Introductionofcommoditymarketinindia 121014140444 Phpapp02 Copy

Introduction of Commodity Market in India

COMMODITY MARKETS

PRESENTED TO : MS SHRADDHA KOTAKPRESENTED BY:SNEHA MAREDIA 24EKTA PATEL 28TILAKRAJ POOJARY 33SACHIN SATHYAVRATHAN 35What is Commodity market?Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodity exchanges, in which they are bought and sold in standardized contracts. It is similar to an equity market, but instead of buying or selling shares one buys or sells commodities.

Commodities -an alternate asset class

Traditional choice of asset allocation includes stocks, bonds and real estate. Now portfolio has shifted to alternative assets, like hedge funds, private equity, derivatives and commodities.Traded on spot and forward markets.Positively correlated with inflation.Independent risk and return profile.

Major Commodities

OPPORTUNITIES

Risk factors involved

Changing demandsupply dynamics

Climatic factors

Industry related factors

The History of INDIAN Commodity ExchangesThe evolution of the organized futures market in India commenced in 1875 with the setting up of the Bombay Cotton Trade Association Ltd. Futures trading in oilseeds originated with the setting up of the Gujarati Vyapari Mandali in 1900, which carried out futures trading in ground nuts, castor seeds and cotton. Futures markets in Bullion began in Mumbai in 1920, and later, similar markets were established in Rajkot, Jaipur, Jamnagar, Kanpur, Delhi and Calcutta.

REGULATING BODYThe commodity futures traded in commodity exchanges are regulated by the Government under the Forward Contracts Regulations Act, 1952 and the Rules framed there under. The regulator for the commodities trading is the Forward Markets Commission, situated at MumbaiForward Markets Commission (FMC):- It is statutory institution set up in 1953 under Forward Contracts (Regulation) Act, 1952. Commission consists of minimum two and maximum four members appointed by Central Govt. Out of these members there is one nominated chairman. All the exchanges have been set up under overall control of Forward Market Commission (FMC) of Government of India.

Two Major Commodities Exchange in India

MCX (Multi Commodity Exchange)

Multi Commodity Exchange of India Ltd (MCX) is a state-of-the-art electronic commodity futures exchange. The demutualised Exchange has permanent recognition from the Government of India to facilitate online trading, and clearing and settlement operations for commodity futures across the country.MCX offers more than 40 commodities across various segments such as bullion, ferrous and non-ferrous metals, energy, and a number of agri-commodities on its platform.

National Commodity and Derivatives ExchangeNCDEX is a professionally managed on-line multi commodity exchange. The shareholders of NCDEX comprises of large national level institutions, large public sector bank and companies. NCDEX is a public limited company incorporated on April 23, 2003 under the Companies Act, 1956. It commenced its operations on December 15, 2003. NCDEX is regulated by Forward Markets Commission. NCDEX headquarters are located in Mumbai and offers facilities to its members from the centers located throughout India.The Exchange, as on February 9, 2014 offered contracts in 34 commodities - comprising 23 agricultural commodities, 6 precious metals, 2 energy, 1 polymer and 2 other metals. The top 5 commodities, in terms of volume traded at the Exchange, were Soya oil, Gaur Seed, Chana, RM seed and Guar gum.NCDEX the country's second largest commodity derivatives exchange, has been listing contracts since 2003.The NCDEX ranked number 32nd in 2010 in the Futures Industry Association's global list of top 53 derivatives exchanges measured by volume, rising 34.16% on 2009 volumeCommodity futuresAgreement for buying or selling a commodity for a predetermined delivery price at a specific future time.

Standardized contracts that are traded on organized futures exchanges.

The major function of futures markets is to transfer price risk from hedgers to speculators.ExampleSuppose a farmer is expecting his crop of wheat to be ready in two months time, butis worried that the price of wheat may decline in this period. In order to minimizehis risk, he can enter into a futures contract to sell his crop in two months time at a price determined now. This way he is able to hedge his risk arising from a possible adverse change in the price of his commodity.INDIAN COMMODITY MARKETCommodity Markets have their presence in country for over 120 yrs.Trade in commodities has been Unorganized in Regional markets & Local Mandis.Trading in Futures Contracts has been permitted in over 120 commodities. Physical commodity market size in India is estimated to be around 25 lakh core per annum.Major commodities traded in India are - Gold, Silver, Crude Oil, Copper, Guar, Chana, Spices, among the few.

Why invest in commodities?

Transparency and Fair Price DiscoveryHedgingNo Insider TradingSimple EconomicsTrade on Low MarginSeasonality PatternsNo Counter party RiskWide ParticipationEvolved PricingGROWTH IN THE COMMODITY MARKET AS COMPARED TO THE EQUITY MARKET

The Indian commodity futures volumes have grown 5.5 times from Rs.20.53 trillion in 2005-06 to Rs.112.52 trillion in 2010-11

Currently, the average monthly volume on the Indian commodity exchanges is Rs.6 trillion. MCX leads the industry, followed by NCDEX.

MCX has achieved some global milestones too. It was the largest exchange in silver (in terms of number of futures contracts traded in 2010), number two in gold, copper and natural gas and number three in crude oil. Talking about agricultural commodities, the Indian commodities market has futures contracts of commodities such as black pepper, cumin seed, mentha oil and many more which are internationally traded but only listed in India; internationally traders tend to consider these as benchmark rates.FII, DII, banks and insurance companies are not allowed to trade on the Indian commodity bourses and a majority of volumes come from jobbers, arbitrageurs, retail traders and small scale enterprises and corporate.We expect the Indian commodity futures market to reach at least 15x-20x by FY15. With the contribution of Indian physical commodities to GDP being pegged at 45%, even if the commodity futures market trades at 15x-20x, we can imagine the kind of volumes our exchanges will generate.

CONCLUSIONIndia is one of the top producers of a large number of commodities, and also has a long history of trading in commodities and related derivatives. The commodities derivatives market has seen ups and downs, but seem to have finally arrived now. The market has made enormous progress in terms of technology, transparency and the trading activity. Interestingly, this has happened only after the Government protection was removed from a number of commodities, and market forces were allowed to play their role. This should act as a major lesson for the policy makers in developing countries, that pricing and price risk management should be left to the market forces rather than trying to achieve these through administered price mechanisms.