“FINANCIAL PERFORMANCE OF RASTRIYA BANIJYA BANK”

Project report submitted to ACHARYA BANGALORE B-SCHOOL in partial

fulfillment of the requirements for the award of the degree

Bachelor of Business Management

Submitted By,

SHRISTY BHANDARI

Register No: 12YUC24059

Under the guidance of

Dr.Kavitha

ProfessorACHARYA BANGALORE B -SCHOOL

ACHARYA BANGALORE B-SCHOOL (Affiliated to Bangalore University)

Andrahalli Main Road, Off Magadi Road, Bangalore-560091

DECLARATION

I, SHRISTI BHANARI, hereby declare that this research project entitled ‘ Financial performance of Rastriya Banijya Bank’ submitted to Acharya Bangalore B-school in partial fulfillment of the requirements for the award of BBM, is a record of independent research work carried out by me under the supervision and guidance of Dr Kavitha, Professor, ABBS. This work has not formed the basis for the award of any Degree and has not been submitted previously to any other College/University.

Bangalore From:

January, 2015 SHRISTI BHANDARI

Dr. Kavitha

Professor

ABBS

ACKNOWLEDGEMENT

Firstly I would like to express our immense gratitude towards our institution ACHARYA BANGLORE B-SCHOOL, which created a great platform to attain profound technical skills in the field of BBM, thereby fulfilling our most cherished goal. I would thank all the Finance department of “RASTRIYA BANIJYA BANK” and the employees in the finance department for guiding me and helping me in successful completion of the project.

I am very much thankful to the professor Dr. KAVITHA (Internal guide) for extending her corporation in doing this project

I convey my thanks to beloved parents and my faculty who helped me directly or indirectly in bringing this project successfully

Table No. Title of the table Page No.

4.1 Shares and holdings of IIFL

4.2 Value of Gold Traded in MCX from 2003 to 2013

4.3 Calculation of Standard Deviation of the value of gold traded in MCX

from 2003 to 2013

4.4 Volume of Gold traded in MCX from 2003 to 2013

4.5 Calculation of Standard Deviation of the Volume of gold Traded in MCX

from 2003 to 2013

4.6 Value and volume proportion of gold traded in MCX from 2003 to 2013

4.7 Calculation of coefficient of correlation between value and volume of gold

traded in MCX exchange from 2003 to 2013.

4.8 Summary statistics of daily gold futures contracts

4.9 Correlation and integration test

Graph No. Title of the graphs Page No.

4.1 Value of gold traded in MCX from 2003 to 2013

4.2 Volume of Gold traded in MCX from 2003 to 2013

4.3 Coefficient of correlation between value and volume of gold traded in

MCX from 2003 to 2013

4.4 India The largest importer of Gold in 2002

4.5 Historical Gold prices since 1950-2001 in U.S.($) currency

4.6 Gold Reserves of Top 10 Countries

Contents

Chapter I Introduction 7– 31

o Introductiono History of futures exchangeso Gold

Importance of Gold Gold as an Independent Asset What makes Gold Special Pons and cons of gold Is it good for investment

Chapter III Research Methodology 32 – 37

2.1 Objectives of the Problem 2.2 Statement of Problem 2.3 Scope of the Study 2.4 Methodology of the study

2.4.1 Sources of data collection 2.4.2 Methods of Data Collection

2.4.3 Data Analysis and Interpretations

2.5 Plans of Analysis used 2.5 Limitations

Chapter II Company Profile 38 –58

3.1 Background and inception of IIFL 3.2 Nature of the business 3.3 Products and services 3.4 Vision Statement 3.5 Mission Statement 3.6 Ownership pattern 3.7 Work flow model

Chapter IV Data Analysis 59 – 78 4.1 Data Analysis and Interpretations

Chapter V Summary of Findings 79– 96

5.1 5.1 Major Findings 5.2 Fifteen Fundamental Reasons for bullish run of Gold 5.3 Conclusions and refrences 5.4 Balance sheet 5.5 Profit and loss account 5.6 Caital structure 5.7 Bibliography

Chapter I

Introduction

1.1 Introduction

A futures exchange or futures market is a central financial exchange

where people can trade standardized futures contracts; that is, a contract

to buy specific quantities of a commodity or financial instrument at a

specified price with delivery set at a specified time in the future. These

types of contracts fall into the category of derivatives. Such instruments

are priced according to the movement of the underlying asset (stock,

physical commodity, index, etc.). The aforementioned category is named

"derivatives" because the value of these instruments is derived from

another asset class.

Futures markets "provide partial income risk insurance to producers

whose output is risky, but very effective insurance to commodity

stockholders at remarkably low cost. Speculators absorb some of the risk

but hedging appears to drive most commodity markets. The equilibrium

futures price can be either below or above the (rationally) expected

future price. The various effects futures markets can have on market and

income stability are discussed. Rollover hedges can extend insurance

from short-horizon contracts over longer periods."

1.2 History of futures exchanges

One of the earliest written records of futures trading is in Aristotle's

Politics. He tells the story of Thales, a poor philosopher from Miletus

who developed a "financial device, which involves a principle of

universal application". Thales used his skill in forecasting and predicted

that the olive harvest would be exceptionally good the next autumn.

Confident in his prediction, he made agreements with local olive-press

owners to deposit his money with them to guarantee him exclusive use

of their olive presses when the harvest was ready. Thales successfully

negotiated low prices because the harvest was in the future and no one

knew whether the harvest would be plentiful or pathetic and because the

olive-press owners were willing to hedge against the possibility of a

poor yield. When the harvest-time came, and a sharp increase in demand

for the use of the olive presses outstripped supply, he sold his future use

contracts of the olive presses at a rate of his choosing, and made a large

quantity of money. It should be noted, however, that this is a very loose

example of futures trading and, in fact, more closely resembles an option

contract, given that Thales was not obliged to use the olive presses if the

yield was poor.

The first modern organized futures exchange began in 1710 at the

Dogma Rice Exchange in Osaka, Japan.

The United States followed in the early 19th century. Chicago has the

largest future exchange in the world, the Chicago Mercantile Exchange.

Chicago is located at the base of the Great Lakes, close to the farmlands

and cattle country of the Midwest, making it a natural center for

transportation, distribution, and trading of agricultural produce. Gluts

and shortages of these products caused chaotic fluctuations in price, and

this led to the development of a market enabling grain merchants,

processors, and agriculture companies to trade in "to arrive" or "cash

forward" contracts to insulate them from the risk of adverse price change

and enable them to hedge. In March 2008 the Chicago Mercantile

Exchange announced its acquisition of NYMEX Holdings, Inc., the parent

company of the New York Mercantile Exchange and Commodity

Exchange. CME's acquisition of NYMEX was completed in August

2008.

For most exchanges, forward contracts were standard at the time.

However, most forward contracts were not honored by both the buyer

and the seller. For instance, if the buyer of a corn forward contract made

an agreement to buy corn, and at the time of delivery the price of corn

differed dramatically from the original contract price, either the buyer or

the seller would back out. Additionally, the forward contracts market

was very illiquid and an exchange was needed that would bring together

a market to find potential buyers and sellers of a commodity instead of

making people bear the burden of finding a buyer or seller.

In 1848 the Chicago Board of Trade (CBOT) was formed. Trading was

originally in forward contracts; the first contract (on corn) was written

on March 13, 1851. In 1865 standardized futures contracts were

introduced.

The Chicago Produce Exchange was established in 1874, renamed the

Chicago Butter and Egg Board in 1898 and then reorganized into the

Chicago Mercantile Exchange (CME) in 1919. Following the end of the

postwar international gold standard, in 1972 the CME formed a division

called the International Monetary Market (IMM) to offer futures

contracts in foreign currencies: British pound, Canadian dollar, German

mark, Japanese yen, Mexican peso, and Swiss franc.

In 1881 a regional market was founded in Minneapolis, Minnesota, and

in 1883 introduced futures for the first time. Trading continuously since

then, today the Minneapolis Grain Exchange (MGEX) is the only

exchange for hard red spring wheat futures and options.

The 1970s saw the development of the financial futures contracts, which

allowed trading in the future value of interest rates. These (in particular

the 90-day Eurodollar contract introduced in 1981) had an enormous

impact on the development of the interest rate swap market.

Today, the futures markets have far outgrown their agricultural origins.

With the addition of the New York Mercantile Exchange (NYMEX) the

trading and hedging of financial products using futures dwarfs the

traditional commodity markets, and plays a major role in the global

financial system, trading over $1.5 trillion per day in 2005.

The recent history of these exchanges (Aug 2006) finds the Chicago

Mercantile Exchange trading more than 70% of its Futures contracts on

its "Globes" trading platform and this trend is rising daily. It counts for

over $45.5 billion of nominal trade (over 1 million contracts) every

single day in "electronic trading" as opposed to open outcry trading of

futures, options and derivatives.

In June 2001 Intercontinental Exchange (ICE) acquired the International

Petroleum Exchange (IPE), now ICE Futures, which operated Europe’s

leading open-outcry energy futures exchange. Since 2003 ICE has

partnered with the Chicago Climate Exchange (CCX) to host its

electronic marketplace. In April 2005 the entire ICE portfolio of energy

futures became fully electronic.

In 2006 the New York Stock Exchange teamed up with the Amsterdam-

Brussels-Lisbon-Paris Exchanges "Euro next" electronic exchange to

form the first transcontinental futures and options exchange. These two

developments as well as the sharp growth of internet futures trading

platforms developed by a number of trading companies clearly points to

a race to total internet trading of futures and options in the coming years.

In terms of trading volume, the National Stock Exchange of India in

Mumbai is the largest stock futures trading exchange in the world,

followed by JSE Limited in Sand ton, Gauteng, South Africa.

1.3 Gold

Gold is a precious metal which is also classed as a commodity and a

monetary asset. It has acted as a multifaceted metal down through the

centuries, possessing similar characteristics to money in that it acts as a

store of wealth, medium of exchange and a unit of value. Gold has also

played an important role as a precious metal with significant portfolio

diversification. Gold is used in industrial components, jewelry, as an

investment asset and reserve asset. Gold is a unique asset in that much of

the gold ever mined still exists today. Approximately 2500 tonnes of

gold is mined per annum. Above-ground stocks account for 135,000

tonnes. Governments and investors account for approximately 60,000

tonnes, jewelry accounts for 63,000 tonnes and 15,000 tonnes is held in

other forms such as electronics, etc. Gold is a highly liquid metal; it can

be readily bought or sold 24 hours a day, in large denominations and at

narrow spreads. This is highlighted by Draper et al. (2006) who note that

total annual production of gold is cleared by the London Bullion Market

Association every 2.5 days.

While gold is an industrial metal, its uses are fewer compared to other

metals, with only approximately 10% of gold demand derived from

industry. Of perhaps more interest is gold's use as an investible metal.

Central banks hold a large proportion of the above-ground stocks of

gold. Central banks and international financial institutions maintain

32,000 tons of gold in their reserve. Gold is held in central banks

reserves for a number of reasons: diversification, economic security—

gold maintains its purchasing power, physical security—gold is a liquid

asset, confidence—cushion in a crisis, maintains value, income—gold

leasing, insurance—against market crises. Much research also points to

the benefits of inclusion of gold holdings as leading to a more balanced

portfolio.

Gold futures are hedging tools for commercial producers and users of

gold. They also provide global gold price discovery and opportunities

for portfolio diversification.

In addition, they:

Offer ongoing trading opportunities, since gold prices respond

quickly to political and economic events

Serve as an alternative to investing in gold bullion, coins, and

mining stocks

Financial performance of gold in future market rates:-is the title of

my research project which I have undertaken during my project at India

Info line Limited

Of all the precious metals, gold is the most popular as an investment.

Investors generally buy gold as a hedge or harbor against economic,

political, or social fiat currency crises (including investment market

declines, burgeoning national debt, currency failure, inflation, war and

social unrest). The gold market is subject to speculation as are other

markets, especially through the use of futures contracts and derivatives.

Gold price has shown a long term correlation with the price of crude oil.

This suggests a reason why gold is sold off during economic weakness.

It is a technical analysis which implies use of various statistical tools to

see the trend which Gold has made in the future market and how its ups

and downs impacts the economy of a country in comparison to the

various metals such as Aluminum, copper, Lead, Nickel, Platinum,

silver, Steel, Tin, Zinc which are traded in commodity market.

As with stocks, gold investors may base their investment decision partly

on, or solely on, technical analysis. Typically, this involves analyzing

chart patterns, moving averages, market trends and/or the economic

cycle in order to speculate on the future price.

1.3.1 Importance of Gold futures

Gold is a precious metal which is also classed as a commodity and a

monetary asset. It has acted as a multifaceted metal down through the

centuries, possessing similar characteristics to money in that it acts as a

store of wealth, medium of exchange and a unit of value. Gold has also

played an important role as a precious metal with significant portfolio

diversification properties Gold is used in industrial components, jewelry,

as an investment asset and reserve asset. Gold is a unique asset in that

much of the gold ever mined still exists today. Approximately 2500 tons

of gold is mined per annum. Above-ground stocks account for 135,000

tones. Governments and investors account for approximately 60,000

tones, jewelry accounts for 63,000 tones and 15,000 tones is held in

other forms such as electronics, etc. Gold is a highly liquid metal; it can

be readily bought or sold 24 h a day, in large denominations and at

narrow spreads. The total annual production of gold is cleared by the

London Bullion Market Association every 2.5 days.

While gold is an industrial metal, its uses are fewer compared to other

metals, with only approximately 10% of gold demand derived from

industry. Of perhaps more interest is gold's use as an investible metal.

Central banks hold a large proportion of the above-ground stocks.

Central banks and international financial institutions maintain 32,000

tons of gold in their reserve. Gold is held in central banks reserves for a

number of reasons: diversification, economic security—gold maintains

its purchasing power, physical security—gold is a liquid asset,

confidence—cushion in a crisis, maintains value, income—gold leasing,

insurance—against market crises. Much research also points to the

benefits of inclusion of gold holdings as leading to a more balanced

portfolio.

There are a number of assets, traced from the literature in this area, that

have an influence on the gold market. In the 2004 period as the dollar

weakened, gold reached a 16-year high (compounded also by uncertain

economic conditions, geopolitical tensions and producer de-hedging).

Further dollar depreciation and a growing risk of dollar devaluation are

likely to strengthen investor demand for gold. Gold reflects the relative

strength of the currency in which it is quoted. For example, the dollar

price of gold may increase more in percentage terms than the sterling

price of gold; the price change merely reflects the dollar weakness

against sterling, rather than an intrinsic change in gold market

fundamentals (World Gold Council, 2002). The depreciation in the

dollar may fuel increased interest in gold due to the dilution in the

dollars’ worth. Gold appears to be the anti-dollar. Financial analysts

have attributed the rise in gold's price in recent months to the US dollar's

decline; gold is reflecting the US dollars value on international markets.

A lower US dollar makes it less expensive for Europeans (and others) to

buy dollar denominated gold. The weak dollar increases gold's attraction

as a stable place to invest money.

1.3.2 Gold as an Independent Asset

It’s not difficult to understand why the gold price moves independently

from the economic cycle when one considers the diversity of its demand

and supply base, the ultimate determinants of price movements.

There are three sources of gold supply: mine production, official sector

sales and scrap or recycled gold. Mine production is by far the largest

element, accounting for 70% of total supply last year. Changes in annual

mine supply bear no relation to changes in US or even global GDP

growth. The upward trend in mine production that was underway in the

late 1980s was not arrested by 1990 recession (the US economy suffered

an outright contraction, while world GDP growth slowed to 1.6% from

2.9% the previous year). Nor was the downtrend in mining output that

began in 2001 reversed by the sharp acceleration in world growth.

Mine production is influenced by very specific factors, such as the level

of exploration spending, the success or otherwise in discovering new

gold deposits and the cost of extraction (some new discoveries may not

be economically viable). Lead times in gold mining are often very long.

It can take years to re-open a closed mine, let alone find and mine new

reserves.

The decision to build a mine shaft (and often an entire infrastructure) is a

long term one that will often see business cycles comes and goes.

Central bank decisions to buy or sell gold (they remain net sellers) are

also usually strategic in nature, rather than reactive to the economic

cycle. The decision to buy or sell gold is often made years in advance

and then carried out over a period of years. In Switzerland, for example,

the proposition to sell gold (the first gold sales programmed) was first

recommended by a group of experts in 1997. However, the actual sales

programmed did not commence until May 2000, with the sales then

taking place over a period of five years.

Scrap supply is influenced by many factors, perhaps the most important

being price and price volatility, but recessions and periods of economic

distress have also had an impact. The most dramatic example is when

Korea was pushed into recession during the 1998 Asian currency crisis;

its scrap supply increased by almost 200 tones as the government bought

gold from the local populace in exchange for one-denominated bonds. It

then sold the gold on the international market in order to raise the dollars

necessary to avoid defaulting on its external debt.

Similarly, in Indonesia the 1998 recession saw scrap supply increase by

72 tons in the first quarter of the year, in this instance purely for

independent reasons rather than at the behest of the government.

The pros and cons of investing in gold

Highlights

Gold is often bought as a hedge against the risk of investment losses.

Gold prices are more volatile than many individual investors expect.

Day trading by central banks and speculators can affect the price of gold.

Up, up and up. That appears to be the direction of U.S. gold futures, which hit a record high of $1,910 per ounce in mid-August on the New York Commodity Exchange, or COMEX.

The opportunity to buy might tempt investors looking for fatter returns than they've earned on certificates of deposit, bank accounts, stocks or bonds. Yet, gold is far from foolproof.

Indeed, gold shouldn't be considered an investment, says Chris Hazy, chief investment officer at U.S. Trust, the private wealth management arm of Bank of America in New York. Rather, the precious metal acts as a hedge, or a way to try to protect wealth against the risk of loss in such asset classes as real estate, equities and bonds, he says.

Traditionally, investing in gold has been used as a hedge against inflation. That thinking still holds, though worries over inflation might be better understood as a fear of the loss of purchasing power or that "the money we currently have today will decline in value," Hazy says.

24-karat rabbits

The "love" aspect has to do with the rising demand for gold jewelry and ornaments in China, India and other emerging-market countries where gold is an important cultural symbol, Holmes says.

"Fifty percent of the world's population believes in gold … for love, romances, birthdays," he says. "This is the Year of the Rabbit, so if you're in Asia, you can see 24-karat gold rabbits that are given as a gift."

India and China together accounted for more than half of the total worldwide demand for gold bars, coins and jewelry in the second quarter of 2011, according to the World Gold Council, an industry market development organization based in London.

These demand pressures might be expected to attract new supply, bringing gold prices down to earth. But Holmes says the low-hanging fruit of gold mining already has been harvested, and environmental regulations have raised the cost of exploration, extraction and shipping.

"It's much more difficult to get that asset out of the ground," he says…..

Should I Buy Gold?

So far this year, gold has lost some of its luster, with its value falling by over 24%. If there is no rally during the rest of the year, gold will actually have its worst performance since 1981 — certainly ominous since that was the start of a 20-year bear market.

Yet it’s important to note that gold has posted a gain for every year from 2000 to 2014. In other words, it is more than reasonable that there should be some type of major pullback.

But is it a good time to buy now? Or should investors will be cautious? To see, here’s a look at the pros and cons:

Pros on Gold

Safe Haven: When it comes to owning gold, this is the common reason. It is considered by many to be an alternative to a currency — that is, a store of value, especially during times of distress. This has proved to be the case during such recent periods like 9/11 and the financial crisis in 2008 (during this time, it was only a small number of assets that increased in value). Whenever there is a drop in the value, the buzz is often that gold has suddenly lost its “safe haven” status. But again, the precious metal has been a popular store of value for hundreds of years. Besides, there are no signs that the world has entered a phase of bliss. Just some of the possible issues include budget battles in DC, potential bubbles in real estate, foreign policy hotspots like Iran and North Korea and instability in emerging markets.

Gold Supply. As with many other commodities, it has become harder to find deposits. And even when there is a new discovery, the costs of extraction are generally high. As a result, the overall production rates have been tepid from miners like Barrack Gold (ABX), Newmont Mining (NEM) and Goldcorp (GG). And with the recent plunge in the price of gold, it is likely that there will be even less production.

Stock Market: The stock market has been an easy place to make money lately, but there seems to be a disconnect. After all, corporate revenues and earnings are still fairly moderate as the economic recovery has been a let-down. Yet investors have been aggressive with stock buying and IPOs, which is a traditional sigh of frothiness. If there is a big pullback, then investors will scramble for alternatives — and gold may be an attractive option.

Cons on Gold

Central Banks: Since 2010, they have been strong buyers of gold. A key source of demand came from emerging markets, where many countries were piling up budget surpluses. By purchasing gold, it was a way to help diversify the bulging currency holdings. However, this year the demand has flagged as central banks have devoted more firepower to support domestic currencies. Volatility has been high because of recent indications from the Federal Reserve that there would be tapering, which could pull in more capital because higher interest rates. Consider that the consensus forecast is that gold buying will drop about 34% this year.

Inflation Hedge: This is one of the advantages of holding gold. With the surge in easy money across the world, many investors believed that inflation would spiral, which would drive the price of gold. But so far, there are few indications of inflation. The fact is that the world economy has remained sluggish, which has meant moderate increases in wages and consumer spending. In a recent report, the Labor Department said that prices rose only 1.2% in the year ended September.

Dead Money: Gold may be shiny but there are few commercial applications for it. Oh and of course, it does not produce any dividends. If anything, there is an ongoing cost for storage and insurance. This is why gold is known as a negative-yield investment. Given all this, there are some well-known investors who shun gold. One is actually famed

billionaire Warren Buffett, who once said: “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

Verdict

The negative sentiment is widespread for gold. As indicated from a recent article in Bloomberg, hedge funds have been dumping their holdings.But again, gold is still likely to be a safe haven. And this is why it can be a type of insurance policy for a portfolio. For example, legendary investor Byron Wien — who is the Vice Chairman at theBlackstone Group (BX) – recommends about a 5% stake.Plus, it’s fairly easy to get exposure to gold, such as with exchange-traded funds like the SPDR 

Turning to demand

Conventional wisdom argues that recessions are bad for commodity

prices. The reasoning goes that as consumer and business confidence

falls, demand for goods and services is cut back and hence the materials

used in the production of those goods or in the provision of services

(many of which are commodities) declines, thereby depressing their

price.

The argument is logical. However, a few points are worth bearing in

mind with respect to gold. Demand for gold as an intermediate good is

relatively small in comparison to many other commodities. Last year,

just 14% of gold demand came from the industrial sector (mainly

electronics). This is in stark contrast to base metals and even other

precious metals, where the vast majority of demand comes from

industry. As a result, gold is much less vulnerable to the vagaries of the

economic cycle. That said, demand for gold in electronics is likely to fall

if the economy falls into recession as consumer spending on non-

essential electronics goods declines. A US recession would undoubtedly

have negative implications for gold jewelry demand in America, as

consumer spending slows. However, this negative implication could be

at least partially offset by the higher share of gold jewelry in the retail

market that gold jewelry has enjoyed in recent years. Moreover, gold is

much less vulnerable than other jewelry materials, such as diamonds or

platinum, to a US recession as far more demand for gold comes from

outside of the US – 70% of diamond jewelry demand comes from the

US market, compared with just 10% for gold.

India is in fact the single largest consumer of gold jewellery in the world

in tonnage terms. Last year, Indian households bought 558 tons of gold

jewelry, more than double their US counterparts (Chart 7). Chinese

consumers rank second, having bought 331 tones. US consumers are

third in tonnage terms; although US demand remains highest in retail

value terms due to its higher trade margins. The extent to which

worldwide gold jewelry demand suffers from a US recession will

depend partly on the spill-over effects to other countries. If proponents

of “decoupling” prove to be correct (they argue that emerging market

economies are now strong enough domestically to withstand a US

slowdown) then worldwide jewelry demand need not fare badly.

The final source of demand comes from investors. Investors buy gold for

many reasons. Chief among these are gold’s inflation and dollar-hedging

properties, both of which have been proven over long periods of time.

How a recession affects investment demand would depend, in part, on

how inflation and the dollar react.

The brewing recession has so far been positive for gold on both fronts.

The dollar has continued its downward trajectory, while inflation has

(unusually) headed higher. US consumer prices increased at an annual

rate of 4.0% in February this year, up from 2.4% just a year earlier. If

these trends continue, investment demand for gold as an inflation and

dollar hedge is likely to remain strong. And if the recession deepens

concerns over the health of the US banking sector, demand for gold as a

safe haven asset is also likely to remain robust.

In summary, statistical analysis suggests there is no relationship between

changes in US GDP growth and changes in the gold price. This reflects

gold’s unique and diverse demand and supply base, which as for any

freely-traded good ultimately determine the price. Consequently, a US

recession does not have negative implications for the gold price. The

only element of demand likely to be affected by a recession is

investment demand, but that in turn will depend on the “type” of

recession. So far, the brewing recession has been positive for gold, as it

has been accompanied by a rise in inflation and a falling dollar, which

has boosted demand for gold as a dollar and inflation hedge.

Gold Belts:

1. The famous Witwatersrand (South Africa)2. The Tina Shan Gold Belt (The Tina Shan range on the border

between China and Kyrgyzstan)3. Grasberg Mine (Indonesia)

Largest Gold Producing Country in the World

South Africa Australia United States Indonesia

Important world market:

London is the biggest and the oldest gold market in the world.

Mumbai is India’s liberalized gold regime.

New York is the home of gold future trading.

Istanbul, Dubai, Singapore and Hong Kong are doorways to

important consuming regions.

1.3.3 What makes Gold Special?

• Timeless and Very Timely Investment:

For thousands of years, gold has been prized for its rarity, its beauty, and

above all, for its unique characteristics as a store of value. Nations may

rise and fall, currencies come and go, but gold endures. In today’s

uncertain climate, many investors turn to gold because it is an important

and secure asset that can be tapped at any time, under virtually any

circumstances. But there is another side to gold that is equally important,

and that is its day-to-day performance as a stabilizing influence for

investment portfolios. These advantages are currently attracting

considerable attention from financial professionals and sophisticated

investors worldwide.

• Gold is an effective diversifier:

Diversification helps protect your portfolio against fluctuations in the

value of any one-asset class. Gold is an ideal diversifier, because the

economic forces that determine the price of gold are different from, and

in many cases opposed to, the forces that influence most financial assets.

• Gold is the ideal gift:

In many cultures, gold serves as a family treasure or a wealth transfer

vehicle that is passed on from generation to generation. Gold bullion

coins make excellent gifts for birthdays, graduations, weddings, holidays

and other occasions. They are appreciated as much for their intrinsic

value as for their mystical appeal and beauty. And because gold is

available in a wide range of sizes and denominations, you don’t need to

be wealthy to give the gift of gold.

• Gold is highly liquid:

Gold can be readily bought or sold 24 hours a day, in large

denominations and at narrow spreads. This cannot be said of most other

investments, including stocks of the world’s largest corporations. Gold is

also more liquid than many alternative assets such as venture capital,

real estate, and timberland. Gold proved to be the most effective means

of raising cash during the 1987 stock market crash, and again during the

1997/98 Asian debt crisis. So holding a portion of your portfolio in gold

can be invaluable in moments when cash is essential, whether for margin

calls or other needs.

• Gold responds when you need it most:

Recent independent studies have revealed that traditional diversifiers

often fall during times of market stress or instability. On these occasions,

most asset classes (including traditional diversifiers such as bonds and

alternative assets) all move together in the same direction. There is no

“cushioning” effect of a diversified portfolio — leaving investors

disappointed. However, a small allocation of gold has been proven to

significantly improve the consistency of portfolio performance, during

both stable and unstable financial periods. Greater consistency of

performance leads to a desirable outcome — an investor whose

expectations are met.

What makes Gold different from other commodities?

The flow demand of commodities is driven primarily by exogenous

variables that are subject to the business cycle, such as GDP or

absorption. Consequently, one would expect that a sudden unanticipated

increase in the demand for a given commodity that is not met by an

immediate increase in supply should, all else being equal, drive the price

of the commodity upwards. However, it is our contention that, in the

case of gold, buffer stocks can be supplied with perfect elasticity. If this

argument holds true, no such upward price pressure will be observed in

the gold market in the presence of a positive demand shock.

The existence of a sophisticated liquid market in gold has, over the past

15 years, provided a mechanism for gold held by central banks and other

major institutions to come back to the market. Although the demand for

gold as an industrial input or as a final product (jewelry) differs across

regions, it is argued that the core driver of the real price of gold is stock

equilibrium rather than flow equilibrium. This is not to say that

exogenous shifts in flow demand will have no influence at all on the

price of gold, but rather that the large supply of inventory is likely to

dampen any resultant spikes in price. The extent of this to dampening

effect depends on the gestation lag within which liquid inventories can

be converted in industrial inputs. In the gold industry such time lags are

typically very short.

Gold has three crucial attributes that, combined, set it apart from other

commodities: firstly, assayed gold is homogeneous; secondly, gold is

indestructible and fungible; and thirdly, the inventory of aboveground

stocks is astronomically large relative to changes in flow demand. One

consequence of these attributes is a dramatic reduction in gestation lags,

given low search costs and the well-developed leasing market. One

would expect that the time required convert bullion into producer

inventory is short, relative to other commodities which may be less

liquid and less homogenous than gold and may require longer time

scales to extract and be converted into usable producer inventory,

making them more vulnerable to cyclical price volatility. Of course,

because of the variability of demand, the price responsiveness of each

commodity will depend in part on precautionary inventory holding.

CHAPTER-2

RESEARCH METHODOLOGY

3.1 Objectives of the Problem

To study the trend of gold in futures market

To study the futures prices of both standard and mini contracts lead

spot price.

To study the VaR of gold futures.

3.2 Statement of Problem

To understand how gold acts as a hedge during financial crisis to

an economy

To examines the price discovery process of the gold futures

contracts in the Multi Commodity Exchange of India (MCX) over

the period 2004 to 2014.

3.3 Scope of the Study

The study will give an overview of the metals traded in futures

commodity market with special reference to Gold, its trend in coming

year, the way it will raise to the soar or fall down to the pitch , looking

back at the trend and doing a technical analysis of the same. Derivatives,

such as gold forwards, futures and options, currently trade on various

exchanges around the world and over-the-counter (OTC) directly in the

private market. In the U.S., gold futures are primarily traded on the New

York Commodities Exchange (COMEX) and Euro next. Life. In India,

gold futures are traded on the National Commodity and Derivatives

Exchange (NCDEX) and Multi Commodity Exchange (MCX).As of

2009 holders of COMEX gold futures have experienced problems taking

delivery of their metal. Along with chronic delivery delays, some

investors have received delivery of bars not matching their contract in

serial number and weight. The delays cannot be easily explained by slow

warehouse movements, as the daily reports of these movements show

little activity. Because of these problems, there are concerns that

COMEX may not have the gold inventory to back its existing warehouse

receipts

3.4 Methodology of the study

The following are methodology of the study

3.4.1 Sources of data collection

Secondary data-Information collected from different websites likes Gold

World, MCX etc. From various text books, journals, magazines, news

papers and booklets from company.

.3.4.2 Methods of Data Collection

Secondary data were obtained as excerpts from the above mentioned

sources of secondary data.

3.4.3 Data Analysis and Interpretations

After the analysis inference were drawn and explained theoretically with

the help of Graphs and Tables

3.5 Plans of Analysis used

The market risk of a portfolio refers to the possibility of financial loss

due to the joint movement of systematic economic variables such as

interest and exchange rates. Quantifying market risk is important to

regulators in assessing solvency and to risk managers in allocating

scarce capital. Moreover, market risk is often the central risk faced by

financial institutions. The standard method for measuring market risk

places a conservative, one-sided confidence interval on portfolio losses

for short forecast horizons. This bound on losses is often called capital-

at-risk or value-at-risk (VAR), for obvious reasons.

Calculating the VAR or any similar risk metric requires a probability

distribution of changes in portfolio value. In most risk management

models, this distribution is derived by placing assumptions on

(1) How the portfolio function is approximated, and

(2) How the state variables are modeled.

Using this framework, we first review four methods for measuring

market risk. We then develop and illustrate two new market risk

measurement models that use a second-order approximation to the

portfolio function and a multivariate GARCH model for the state

variables. We show that when changes in the state variables are modeled

as conditional or unconditional multivariate normal, first-order

approximations to the portfolio function yield a uni-variate normal for

the change in portfolio value while second-order approximations yield a

quadratic normal. Using equity return data and a hypothetical portfolio

of options, we then evaluate the performance of all six models by

examining how accurately each calculates the VAR on an out-of-sample

basis. We find that our most general model is superior to all others in

predicting the VAR. In additional empirical tests focusing on the error

contribution of each of the two model components, we find that the

superior performance of our most general model is largely attributable to

the use of the second-order approximation, and that the first-order

approximations favored by practitioners perform quite poorly. Empirical

evidence on the modeling of the state variables is mixed but supports

usage of a model which reflects non-linarite in state variable return

distributions.

Mathematical Expression for the calculation of VAR (Value at Risk)

Value at Risk (VAR) = [SD* √n * (Normalized value)]

1. Graphical Representation of Analysis:

2. Correlation coefficient: It measures the intensity or the magnitude of

linear relationship between two variables.

3.6 Limitations

LIMITATION OF THE STUDY:

Commodity market is very difficult to predict. Commodity prices

depend upon region, monsoon, transportation cost, demand-supply

theory, import/ export policies & Global market trends.So

commodity market experience volatility that cannot be predicted

easily.

Without knowing the spot market for commodities it is very

difficult to play with Future market. In capital market it depends

upon Companies performance, decisions, long run plans, mergers,

etc. there are definite regions to move up & down in the market,

but in the case of Commodity market there are so many regions for

the market movement, it is like a game of luck to the investor

CHAPTER-III

COMPANY PROFILE

2.1 Background and inception of IIFL:

India Info line Limited (IIFL), incorporated in 18th October of the year

1995 as Probity Research & Services Private Limited at Mumbai. The

India Info line is a one-stop shop for information, advice as well as

transaction execution of financial services. IIFL along with its

subsidiaries caters to entire gamut of financial services including

equities and commodities broking, portfolio management, distribution of

mutual funds, life insurance products, home loans, personal loans, etc.

Broking services are offered under the 5paisa brand (offers broking

services in the cash and derivatives segments of the NSE as well as the

Cash segment of the BSE).

The company has proven research capabilities and was rated by the

Forbes as the ‘best of web’ and ‘must read for investors'. A network of

758 business locations spread over 346 cities across India, facilitates the

smooth acquisition and servicing of a large customer base. India Info

line's research is available not just over the internet but also on

international wire services like Bloomberg (Code: IIFL: IN), Thomson

First Call and Internet Securities where it is amongst the most read

Indian brokers. The Company identified the potential of the internet to

cater to a mass retail segment and transformed its business model from

providing information services to institutional customers to retail

customers. Hence IIFL launched its internet portal, www.indiaInfo

line.com in May of the year 1999 and started providing news and market

information, independent research, interviews with business leaders and

other specialized features.

IIFL was converted into a Public Limited Company in 28th April of the

year 2000 and the name of the company was changed from Probity

Research & Services Limited to India Info line.com Limited in 23rd

May of the year 2000. During 23rd March of the year 2001, again the

name was changed as India Info line Limited. IIFL acquired 100%

shares of Agri Marketing Services Limited during March of the year

2000. In the year 2000, IIFL leveraged its position as a provider of

financial information and analysis by diversifying into transactional

services, primarily for online trading in shares and securities and online

as well as offline distribution of personal financial products, like mutual

funds and RBI Bonds. These activities are carried on through the wholly

owned subsidiaries. The broking service was launched under the brand

name of 5paisa through our subsidiary, India Info line Securities Private

Limited and www.5paisa.com, the e-broking portal, was launched for

online trading in June of the year 2000. It combined competitive

brokerage rates and research, supported by internet technology.

Besides investment advice from an experienced team of research

analysts, also offer real time stock quotes, market news and price charts

with multiple tools for technical analysis. In December of the year 2000,

India Info line Insurance Services Limited (subsidiary) became a

corporate agent for ICICI Prudential Life Insurance Company Limited.

In the year 2004, the company launched commodities broking through

its subsidiary India Info line Commodities Private Limited. Also

received a license for Portfolio Management Services from SEBI for

broking subsidiary. During the year 2006, the company received the

requisite prior approval from The Securities and Exchange Board of

India for its proposed merger of India Info line Securities Private

Limited (IISPL), a wholly owned subsidiary with itself.

In January of the year 2007, the company entered into an alliance with

Bank of Baroda for providing Brokerage Platform, besides research and

analysis services to the bank's customers. India Info line was awarded

the Best Broker in India' by Finance Asia. This was a result of Finance

Asia's annual look at the best financial services firms in each country

around Asia for the period from June 2007 to May 2008. During March

of the year 2008, India Info line's institutional broking arm IIFL,

partnered with Auerbach Grayson Company Inc, a New York based

brokerage firm to offer US investors’ premium access to investing in

India's capital markets. Auerbach Grayson specializes in providing

global trade execution and exclusive research to U.S. institutional

investors. As of July 2008, the company received the in principle

approval for the insurance broking licence from IRDA

COMPANY SNAPSHOT

Date of establishment 18-10-1995

Revenue 14.7685(USD IN MILLIONS)

Market Cap 52201.34778855(Rs in millions)

Corporate Address I I F L House, Sun InfoTech Park, Road No. 16, Plot No. B - 23, M I D

C, Thane Industrial Area,Wagle EstateThane-400604, Maharashtra

www.indiaInfo line.com

Management Details Chairperson - Nirmal Jain 

MD - R Venkataraman

Directors - A K Purwar, AK Purwar, Chandran Ratnaswami,

Chandran Ratnaswamy, Falguni Sanghvi, Kranti Sinha, Nilesh

Vikamsey, Nirmal Jain, R Venkataraman, S Narayan, Sat Pal Khattar,

Sunil Kaul, Sunil Lotke, V K Chopra, VK Chopra

Business operation

background

India Info line (IIL) is engaged in business of equities broking, wealth

advisory services and portfolio management services. The company

was incorporated in October 1995 as Probity Research & Services

and later in April 2000 the name was changed to India Info line.com. 

Then in March 2001 the company again changed its name to India

Info line.

Financials Total Income - Rs. 886.673873 Million ( year ending Mar 2014) 

Net Profit - Rs. 977.679647 Million ( year ending Mar 2014)

Bankers Andhra Bank, Bank of Maharashtra, Canara Bank , Central Bank of

India, Corporation Bank, Credit Suisse, Dena Bank, Federal Bank,

HSBC Bank, Indian Overseas Bank, Indusind Bank, ING Vysya Bank,

Jammu & Kashmir Bank, Karur Vysya Bank, Mashreq Bank, Oriental

Bank of Commerce, Punjab & Sind Bank, Ratnakar Bank, Saraswat

Co-Op Bank, Small Industries Development Bank of India, South

Indian Bank, Standard Chartered Bank, State Bank of Mauritius,

Syndicate Bank, UCO Bank, Union Bank of India, Vijaya Bank

POWER HEADS

Sl.no Name Designation1 Nirmal Jain Chairman

2 R Venkataraman Managing Director

3 Sunil Lotke Company Secretary

4 Sunil kaul Non executive director

5 Chandran Ratnaswami Non executive director

6 AK Purwar Independent director

7 S Naryan Independent director

2.2 Nature of the business:

The IIFL (India Info line) group, comprising the holding company, India

Info line Ltd (NSE: INDIAINFO, BSE: 532636) and its subsidiaries, is

one of India’s premier providers of financial services. IIFL offers advice

and execution platform for the entire range of financial services covering

products ranging from equities and derivatives, commodities, wealth

management, asset management, insurance, fixed deposits, loans,

investment banking, gold bonds and other small savings instruments.

IIFL has a presence in:

Equities, IIFL’s core offering gives them a leading market share in both

retails and institutional segments. Over a million retail customers rely on

IIFL’s research, as do leading FIIs and MFs that invest billions.

Private Wealth Management services cater to over 2500 families who

have trusted IIFL with close to Rs 25,000 crores ($ 5bn) of assets for

advice.

Investment Banking services are for corporates looking to raise capital.

IIFL’s forte is Equity Capital Markets, where it has executed several

marquee transactions.

Credit & Finance focuses on secured mortgages and consumer loans.

IIFL’s high quality loan book of over Rs. 6,200 crores ($ 1.2bn) is

backed by strong capital adequacy of approximately 20%.

IIFL Mutual Fund made an impressive beginning in FY12, with lowest

charge Nifty ETF. Other products include Fixed Maturity Plans.

Life Insurance, Pension and other Financial Products, on open

architecture complete IIFL’s product suite to help customers build a

balanced portfolio.

2.3 Products and services:

Equities: India Info line leveraged technology to bring the

convenience of trading to the investor’s location of preference

(residence or office) through computerized access. India Info line

made it possible for clients to view transaction costs and ledger

updates in real time. The company is among the few financial

intermediaries in India to offer a complement of online and offline

broking. The company’s network of branches also allows

customers to place orders on phone or visit the branches for

trading.

Commodities: India Info line’s extension into commodities

trading reconciles its strategic intent to emerge as a one stop

solutions financial intermediary. Its experience in securities

broking has empowered it with requisite skills and technologies.

The company’s commodities business provides a contra cyclical

alternative to equities broking. The company was among the first

to offer the facility of commodities trading in India’s young

commodities market.

Insurance: An entry into this segment helped complete the client's

product basket. Concurrently, it graduated the company into a one

stop retail financial solutions provider. To ensure maximum reach

to customers across India, it has employed a multi-pronged

approach and reaches out to customers via network, direct and

affiliate channels. IIFL was the first corporate in India to get the

agency license in early 2001.

Invest Online: India Info line has made investing in mutual funds

and primary market so effortless. India Info line offers a host of

mutual fund choices under one roof, backed by in-depth research

and advice from research house and tools configured as investor

friendly.

Wealth Management: The key to achieving a successful

investment portfolio is to have a carefully planned financial

strategy based on a thorough understanding of the client's

investment needs and risk appetite. The IIFL Private Wealth

Management Team of financial experts will recommend an

appropriate financial strategy to effectively meet customer’s

investment requirements.

Asset Management: India Info line is a leading pan-India mutual

fund distribution house associated with leading asset management

companies. It operates primarily in the retail segment leveraging

its existing distribution network to reach prospective clients. It has

received the in-principle approval to set up a mutual fund.

Portfolio Management: IIFL Portfolio Management Service is a

product wherein an equity investment portfolio is created to suit

the investment objectives of a client. India Info line invests the

client’s resources into stocks from different sectors, depending on

client’s risk-return profile. This service is particularly advisable

for investors who cannot afford to give time or don't have that

expertise.

News letters: As a subscriber to the Daily Market Strategy,

client’s get research reports of India Info line research team on a

priority basis. The India Info line Weekly Newsletter is the

flashback for the week gone by. Leaders Speak and features is

delivered in the client’s inbox every Friday evening.

2.4 Vision statement:

IIFL’s vision is “to be the most respected company in the financial

services space.”

The India Info line group, comprising the holding company, India Info

line limited and its wholly-owned subsidiaries, straddle the entire

financial services space with offerings ranging from equity research,

equities and derivatives trading, commodities trading, portfolio

management services, mutual funds, life insurance, fixed deposits, bonds

and other small savings instruments to loan products and investment

banking.

2.5 Mission statement:

Customer satisfaction.

Research and technology that delights the customers’ service.

Respect for highest standard of integrity and compliance.

Highest standard of corporate government and transparency.

Pace of growth that beats the industry and compliance.

Quality policy:

Wide multiple networks servicing as one stock shop to customers.

Drive customer stickiness through quality advice.

Excellence is all about the quality of work.

Strive for delivery for that is 100% error free.

Area of operation:

India Info line operates in India and in foreign country also. It has 1361

branches in 428 cities and towns in the country and some of the foreign

country also. The operations of the company are divided into four

regions in India (i.e. North, South, East and West). The head office is

located in Mumbai. It also provides the services to the customers who

are in foreign countries. IIFL has presence in:

• Singapore

• Dubai

• UK

• USA

• Hong Kong

• Geneva and

• Mauritius

2.6 Ownership pattern:

• Table no 1:- Shares and holdings of IIFL

Particulars Shares (In Millions) % Holdings

Total Promoter Holdings 92.36 31.2

Total Government Holdings 0.00 0.0

Total Domestic Institutions 2.19 0.7

Total Foreign Holdings 160.42 54.2

Total Non-Promoter Corporate Holdings 5.14 1.7

Total Public & Others 36.09 12.2

Total 296.2 100.0

•

Competitor’s information:

A share broker, who is also called as stockbroker is a regulated

professional broker, who purchases and sells shares and other securities

through agency or market markers. A share broking firm is engaged in

the same work of an individual stockbroker with the help of experts in

the field of stock broking as their staff members.

A stock broking firm offers three stock broking services namely

discretionary dealing, advisory dealing and execution. The names of top

companies in the stock broking industry in India are given below:

Anagram Securities Limited

Kotak Securities

Karvy

Indiabulls

ShareKhan

Motilal Oswal Securities Limited

Religare Securities

Geojit BNP Paribas

ICICI Direct

Some of the details regarding these top players in the share broking

industry in India are given below:

Anagram securities: Anagram Securities Limited is one among the

leading retail broking firm in India, which is engaged in offering

comprehensive personal finance solutions right from their inception in

the year 1994. They offer wide services like real time trading, online

account access and discerning equity investor through their group

companies like Anagram Comtrade Limited and Anagram Capital

Limited.

Kotak securities: Kotak Securities Limited is a subsidiary of the

popular Kotak Mahindra Bank and they are one of the largest and largest

stock brokers in India. They offer portfolio management services,

mutual funds, investment in IPO, etc. Some of the services offered

Kotak Portfolio management, easy insurance, easy mutual fund, easy

IPO, easy derivatives and easy equity.

Karvy: Karvy Limited Stock Broking Limited is one of the cornerstones

of the Karvy Edifice and they offer the best service in the industry of

stock broking. They offer research-based advisory services to their

customers in such way that they can get a wide range of safe investment

vistas. The company is a member of the Mumbai stock exchange and the

National Stock Exchange.

India bulls: India bulls Securities Limited is a leading stock broking

company in India with large network branches all over the country. They

have a customer base of more than seven lakhs satisfied customers with

online stock trading platform. Some of their products and services are

depository services, integrated trading terminal, mobile power India

bulls, India bull’s equity analysis, tradelite, currency derivatives, etc.

Share Khan: Share Khan stock broking company offers equity related

services like trade execution on online trading, depository services,

commodities, derivatives, NSE, BSE and they also offer investment

advice. They have around 510 officers in 170 cities all over India.

Motilal Oswald Securities: This Company came into existence in the

year 1987 as a small sub-broking unit with just two people. Now, they

have grown into a team of 2000 members mainly because of their

customer-first-attitude, implementation of cutting-edge technology,

respect for professionalism and transparent and ethical business

practices. They are dealing with equities, derivatives, wealth

management, investment banking, private equity, asset management, etc.

Religare: Religare has made its presence in different continents like

America, Europe, Middle East, Africa and Asia. They offer a wide array

of services and products including wealth management, investment

banking, lending solutions, asset management, insurance and broking.

Infrastructure facilities: India Info line outlets are designed to be

places where retail investors can come in touch with investment

opportunities in an atmosphere of convince and comfort. The look and

feel of the office across India projects a consistent branch image for the

company .The features that enable a unique facility for retailing financial

service include among others

Achievements:

1. Sold book-running lead manager for Cox & Kings (Rs. 6.1 bn.) and

Talwalkars (Rs.744.4 mn.) Scaled up Wealth management business with

assets under advice have crossed Rs.50 bn.

2. Financing book grew to Rs. 16.3 bn. Received an in-principle

approval for securities trading and clearing membership from the

Singapore Exchange for IIFL Securities Pte Ltd, our Singapore-based

subsidiary.

3. Conducted our first Global Investors’ Conference ‘Enterprising India’

in Mumbai, drawing the participation of more than 450 fund managers,

more than 70 corporate as well as world renowned economists and

thought leaders.

Awards:

1. Awarded “Best broker- India” by Finance Asia as a part of its survey

of financial services firms across Asia for 2008

2. Awarded “Most improved brokerage” in India by Asia Money as a

part of its survey of brokerage in countries across Asia for 2008

3. Awarded “Fastest growing equity broking house - large firms” in

India by for the year 2008 by Dun & Bradstreet.

4. Awarded “The best wealth management house” in India by Asset

Asian Awards 2011.

5. Forbes rates www.indiaInfo line.com “best of the web” and “must

read for investors”

Milestones:

2011: Launched IIFL Mutual Fund.

2010: Received in-principle approval for membership of the Singapore

Stock Exchange. Received membership of the Colombo Stock Exchange

2009: Acquired registration for Housing Finance, SEBI in-principle

approval for mutual fund. Obtained Venture Capital license

2008: Launched IIFL Wealth. Transitioned to insurance broking model

2007: Commenced institutional equities business under IIFL. Formed

Singapore subsidiary, IIFL (Asia) Pte Ltd

2006: Acquired membership of DGCX. Commenced the lending

business

2005: Maiden IPO and listed on NSE, BSE

2004: Acquired commodities broking license. Launched Portfolio

Management Service

2003: Launched proprietary trading platform Trader Terminal for retail

customers

2000: Launched online trading through www.5paisa.com Started

distribution of life insurance and mutual fund

1999: Launched www.indiaInfo line.com

1997: Launched research products of leading Indian companies, key

sectors and the economy Client includes leading FIIs, banks and

companies.

1995: Commenced operations as an Equity Research firm.

2.7 Work flow model:

Work flow model here consists of the process by which a prospective

client is contacted and served.

Dealers/Salesmen obtain contact information of the prospective customers

Walk in of prospective clients

Relationship Manager attends the clients

Obtain clients details and financial requirements (short and long term)

Contact clients and explain the details of proposed plans

CHAPTER-IV

ANALYSIS AND INTEPRETATION

The chapter includes the analysis of Secondary data collected from

MCX Websites Historical Data.

Table 4.1: Table showing Value of Gold Traded in MCX from 2005 to

2015

Source: Multi Commodity Exchange of India (MCX)’s website

Year

Commodity

Contract Value (Rs. In Lakhs)

2005 GOLD 12268.75

2006 GOLD 3940704.99

2007 GOLD 17551330.18

2008 GOLD 89636572.52

2009 GOLD 71977660.21

2010

2011

GOLD

GOLD

171474192

184997191.4

2012 GOLD 219874783.8

2013 GOLD 314713353.7

2014 GOLD 305672442.6

2015 GOLD 240012639.5

Inference: There is a constant growing investment in gold futures from

year 2005 to 2015 in MCX exchange.

Graph 4.1: Graph showing the value of gold traded in MCX from the

year 2005 to 2015

GOLD 2005

GOLD 2006

GOLD 2007

GOLD 2008

GOLD 2009

GOLD 2010

GOLD 2011

GOLD 2012

GOLD 2013

GOLD 2014

GOLD 2015

0

50000000

100000000

150000000

200000000

250000000

300000000

350000000

Series 1Column1Column2

Graph 4.2: Graph showing volume of Gold traded in MCX from 2005

to 2015

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

Quantity(In 000's) gm

Quantity(In 000's) gm x

Table 4.2: Table showing the Calculation of Standard Deviation of the

value of gold traded in MCX from 2005 to 2015

Yea

r

Commodity

Contract

Value (Rs. In

Lakhs) x (x-ẋ) (x- ẋ)^2

2005 GOLD 12268.75

-

147248016.7

21681978410839100

.00

2006 GOLD 3940704.99

-

143319580.4

20540502132286000

.00

2007 GOLD 17551330.18

-

129708955.2

16824413067329800

.00

2008 GOLD 89636572.52 - 3320492287438690.

57623712.89 00

2009 GOLD 71977660.21 -75282625.2

5667473657277430.

00

2010 GOLD 171474192 24213906.55

586313270324083.0

0

2011 GOLD 184997191.4 37736906

1424074074315610.

00

2012 GOLD 219874783.8 72614498.36

5272865371810390.

00

2013 GOLD 314713353.7 167453068.3

28040530082475500

.00

2014 GOLD 305672442.6 158412157.1

25094411532340300

.00

2015 GOLD 240012639.5 92752354.06

8602999183334320.

00

Sum 1619863140 Sum

13705605306977100

0.00

Mean 147260285.4 Sum/N-1

13705605306977100

.00

SD 117070941.34

Calculation:

Mean= Sum/N = 147260285.4

Standard Deviation

= 117070941.34

Inference: The above calculation that the standard deviation in the value

of gold traded from 2005 to 2015 is that gold futures market is very

volatile.

Calculation: VAR

Normalized value = 1.96 confidence level = 95%

VAR = SD * √n * (normalized value)

= 117070941.34 * √11 *1.96

= 117070941.34 * 3.315 * 1.96

= 760886193.308

Inference: The above calculation that the value at risk (VAR) of the value of gold invested in MCX from 2005 to 2015 is 760886193.308, with which we can infer that market risk places a conservative, one-sided confidence interval on portfolio losses for short forecast horizons.

Table 4.3: Table showing volume of Gold traded in MCX from 2005 to

2015

Year

Commodity

Contract Quantity(In 000's) gm

2005 GOLD 2013

2006 GOLD 632843

2007 GOLD 2600407

2008 GOLD 9957351

2009 GOLD 7604891

2010 GOLD 14024217

2011 GOLD 12144967

2012 GOLD 12052225

2013 GOLD 12655760

2014 GOLD 10287609

2015 GOLD 8385363

Inference: There is a constant growth in terms of the quantity of gold

traded in futures market MCX from 2005 to 2015.

Table 4.4: Table showing calculation of Standard Deviation of the

Volume of gold traded in MCX from 2005 to 2015

Year

Commodity

Contract

Quantity(In

000's) gm x (x-ẋ) (x-mean)^2

2005 GOLD 2013 8211409.3 67427243737214.9

6 0

2006 GOLD 632843

7580579.3

6

57465183488389.5

0

2007 GOLD 2600407

5613015.3

6

31505941472417.9

0

2008 GOLD 9957351

1743928.6

4 3041287088729.13

2009 GOLD 7604891

-

608531.36 370310420529.13

2010 GOLD 14024217

5810794.6

4

33765334305992.4

0

2011 GOLD 12144967

3931544.6

4

15457043227719.7

0

2012 GOLD 12052225

3838802.6

4

14736405680952.4

0

2013 GOLD 12655760

4442337.6

4

19734363675452.9

0

2014 GOLD 10287609

2074186.6

4 4302250202469.50

2015 GOLD 8385363 171940.64 29563582433.13

Sum 90347646 Sum

247834926882301.

00

Mean 8213422.364 Sum/N-1

24783492688230.1

0

SD 4978302.189

Calculation: Standard Deviation

= 4978302.18

Table 4.5: Table showing value and volume Proportion of gold traded in

MCX from 2005 to 2015

Year

Commodity

Contract

Value (Rs. In

Lakhs) x

Quantity(In

000's) gm y

2005 GOLD 12268.75 2013

2006 GOLD 3940704.99 632843

2007 GOLD 17551330.18 2600407

2008 GOLD 89636572.52 9957351

2009 GOLD 71977660.21 7604891

2010 GOLD 171474192 14024217

2011 GOLD 184997191.4 12144967

2012 GOLD 219874783.8 12052225

2013 GOLD 314713353.7 12655760

2014 GOLD 305672442.6 10287609

2015 GOLD 240012639.5 8385363

Source: Multi Commodity Exchange of India (MCX)’s website

Inference: The above calculation of coefficient of correlation between

the value and quantity of gold which is traded in MCX from 2005 to

2015 means there is a positive correlation between value and quantity of

gold futures market.

Graph 4.3: Graph showing Coefficient of correlation between value and

volume of gold traded in MCX from 2005 to 2015

0

50000000

100000000

150000000

200000000

250000000

300000000

350000000

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

Quantity(In 000's) gm yValue (Rs. In Lakhs) x

Graph 4.4 :- Graph Showing India The largest importer of Gold in 2002

Gold in Indian Scenario:

Gold is valued in India as a savings and investment vehicle and is the

second preferred investment behind bank deposits. India is the world’s

largest consumer of gold in jewelry (much of which is purchased as

investment). The hoarding tendency is well ingrained in Indian society,

not least because inheritance laws in the middle of the twentieth century

lent a great desirability to anonymity. Indian people are renowned for

saving for the future and the financial savings ratio is strong, with a ratio

of financial assets-to-GDP of 93%.

Gold’s circulates within the system and roughly 30% of gold jewelry

fabrication is from recycled pieces. India is typically also the largest

purchaser of coins and bars for investment (>80tpa), although last year it

had to concede first place to Japan in the wake of the heavy buying in

the first quarter due to fears for the stability of the Japanese banking

system. In 1998-2001 inclusive, annual Indian demand for gold in

jewelry exceeded 600 tons; in 2002, however, due to rising and volatile

prices and a poor monsoon season, this dropped back to 490 tons, and

coin and bar demand dropped to 67 tons. Indian jewelry off take is

sensitive to price increases and even more so to volatility, although this

decline in tonnage since 1998 is also due in part to increasing

competition from white and brown goods and alternative investment

vehicles, but is also a reflection of the increase in price. The Indian

bride’s “Streedhan”, the wealth she takes with her when she marries and

which remains hers, is still gold, however (thus giving gold an important

role in the “empowerment” of women in India).

The distinction between gold and commodities is important. Gold has

maintained its value in after-inflation terms over the long run, while

commodities have declined.

Some analysts like to think of gold as a “currency without a country’. It

is an internationally recognized asset that is not dependent upon any

government’s promise to pay. This is an important feature when

comparing gold to conventional diversifiers like T-bills or bonds, which

unlike gold, do have counter-party risk.

World Markets

Today's gold market is a round-the-world, round-the-clock business,

played out largely on dealers' trading screens. The core of the business,

however, remains in the key markets of London, as the great clearing

house, New York as the home of futures trading, Zurich as physical

turntable, Istanbul, Dubai, Singapore and Hong Kong as doorways to

important consuming regions and Tokyo where the Commodity

Exchange (TOCOM) sets the mood of Japan. Even Paris still has a small

market, a reminder of the days when the French were great hoarders,

while Mumbai has increasing importance under India's liberalized gold

regime that permits official imports through local markets.

Table 4.6: Table showing calculation of coefficient of correlation

between value and volume of gold traded in MCX exchange from 2003

to 2013.

Year

Commodity

Contract

Value (Rs. In

Lakhs) x

Quantity(In 000's)

gm y

200

5 GOLD 12268.75 2013

200

6 GOLD 3940704.99 632843

200

7 GOLD 17551330.18 2600407

200

8 GOLD 89636572.52 9957351

200

9 GOLD 71977660.21 7604891

201

0 GOLD 171474192 14024217

201

1 GOLD 184997191.4 12144967

201 GOLD 219874783.8 12052225

2

201

3 GOLD 314713353.7 12655760

201

4 GOLD 305672442.6 10287609

201

5 GOLD 240012639.5 8385363

Sum 1619863140 90347646

Mean 147260285.41 8213422.36

Standard Deviation 117070941.3 4978302.189

Coefficient of

correlation 0.793591101

Calculation of Coefficient of correlation:

= 0.79

Inference: The above calculation of coefficient of correlation between

the value and quantity of gold which is traded in MCX from 2005 to

2015 is 0.79, which concluded that there is a positive coefficient of

correlation between value and quantity of gold futures market. And the

volume of gold which is traded is dependent on the value invested in

gold.

Table 4.7: Table showing Summary statistics of daily gold futures

contracts

Standard Contracts Mini Contracts Spot

Futures

Price

Futures

Return

Volume

Value

Futures Pric

e

Future

s Return

Volume

Value

Price

Return

(INR) (%) (KG)

(Million INR)

(INR) (%) (KG)

(Million INR)

(INR)

(%)

Mean7,70

6 0.0515,567

13,736

7,709

0.05

260.21

239.01

7,695

0.05

Median7,70

4 0.066,83

14,56

37,84

10.06

51.85

38.03

7,725

0.02

Maximum

10,653 3.95

93,857

88,438

10,698

4.11

2,205

2,332

10,710

3.8

Minimum

5,646 -6.52 2 1.16

5,663

-6.41 0.1 0.06

5,600

-4.81

Standard

Deviation

1,545 0.85

16,626

15,653

1,532

0.85

358.51

343.13

1,517

0.87

No Of Obs

1,227

1,220

1,227

Inference: From the above table this table reports the summary statistics

of standard and mini old futures contracts traded on the Multi

Commodity Exchange of India Ltd (MCX) during November 2003

December 2007. Futures price are closing price of futures contract in

INR. Futures returns are calculated from daily log price changes, ln

(Ft/Ft-1), expressed in percentages. Spot returns are calculated as daily

log price changes, ln (St/ St-1), expressed in percentages. The standard

contract series includes 1,227 observations, 25 contracts from 10

November 2003 - 31 December 2007. The mini contract series includes

1,220 observations, 40 contracts from 20 November 2003 - 31

December 2007

Table 4.8: Table showing Correlation and integration test

Panel A: Pearson Correlation CoefficientsVariable

VOLS

VOLM S ΔFt

M ΔFt ΔSt

VOLS1.00

0 0.783

-0.01

8

-0.02

5

-0.01

2VOLM 1.000 - - -

0.033

0.041

0.021

S ΔFt1.00

00.94

80.32

7

M ΔFt1.00

00.35

1

ΔSt0.35

1

Panel B: Johansen trace test for co-integration

Log Price SeriesHypothesi

sTrace

statistic0.05 Critical

valueStandard and

spot r = 0 47.55 15.495Standard and

spot r <=1 0.208 3.842Mini and spot r = 0 45.509 15.495Mini and spot r <=1 0.163 3.842Standard and

mini r = 0 44.444 15.495Standard and

mini r <=1 1.061 3.842

Inference: Panel A of this table provides the Pearson correlation

coefficients among return and volume variables. VOLS is the natural log

of volume of standard gold futures contracts. VOLM is the natural log of

volume of mini gold futures contracts. S ΔFt, M ΔFt, and ΔSt are the

returns of standard contracts, mini contracts and spot gold, respectively.

Panel B of this table reports the results of Johansen Trace test statistics

for co-integration of futures and spot natural log prices. Let r denote the

number of co-integrating vectors. The co-integration test includes five

lags length.

Graph 4.5:- Graph showing Historical Gold prices since 1950-2001 in

U.S.($) currency

Graph 4.6:- 1Graph showing Gold Reserves of Top 10 Countries

CHAPTER-IV

SUMMARY OF FINDINGS

5.1 Major Findings

There is positive correlation between value and volume of gold

traded in MCX from 2005 to 2015.

Mini contracts contribute to over 30% of price discovery in gold

futures trade even though they account for only 2% of trading

value on the MCX.

Investors can easily predict the future prices of the commodities

and hedge their positions.

Investors are aware about commodity future market.

Dollar depreciation / appreciation

World distress

Increase in money supply

Inflation

5.2 Fifteen Fundamental Reasons for bullish run of Gold

1. Global Currency Debasement:

The US dollar is fundamentally & technically very weak and should fall

dramatically. However, other countries are very reluctant to see their

currencies appreciate and are resisting the fall of the US dollar. Thus, we

are in the early stages of a massive global currency debasement, which

will see tangibles, and most particularly gold, rise significantly in price.

2. Investment Demand for Gold is Accelerating:

When the crowd recognizes what is unfolding, they will seek an

alternative to paper currencies and financial assets and this will create an

enormous investment demand for gold. To facilitate this demand, a

number of new vehicles like Central Gold Trust and gold Exchange

Traded Funds (Elf's) are being created.

3. Alarming Financial Deterioration in the US:

In the space of two years, the federal government budget surplus has

been transformed into a yawning deficit,which will persist as far as the

eye can see. At the same time, the current account deficit has reached

levels which have portended currency collapse in virtually every other

instance in history.

4. Negative Real Interest Rates in Reserve Currency (US dollar):

To combat the deteriorating financial conditions in the US, interest rates

have been dropped to rock bottom levels, real interest rates are now

negative and, according to statements from the Fed spokesmen, are

expected to remain so for some time. There has been a very strong

historical relationship between negative real interest rates and stronger

gold prices.

5. Dramatic Increases in Money Supply in the US and Other

Nations:

US authorities are terrified about the prospects for deflation given the

unprecedented debt burden at all levels of society in the US. Fed

Governor Ben Bernanke is on record as saying the Fed has a printing

press and will use it to combat deflation if necessary. Other nations are

following in the US's footsteps and global money supply is accelerating.

This is very gold friendly.

6. Existence of a Huge and Growing Gap between Mine Supply and

Traditional Demand:

Gold mine supply is roughly 2500 tons per annum and traditional

demand (jewellery, industrial users, etc.) has exceeded this by a

considerable margin for a number of years. Some of this gap has been

filled by recycled scrap but central bank gold has been the primary

source of above-ground supply.

7. Mine Supply is anticipated to Decline in the next Three to Four

Years:

Even if traditional demand continues to erode due to ongoing worldwide

economic weakness, the supply demand imbalance is expected to persist

due to a decline in mine supply. Mine supply will contract in the next

several years, irrespective of gold prices, due to a dearth of exploration

in the post Bre-X era, a shift away from high grading which was

necessary for survival in the sub-economic gold price environment of

the past five years and the natural exhaustion of existing mines.

8. Large Short Positions:

To fill the gap between mine supply and demand, central bank gold has

been mobilized primarily through the leasing mechanism, which

facilitated producer hedging and financial speculation. Strong evidence

suggests that between 10,000 and 16,000 tones (30- 50% of all central

bank gold) is currently in the market. This is owed to the central banks

by the bullion banks, which are the counter party in the transactions.

9. Low Interest Rates Discourage Hedging:

Rates are low and falling. With low rates, there isn't sufficient contango

to create higher prices in the out years. Thus there is little incentive to

hedge, and gold producers are not only hedging, they are reducing their

existing hedge positions, thus removing gold from the market.

10. Rising Gold Prices and Low Interest Rates Discourage Financial

Speculation on the Short Side:

When gold prices were continuously falling and financial speculators

could access central bank gold at a minimal leasing rate (0.5 - 1% per

annum), sell it and reinvest the proceeds in a high yielding bond or

Treasury bill, the trade was viewed as a lay up. Everyone did it and now

there are numerous stale short positions. However, these trades now

make no sense with a rising gold price and declining interest rates.

11. The Central Banks are nearing an Inflection Point when they

will be Reluctant to provide more Gold to the Market:

The central banks have supplied too much already via the leasing

mechanism. In addition, Far Eastern central banks that are accumulating

enormous quantities of US dollars are rumored to be buyers of gold to

diversify away from the US dollar.

12. Gold is increasing in Popularity:

Gold is seen in a much more positive light in countries beginning to

come to the forefront on the world scene. Prominent developing

countries such as China, India and Russia have been accumulating gold.

In fact, China with its 1.3 billion people recently established a National

Gold Exchange and relaxed control over the asset. Demand in China is

expected to rise sharply and could reach 500 tons in the next few years.

13. Gold as Money is Gaining Credence:

Islamic nations are investigating a currency backed by gold (the Gold

Diner), the new President of Argentina proposed, during his campaign, a

gold backed peso as an antidote for the financial catastrophe which his

country has experienced and Russia is talking about a fully convertible

currency with gold backing.

14. Rising Geopolitical Tensions:

The weakening conditions in the Middle East, the US occupation of Iraq,

the nuclear ambitions of North Korea and the growing conflict between

the US and China due to China's refusal to allow its currency to

appreciate against the US dollar headline the geopolitical issues, which

could explode at any time. A fearful public has a tendency to gravitate

towards gold.

15. Limited Size of the Total Gold Market Provides Tremendous

Leverage:

All the physical gold in existence is worth somewhat more than $1

trillion US dollars while the value of all the publicly traded gold

companies in the world is less than $100 billion US dollars. When the

fundamentals ultimately encourage a strong flow of capital towards gold

and gold equities, the trillions upon trillions worth of paper money could

propel both to unfathomably high levels.

Other Findings

In India MCX is trading in bullion market.

Goldsmiths get their raw material from wholesale dealers.

They fix the prices on daily trading bases.

Hence there is positive correlation between both market traders can

easily predict the future prices of the commodities and hedge their

positions.

For gold price fluctuation main reasons are

1. Dollar depreciation / appreciation

2. World distress

3. Increase in money supply

4. Inflation

CONCLUSIONS AND RECOMMENDATIONS:

Both Spot Gold & Future Gold Markets are positively correlated

the traders have knowledge about the commodity demand and

supply and their price fluctuations. So India Info line Limited can

approach these traders and they can easily convince them so these

people are the targeted customers for India Info line Limited.

More Awareness program has to be conducted by India Info line

Limited consultants so that already aware investor takes the

challenge to invest in this commodity future market. Because since

this was new to the market and also risky but gives good return. So

it can be done through by giving advertisements in local channels,

Newspapers, by sending E-mail to present customers etc.

From survey it is found that most of the potential customers are

concerned about the genuine information and moderate brokerage

so India Info line Limited can look upon this. If it can give good

information and charge moderate brokerage it will help to attract

more and more customers..

The best opportunities for investors to protect themselves against

the coming financial reckoning are with precious metals and

mining stocks.

Both the markets are positively correlated the traders have

knowledge about the commodity demand and supply and their

fluctuations

More Awareness program has to be conducted by consultants so

that already aware investor takes the challenge to invest in this

commodity future market. Because since this was new to the

market and also risky but gives good return. so it can be done

through by giving advertisements in local channels, Newspapers,

by sending E-mail to present customer etc.

From study it is found that most of the potential customers are

concerned about the genuine information and moderate brokerage

so MCX can look upon this. If it can give good information and

charge moderate brokerage it will help to attract more and more

customers.