Prepared By:Dipa Shah

Nikita SanghviBharat Maheshwari

Krishna RajputMitesh Shah

Keyur Savalia

• Introduction• Commodities Traded• Participants• Functioning• Agricultural Commodity Market• Ground Nut• Indian Commodity Market• Conclusion

FLOW OF PRESENTATION

HISTORY OF COMMODITY MARKET

• Evolution• Indian Commodity Market -134 Year old• 1875-“Bombay Cotton Trade Association Ltd” • India -the largest consumer of Gold• Indian Retail Market estimated to cross Rs 10000

Billions by the year 2010

COMMODITY AND COMMODITY EXCHANGES

• Commodity • Commodity Exchange

– Global Commodity Exchanges– National Commodity Exchanges– Regional Commodity Exchanges

COMMODITY EXCHANGES

• Global Commodity Exchanges– NYMEX : New York Mercantile Exchange– LME : London Metal Exchanges– CBOT : Chicago Board of trade– SICOM : Singapore Commodity Exchanges– Kansas Board of trade and many more……

• National Commodity Exchanges1. NCDEX – National Commodity & Derivative

2. MCX - Multi Commodity Exchange

3. NMCEIL - National Multi Commodity Exchange India Ltd

4. ICEX – Indian Commodity Exchange

COMMODITY EXCHANGES

• Regional Commodity Exchanges

– Bombay Commodity Exchanges

– Kanpur Commodity Exchanges

– Ahmedabad Commodity Exchanges

– Rajdhani Oil & Seeds Commodity Exchanges

– The Chamber of Commerce

– E Sugar India Ltd. (Mumbai)

COMMODITIES

Fibres and Manufactu

rers

Spices

Edible Oilseeds and Oil

Pulses

Energy Products

Vegetables

Metals

Others

COMMODITIES TRADED IN INDIA

• Hedger

– Farmers, manufacturers, importers & exporter.

– Buys or sells in the futures market to secure the future

price of a commodity intended to be sold at a later date in

the cash market.

– Protect against price risks.

PLAYERS IN THE DERIVATIVES MARKET

Hedgers

• Buyers– They hold the long

position in futures contracts.

– They trying to secure as low price as possible.

• Sellers– They hold the short

position in futures contracts.

– They trying to secure as high price as possible.

Both parties try to reduce the risks associated with price volatility.

PLAYERS IN THE DERIVATIVES MARKET

Speculators

• They do not aim to minimize risk but to benefit from the inherently risky nature of the commodity market.

• They aim to profit from the very price change that hedgers are protecting.

They do the simultaneous buying and selling of assets in different market taking advantage of differing prices.

PLAYERS IN THE DERIVATIVES MARKET

Arbitrage

• Buyers & sellers

• Pricing mostly

• Contract states the price that will be paid and the date of

delivery.

• Almost all futures contracts end without the actual

physical delivery.

FUNCTIONING OF COMMODITY MARKET

0.00

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

60,000.00

70,000.00

80,000.00

2008-092009-10

TIME PERIOD - DATEWISE

VA

LU

E O

F T

RA

DE

IN

Rs.

CR

OR

E

TRADE IN AGRI-COMMODITY IN INDIAN COMMODITY MARKET

RICE WHEAT URAD POTATOES ONION SOYABEAN

4 3

27

71

32

17

5

14

75

60

42

2121

13

57

88

59

39

JAN 2000-DEC 2002 JAN 2003-DEC 2006 JAN 2007-DEC 2009

VOLATILITY IN MONTHLY SPOT PRICE INDICES : ESTIMATES OF STANDARD DEVIATIONS

0

5

10

15

20

25

30

35

40

India Consump-tionUS consump-tion

VA

LU

E I

N %

COMPARISON OF AGRI-COMMODITY CONSUMPTION BETWEEN INDIA AND US

2006-07

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1.2531.086 1.103 1.003

0.693

0

1.217 1.294

4.958

1.002 1.106

1.8661.652

1.3171.543

1.108

1.397

0.992

00.00500000000000001

3.143

1.16

IndiaUSA

COMPARISON OF PROD/CONS RATIO BETWEEN INDIA AND USA (2006-07)

TRADING IN AGRI-COMMODITY- GROUNDNUT

- Major groundnut consuming countries.

- Groundnut exporting countries.

- Groundnut producing countries.

- Production of groundnut in India

GROUNDNUT

Weather conditions

Monsoon status

Price fluctuations

International price movements.

High consumption

MARKET INFLUENCING FACTORS

Bullion and other metals

Agriculture Energy Others0

5

10

15

20

25

30

1.8

3.9

0.0200000000000001 0

7.79

11.92

1.82 0.0200000000000001

21.29

13.17

2.310.001

26.24

9.41

5

0

COMMODITY GROUP-WISE VALUE OF TRADE

2004-05

2005-06

2006-07

2007-08

TR

AD

E V

AL

UE

ISN

Rs.

LA

KH

CR

OR

E

SOURCE: ECFT

PERFORMANCE ANALYSIS OF INDIAN COMMODITY MARKET

• Year 2003:

Starting with trade in 7 commodities till 1999, futures trading now

available in 95 commodities

54 prohibited commodities opened up for forward trading

establishment and recognition of three new national exchanges with

on-line trading and professional management

• The volume of trade had increased exponentially since 2003- 04 to

reach Rs. 36.77 lakh crore in 2006-07

GROWTH OF INDIAN COMMODITY MARKET

• Agricultural commodities - largest proportion of the total value of trade

till 2005-06 (55.32%)

• Growth in 2006-07

Bullion and metals (88.7%),

Agricultural commodities (10.7%)

• Reasons:-

Stringent regulations, like margins and open interest limits

dampening of sentiments due to suspension of trade in few

commodities

GROWTH OF INDIAN COMMODITY MARKET

• Significant decline in trade in agriculture commodities during the

year 2007-08, by 28.5%.

• Trade in Chana, Maize, Mentha Oil, Guar seed, Potato, Guar Gum,

Chillies and Cardamom, which accounted for 57.9% of total futures

trade in agricultural commodities in 2006-07, declined by over

66.4% during 2007-08 compared to previous year

GROWTH OF INDIAN COMMODITY MARKET

2%11%

6%

3%1%9%

66%

0%

Fibres and Manufactures

Spices

Edible Oil seeds and Oil

Pulses

Energy Products

Vegetables

Metals

OtherSOURCE: www.mcx.com

TRADING FROM APRIL 2007 - MARCH 2010 IN UNIT (AS PER MCX)

0.00

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

350,000.00

400,000.00

450,000.00

500,000.00

2008-092009-10

TIME PERIOD- DATEWISE

TR

AD

E V

AL

UE

IN

Rs.

CR

OR

E

SOURCE: www.fmc.gov.in

TREND OF INDIAN COMMODITY MARKET

• Total value of trade :

Fy 2008/09 INR52.49 lakh crore

Fy 2007/08 INR 40.66 lakh crore

• Growth of 29.09%, under challenging economic conditions globally

• Main drivers of growth :

MCX, NCDEX and NMCE along with two regional exchanges –

NBOT Indore and ACE, Ahmedabad – contributed to 99.61% of the

total value of commodities traded during 2008/09.

CURRENT SCENARIO OF INDIAN COMMODITY MARKET

• Turnover grew from 1.29 trillion rupees in 2003/04 to 52.49

trillion rupees in 2008/09

• Turnover bourses rose 49.80% to 73.51 trillion rupees in first

eleven-and-a-half months of fiscal 2009/10

• Active trade in gold, silver, copper and crude oil in the energy

and metals pack during March ’10 first fortnight

• Guar seed, chana, soybean, turmeric and jeera saw trade

among agricultural commodities

CURRENT SCENARIO OF INDIAN COMMODITY MARKET

• December 1952 -Forward Contracts (Regulation) Act, 1952,

enacted

• The Act provided for 3-tier regulatory system;

a) An association recognized by the Government of India on the

recommendation of Forward Markets Commission

b) The Forward Markets Commission (set up in September

1953)

c) The Central Government

REGULATORY FRAMEWORK

• Forward Contracts (Regulation) Rules were notified by the Central Government in

July, 1954.

• The Act divides the commodities into 3 categories with reference to extent of

regulation, viz.:

a) The commodities in which futures trading can be organized under the auspices of

recognized association.

b) The commodities in which futures trading is prohibited.

c) Those commodities which have neither been regulated for being traded under the

recognized association nor prohibited are referred as Free Commodities and the

association organized in such free commodities is required to obtain the Certificate

of Registration from the Forward Markets Commission.

REGULATORY FRAMEWORK

• Forward Markets Commission provides regulatory oversight

in order to ensure -

• financial integrity (i.e. to prevent systematic risk of default by

one major operator or group of operators),

• market integrity (i.e. to ensure that futures prices are truly

aligned with the prospective demand and supply conditions)

and

• to protect and promote interest of customers/ non-members.

REGULATORY FRAMEWORK

•Decade of commodities

•Global commodity market is greater than stock market

•India - Top producer of commodities

•Market has enormous progress in technology,transpereny,and

trading activity

•Supports developing price and price risk management policy to

decide upon prices of commodity

•Price risk management for future uncertainty

CONCLUSION