - 66259955

An ISO 9001 :2000 company

COMTRADE LIMITED

July 2008 30|

Recommendations |

Technical Recommendations

DisclaimerThe report contains the opinions of the author, which are not to be construed as investment advices. The author, directors and other employees of Karvy and its affiliates cannot be held responsible for the accuracy of the information presented herein or for the results of the positions taken based on the opinions expressed above. The above mentioned opinions are based on the information which is believed to be accurate and no assurance can be given for the accuracy of this information. There is risk of loss in trading in derivatives. The author, directors and other employees of Karvy and its affiliates cannot be held responsible for any losses in trading.

Commodity derivatives trading involve substantial risk. The valuation of underlying may fluctuate, and as a result, clients may lose entire of their original investment. In no event should the content of this research report be construed as an express or an implied promise, guarantee or implication by or from Karvy Comtrade that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Information provided on this report is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

We do not offer any sort of portfolio advisory, portfolio management or investment advisory services. The reports are only for information purpose and not to be construed as investment advices.

For Detailed disclaimer please go to following URL's:

Http://www.karvycomtrade.com/disclaimer.asp Http://www.karvycomtrade.com/riskDisclaimer.asp

Karvy Comtrade's Invest and Harvest

Commodity Contract Sup 2 Sup 1 Res 1 Res 2 RecommendationGold (MCX) Aug 2008 11526 12203 13276 13672 Buy at 12550-600 TP

13200, 13500 SL 12380Silver (MCX) Sep 2008 22342 23520 25513 26328 Buy around 25250 – 25150

SL 24400 TP 26500Copper (MCX) Aug 2008 318 342 380 393 Buy at 320-325 TP 375 SL

308Zinc (MCX) Aug 2008 79 82 88 91 Sell at 83-85 TP 70 with

SL 90 Aluminium (MCX) Aug 2008 119 126 138 143 Buy around 128 – 127 SL

122 TP 140Nickel (MCX) Aug 2008 864 916 1052 1136 Sell at 980-990 TP 850, 820

SL 1051 Chilli (NCDEX) Aug 2008 4975 5096 5448 5679Pepper (NCDEX) Aug 2008 13218 13608 14699 15400 Sell around 14300 – 14400

SL 15000 TP 13000Jeera (NCDEX) Sep 2008 10552 11598 13303 13962 Buy around 11250 – 11200

SL 10600 TP 12250Turmeric (NCDEX) Aug 2008 3884 4182 4662 4844 Sell around 4550 – 4600 SL

4800 TP 3900Soybean (NCDEX) Aug 2008 2220 2479 2874 3010 Sell around 2680 -2700 SL

2800 TP 2400RM Seed (NCDEX) Sep 2008 635 659 700 716 Sell around 670 – 675 SL

700 TP 625Castor Seed (NCDEX) Aug 2008 512 546 600 620 Buy around 540 – 530 SL

500 TP 600Guar Seed (NCDEX) Sep 2008 1688 1795 1990 2078Mentha Oil (MCX) Aug 2008 433 487 575 610 Buy around 550 – 540 SL

490 TP 650

Trust someone who knows the market inside outWhen you trade with Karvy, you trade with a trusted name in the Commodities Market.

The Karvy Advantages

Member of NCDEX and MCXNational networkPersonalized servicesBacked by researchSMS alertsDealing facility during night sessionsSingle access number anywhere in India

Visit us at: www.karvycomtrade.com email: commodity@karvy.com

“Karvy House”, 46, Avenue 4, Street No.1 Banjara Hills, Hyderabad - 500 034

Tel: 040 - 23388707 / 23431569 Fax: 040 - 66259955

An ISO 9001 :2000 company

COMTRADE LIMITED

Do you want to venture into booming Commodity Market?Are you ready to join hands with one of the leading Commodity Broking House?

Partnering Towards Growth...Join Hands for Better Future...

Then here's your opportunity to join hands with one

of the leading commodity broking. Karvy, with over

550 offices in over 375 locations, will help you

accelerate the growth of your business.

You get the advantage of leveraging upon our strong

brand, cutting edge technology infrastructure and

dedicated team for Fundamental and Technical

research that deliver unmatched investment advice.

Apart from broking, Karvy also offers Clearing &

Forwarding Services in Commodities. Karvy

Comtrade Limited offer offline online and mobile

trading to its customers.

An ISO 9001:2000 company

COMTRADE LIMITED

Vijay Kumar Reddy M“Karvy Centre”, 46, Avenue 4, Street No.1

Banjara Hills, Hyderabad - 500 034Mobile: +91-9347780980

Fax : 040 - 6625 9955Visit us at: www.karvycomtrade.com

email: mvijay@karvy.com

For Details write to us at:

Member of MCX & NCDEXExchange Registration

NCDEX Code: 00236, MCX Code: 10775 FMC Registration

MCX/TCM/CORP/0021, NCDEX/TCM/CORP/0306

Karvy Comtrade's Invest and Harvest July 2008