Commodity Presentation -Group 8 B

8/8/2019 Commodity Presentation -Group 8 B

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Commodity Markets



Wheat in your bread

Petrol in your vehicle

Coffee on your table

Sugar in your sweets

Chana in your chhole

Gold in your necklace

««« and so on ««.

Commodities are everywhere

Commodities ± in Real Life



Classification of Commodities

AgricultureGrainsPulses

Edible oils/seedsSpices etc

Base Metals

Copper Zinc

AluminumNickel

Tin

EnergyCrude oil

Heating oilNatural gasFurnace oil

Etc.

BullionGoldSilver

Palladiumetc

Commodities



Commodity ± Indian Structure

20 Other Regional

Exchanges

NMCE

Commodity Exchanges

MCX

National

Exchanges

Regional

Exchanges

FMC ± The Regulator

NBOTNCDEX

Leadership position with >90% share



Indian Growth so far

0

100

200

300

400

500

600

700

2004 2005 2006 2007 2008 2009 2010

MCX NCDEX TOTAL

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Bullion and other metals 31.5 36.1 57.9 64.6 56.7 40.8Other than bullion metals

- - - -- 23.2

Agriculture 68.2 55.3 35.8 23.1 11.9 15.7

Energy 0.3 8.4 6.3 12.3-

20.3

Others 0.0 0.1 0.0 0.0 31.4 0.0

Source:FMC

Segment wise % Share of Commodities

* 2008-09 other segment includes energy& other metals

Significant rise in

volume since

launch of

exchanges in 2003

MCX Leader in Metals & Energy

NCDEX Leader in Agri

> 65% CAGR Growth

Volume Growth in Indian Exchanges



Indian Growth during 2004-09

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in 2004

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2

MCX NCDEX

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in 2009

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MCX NCDEX



Returns in Indian commodities

Returns cross arious om m odities in Yrs

G o l d

S i l v e r

C r u d e o i l

C o p p e r

Z i n c

A l u m i n i u m

L e a d

G u a r S e e d

G u a r G u m

S o y O i l

S o y b e a n

P e p p e r

J e e r a

T u r m e r i c

e n t h a O i l

Source:Bloomberg,Way2Wealth Research

Almost 45 commodities are available for trading in both NCDEX & MCX

Though few have been de-listed during high inflation times, re-listing also has happened

Bullion, Base metals, energy & Agri are the major contributors in terms of volumes



Commodity provides truediversification in financial portfolio

Commodity act as hedge against

risks involved in business

Rising income will ensure Inflationwhich in turn will ensure secure bull

market in commodities

Lower Margins ± High Leverage for Traders

Why Invest in Commodities



Hedgers : Risk Managemento For the people associated with commodities, the Futures

market can provide an effective hedging mechanismagainst price movements. For example an oil-seed farmer may go short in oil-seed futures, thus µlocking¶ his saleprice and in the process hedging against any adverseprice risks.

o Gold ² Safe

Speculators: High Volatility Higher Leverageo Retail investors, Commodity spot trader

o Institutional, Corporate & proprietary traders

Arbitrageurs : Safe Opportunisto Spot future arbitrage

o Intra and inter market arbitrage

Investors: Portfolio diversifiero Individuals, Pension & Mutual Funds

o Corporate bodies

Who Can Invest



Attracting new participants Farmersy Offering them pre & post harvest risk mitigation

platform

y Ease of trade through aggregators

Banksy Role of aggregators

y Proprietary trade

Mutual Fundsy

Attracting retail trade to the commodity exchanges FIIs

FDIs

10



Risk Mitigation: Pre-harvest

11

Small

Farmers

Small

Farmers

Small

Farmers

Small

Farmers

AggregatorsAggregators

Banks

Insurance

NCDEXNCMSL

Banks

Insurance

NCDEXNCMSL

Future price ensuredFuture price ensured

Liquidity enhancedLiquidity enhanced

Weather derivativesWeather derivatives

/Crop Insurance /Crop Insurance

Weather derivativesWeather derivatives

/Crop Insurance /Crop Insurance

Bank lendingBank lendingBank lendingBank lending

Large

Farmers

Large

Farmers



Risk Mitigation: Post-harvest

12

Small

Farmers

Small

Farmers

Sell forwardSell forward

Storage facilityStorage facility

Assaying & gradingAssaying & grading

Commodity backed bankCommodity backed bank

finance (WR)finance (WR)

Commodity backed bankCommodity backed bank

finance (WR)finance (WR)

Large

Farmers

Large

Farmers

Banks

NCDEX

NCMSL

Banks

NCDEX

NCMSL



Large number of Physical Deliveries taking place on NCDEX

Platform

Globally less than 2%

volumes result in

deliveries

Physical deliveries are

incidental

Exchanges not delivery

platform

However, NCDEX has

seen an average delivery

of 40-50,000 MT per

month

Period Deliveries (MT)

Q4' FY05 43214

Q1 µFY06 109562

Q2 FY06 83081Q3 FY06 77160

Q4 FY06 134260

Q1 FY07 103,444

Q2 FY07 125,989

Q3 FY07 94,128Jan-Feb FY07 37,136

13

Exchange¶s are a platform for better prices discovery



New ProductsMarket would move towards trading more exotic

products

Index based productsy Commodity Indices

y Rainfall & other weather indices

Spread Trading

Electricity

Real Estate

Emission Credits

14

..Idea will be to forge closer links with global commodities



How to Invest

Procedure for Trading in Commodities

Open Demat & Trading A/C

Filling KYC (Know Your Customer)

Documents required : Pan Card, Address Proof, Networth, Cancelled cheque (MICR),Photo etc

To get familiar with this asset class, start reading research reports andmonitor advisory and execution

Acquire full knowledge of risk involved in futures

Mark to Market Daily Pay-in & pay-out Margin requirements

Contract expiry & rollover Leverage, profit & loss etc



Methodology - Analysis

Fundamental

Supply-n-demand, crop survey, climatic changes, policies, logistics,specifications, delivery stocks, physical market linkages, Cartel move, etc

Technical

Chart patterns, indicators etc

Derivative

Volume and Open Interest Change, Contract duration, rollover, Relativeanalysis with other markets etc

Statistical

Arima modelling, Correlation & regression study, Deviation, Time series,Seasonality, Ratio study etc.

Ways of Research



Thank you Thank you

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