Religare Dibya Project

8/14/2019 Religare Dibya Project

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A STUDY ON COMMODITYMARKET AND PRODUCT

SELLING WITH RELIGARECOMMODITIES

PREPARED BY- DIBYA SAGAR PRUSTY


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RELIGARE ENTERPRISERS LTD.

(A Ranbaxy Promoter Group Company) through Religare Securities

Limited, Religare Finvest Limited, Religare Commodities Limited

and Religare Insurance Advisory Services Limited provide

integrated financial solutions to its corporate, retail and wealth

management clients. Today, Religare provides various financial

services which include Investment Banking, Corporate Finance,

Portfolio Management Services, Equity & Commodity Broking,

Insurance and Mutual Funds.

Today, Religare has a growing network of more than 150 branches

and more than 300 business partners spread across more than 180

cities in India and a fully operational international office at London.

However, their target is to have 350 branches and 1000 business

partners in 300 cities of India and more than 7 International offices

by the end of 2011.


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GROUP COMPANIES


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RELIGARE COMMODITIES LTD.

Religare Commodities Limited (RCL), a wholly ownedsubsidiary of Religare Enterprises Limited was initiated tospearhead Exchange based Commodity Trading. As amember of NCDEX, MCX and NMCE, RCL is a trade facilitatorproviding the platform to trade in commodities. Grounded in

the Religare philosophy, highly skilled and dedicatedprofessionals strive to offer the client best investmentsolutions across the country.

Religares business philosophy is to treat each clientsituation as unique, requiring customized solutions. Their listof corporate clients reads like a Whos Who of the Indian

Industry and Religare has been successful in providing themwith practical customized solutions for their requirements.Religare is propelled by their group vision and desire tostrive tirelessly and aim to be the best within this category.


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EVOLUTION OF COMMODITIES MARKET

Commodities futures trading have evolved from the need forensuring continuous supply of seasonal agricultural crops inJapan, merchants stored rice in warehouses for future use. Inorder to raise cash, warehouse holders sold receipts againstthe stored rice. These were known as rice ticketsEventually such rice tickets became accepted as a kind of

general commercial currency. Rules came into being, tostandardize the trading in rice tickets.

The concept of organized trading in commodities evolved inthe middle of 19th century, in Chicago, United States.Chicago had emerged as a major commercial hub withrailroad and telegraphs lines connecting it with the rest of

the world, thereby attracting wheat producers from Mid-West to sell their products to the dealers and distributors.However, lack of organized storage facilities and absence ofa uniform weighing/ grading mechanism often confinedthem to the mercy of dealers discretion. This led to inherentneed to establish a common meeting place both for framersand dealers to transact in spot grain-to deliver wheat andreceive cash in return. This happened in 1848.


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CONTINUED.

In the 1870s and 1880s the New York Coffee, Cotton andProduce Exchanges were born. The largest commodityexchanges in USA are the Chicago Board of Trade, TheChicago Mercantile Exchange, the New York MercantileExchange, the New York Commodity Exchange and the New

York Coffee, Sugar and Cocoa Exchange. Worldwide thereare major futures trading exchanges in over twentycountries including Canada, England, India, France,Singapore, Japan, Australia and New Zealand.

Over-the-counter:

Traditional dealer market Electronic broking market

Proprietary trading platform market


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SPOT AND FUTURES MARKET

Commodities can be transacted in both the spot as well asin the futures markets. Although the two markets areseparated, they are interrelated nevertheless. Thecommodities are physically bought or sold on a negotiatedbasis in the spot market, which is generally considered as

the actual physical market for immediate delivery.

The futures market, however, facilitates buying and sellingof standardized contractual agreements (for future delivery)of the underlying asset as the specific commodity and notthe physical commodity itself. The formulation of a futurescontract is very specific regarding the quality of thecommodity, the quantity to be delivered and the date fordelivery.


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EXCHANGES

National Commodity & Derivatives Exchange Limited(NCDEX) located in Mumbai is a public limited companyincorporated on April 23, 2003 under the Companies Act,1956 and had commenced its operations on December 15,2003.This is the only commodity exchange in the country

promoted by national level institutions. It is promoted byICICI Bank Limited, Life Insurance Corporation of India (LIC),National Bank for Agriculture and Rural Development(NABARD) and National Stock Exchange of India Limited(NSE).

Headquartered in Mumbai Multi Commodity Exchange of

India Limited (MCX), is an independent and de-mutulisedexchange with a permanent recognition from Government ofIndia. Key shareholders of MCX are Financial Technologies(India) Ltd., State Bank of India, Union Bank of India,Corporation Bank, Bank of India and Canara Bank.


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PRICING COMMODITY FUTURES

The relationship between cash price and futures price canbe explained in terms of cost of carry. Cost of carry is animportant element in determining pricing relationshipbetween spot and futures prices as well as betweenprices of futures contracts of different expiry months.

According to the cost of carry model, futures pricesdepend on the spot price of a commodity and the cost ofstoring the commodity from the date of spot price to thedate of delivery of the futures contract. Cost of storageand insurance and cost of financing constitute cost of

carry. Estimated cost of futures price is also called "Fullcarry futures price". Cost of carry model: The cost ofcarry model can be defined .as:

F=S+C (Where F=Futures price S=Spot price C=Cost ofcarry)


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PARTICIPANTS IN COMMODITY DERIVATIVESMARKET

Hedgers

Futures contracts have been used as financial offsetsto cash market risk for more than a century. Futures toreduce or limit the price risk of the physical asset.Hedging is an insurance used to avoid or reduce pricerisks associated with any kind of futures transaction.

The degree of effectiveness of a hedge is determinedby the percentage of the actual gain or loss incurredin a futures transaction. Though most hedges reducerisks related to price variations, they do not eliminatethem altogether.


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CONTINUED.

Speculators

When supplies of a commodity are greater than thepresent demand or need, prices tend to decline. Ifsupplies appear to fall short of demand, prices trendupward. Estimating market supply and demandconditions are the challenges faced by marketparticipants. It is generally accepted that speculators areinterested in making fast money by anticipating futureprice movements. Commodity futures allow speculatorsto create high leveraged positions. A speculator accepts

the risk that hedgers seek to avoid, giving the market theliquidity required to service hedge participants effectivelyby providing the market with the necessary bids andoffers for a continuous flow of transactions. Speculation isthe opposite of hedging. A speculator holds no offsettingcash market position and deliberately incurs price risk in

order to benefit from price movements.


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CONTINUED

Arbitragers Arbitragers are interested in making

purchases and sales in different markets atthe same time to profit from price

discrepancy between the two markets. Soarbitragers are interested in locking in aminimum profit by simultaneously enteringinto transactions in two or more markets. Anarbitrager knows the minimum profit

potential at the time of entering intotransactions. In todays financial markets,most arbitrage opportunities occur eitherbetween regions, delivery periods or acombination of these conditions.


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REGULATORY FRAMEWORK

Forward Contracts Regulation Act, 1952The Constitution of India brought the subject of

STOCK EXCHANGES AND FUTURES MARKET inUnion list. As a result, the responsibility forregulation of commodity futures markets

devolved on Government of India. TheCommodity Exchanges in India are governed andregulated under the Forward Contracts(Regulation) Act, 1952 and Rules framed thereunder.

It provides for a 3 tier regulatory system, namely:

. An association recognized by the Government ofIndia on recommendation of Forward MarketsCommission (FMC)

. The Forward Markets Commission (it was set up inSept 1953) and

. The Central Government


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FINDINGS OF SURVEY


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FINDINGS Survey defines that 38 of investor deals with the MCX

because of Metal Exchange. Where they go for differentcommodities like Gold, Silver Etc. And 42 deals with theNCDEX due to agri based commodities.

In this analysis it is noticeable that nearly all the investorshave invested in pepper, coffee futures.

Most investors invest in Chilli and Jeera to spread their risks

which they could face in the other commodities such aspepper etc. The investors invest in different commoditiesbased on seasons to spread their risk. Chilli, whosemarketing season begins in the first week of March, peaksduring the month of April. The main producers of jeera otherthan India are Syria and Turkey, they harvest their new crop

in the months august to September so until then Indianjeera / Cumin seeds finds good market in overseascountries. So these can be some reasons why investors aretrading in chilli and jeera.

Investors of Gold and Silver are mostly gold or silver

merchants, who trade with the intentions to protect theirunderlying stock, from price fluctuations or price failures.


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PREFERRED FORM OF TRADING

There are 3 types of preferred form in which

survey has been done:High risk high return

Low risk low return

Low risk high return

Investors below the age group of 30 years aremore of a risk takers hoping for high return.

The investors prefer low risk but high returns,it can be said that the investors are more

savings oriented. In the age group between 40 years to 50

years that the investors attitude is differentfrom the age group of less than 30 years but

similar to the age group between 30 years to40 years.


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CONTINUED

84% of the investors did trading through registeredbrokers i.e. the members of the exchange. 9% didtrading through agents i.e. the franchisees of themembers. 7% did not trade at all.

73% of the respondents felt that the commodityderivatives market in India was average compared tothe global derivatives market, this could be due tofactors such as, few malpractices, contract perioddifference between exchanges, delivery lot difference.

78% of the respondents felt that futures trading hashelped in improving commodities market. Only 6%was of the opinion that it did not improve thecommodities market.


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CONCLUSION

Considering the present growth rate, the totalvaluation of the Indian Commodity Market isestimated to cross Rs. 10,000 billion by the year 2010.Demand for commodities is likely to become fourtimes by 2010 than what it presently is.

The commodity industry requires increasing capitalformation, improved availability of agricultural inputs,infrastructure facilities for agricultural business.

The existence of commodity futures exchanges will

refine and strengthen the database for agriculturalsector, which will be helpful in bringing greaterreliability to estimates and forecasts, thus,strengthening the process of planning and policymaking.


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THANK YOU

Religare Dibya Project

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