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REPORT
BY
Sourabh Rai (Roll No. 11053)
SDMIMD, Mysore.
Work Carried at
Success Incorporation
Jabalpur, Madhya Pradesh, India-482001
Submitted in partial fulfillment of the requirement of
Summer Internship Program
Under the Supervision Of
Mr. Kumar Rathore (Proprietor)
Success Incorporation
SDM INSTITUTE FOR MANAGEMENT DEVELOPMENT
Mysore, Karnataka, India
(May 2012)
MARKET STUDY TO EXPAND THE
CLIENT BASE OF SUCCESS
INCORPORATION THROUGH TRADING IN
COMMODITY MARKET
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CERTIFICATE BY THE ORGANIZATIONAL GUIDE
This is to certify that Mr. SOURABH RAI currently studying Post Graduate Diploma in
Management at SDM Institute for Management Development, Mysore has successfully
completed Summer Internship Project titled Market study to expand the client base ofSuccess incorporation through trading in commodity market related to Finance stream
of Management from 07-04-2012 to 07-06-2012.
Signature: Date:
Name: Place:
Designation:
Name of the Organization and Address:
Organizational Stamp
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CERTIFICATE BY THE FACULTY GUIDE
SDM INSTITUTE FOR MANAGEMENT DEVELOPEMNT, MYSORE
This is to certify that Roll No. 11053 Mr. SOURABH RAI of PGDM Batch 2011-13 hassatisfactorily completed Summer Internship Project titled Market study to expand the
client base of Success incorporation through trading in commodity market at M/S
Success Incorporation located at Jabalpur, Madhya Pradesh from 07-04-2012 to 07-06-
2012 to partially fulfill the requirements of the PGDM program under my guidance.
Signature: Date:
Name:
Designation:
SDM Institute for Management Development, Mysore
Institutional Stamp
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EXECUTIVE SUMMARYSummer Project Title: Market study to expand the client base of Success incorporation
through trading in commodity market
Project Guide: Mr. Kumar Rathore
Name of Student: Sourabh Rai
Roll No: 11053
Success Incorporation is a well diversified financial entity offering clients advice on
structuring a complete investment portfolio located at Jabalpur, Madhya Pradesh.
Our current clients fall under the category of a matured businessman who wants to earn
profit in limited period by taking some sort of risk by investing mainly in equity market. But
nowadays the problem lies when we see some sort of short term manipulations to increase the
market value of shares by increasing demand through short term investment(mainly by bigplayers) which attracts small investors and therefore these small investors fall in trap and lose
their money.
Therefore, we as a team of financial advisors took this problem as an opportunity and studied
it thoroughly to come up with a conclusion that mostly people invest in equities and due to
lack of information about the companies in which they had invested, they lose their money.
In terms of risk when we compare equity market with commodity market we find that former
is much more risky than the later.
Mr. Kumar Rathore, Proprietor of Success Incorporation took this opportunity and guided us
to work for the benefit of our clients in respect to benefit us. GDP of Madhya Pradesh mainlydepends on farming. Thus our firm wants to expand our client base by creating awareness
among the farmers as well as the grain merchants by training them to hedge the risk of price
fluctuation of the commodities produced by them by exchange based market instead of over
the counter (OTC) market. This will reduce the pressure from the farmers to sell their crops at
lower rates and will further benefit for the firm in order to have huge client base with higher
turnover.
Therefore, to tap this untapped market we invited young educated individuals who wanted to
do business from their native places from 20 Talukas, we trained them to do online trading
and use softwares to track the trend in the market and also based on these trends they can
forecast future price of commodities. But this was not an easy task to do; all of these
individuals must have individual computer systems with high speed broadband and an office
as well. But we did come up with an idea and asked them to buy an android mobile which
will cost less. Thus, to reduce the overall cost of the project these individuals share screen
through Team Viewer from our head office.
SIGNATURE OF STUDENT SIGNATURE OF GUIDE
Sourabh Rai Mr. Kumar Rathore
SDMIMD (11053) (M.D. Success Incorporation)
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ACKNOWLEDGMENT
I take the opportunity to express my deep gratitude to Mr. Kumar Rathore, Proprietor Success
Incorporation, for taking me as a summer trainee & extending me his full support & co-
operation towards the completion of this project.
Sincere appreciation is extended to Prof. Malathi Sriram, the internal faculty guide of
SDMIMD, for providing me with timely feedback and guidance for efficient execution of the
Project.
I extend my heartfelt thanks to all the staff members and our representatives for their valuable
suggestions.
This opportunity was a great learning experience, which would not have been possible
without the support from the management of SDM-IMD and I am indebted to them.
Sourabh Rai
(11053)
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LIST OF ABBREVIATION NSE- National Stock Exchange BSE- Bombay Stock Exchange SEBI- Securities Exchange Board of India NSDL- National Securities Depository Ltd CDSL- Central Depository Services(India) Ltd NCDEX- National Commodities & derivatives exchange ltd NSCCL- National Securities Clearing Corporation Ltd FMC- Forward market commission NYSE- New York Stock Exchange OTC- Over the counter IPO-Initial Public Offer DP- Depository participant DRF- Demat Request Form RRF- Remat Request Form NAV- Net Asset Value EPS- Earning Per Share S&P- Standard & Poor CRISIL- Credit rating Information Services of India ltd CARE- Credit Analysis & Research Ltd ICRA- Investment Information & Credit Rating Agency of India ISC- Investor service cell IPF- Investor protection fund
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LIST OF TABLES
Table 1: Product dealt in commodity market
Table 2: List of exchanges and their respective traded commodities
LIST OF FIGURES
Figure 1: Contracts or agreements in commodity market
Figure 2: Structure of commodity market
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TABLE OF CONTENT
SDM Institute for Management Development ............................................................... 1
CERTIFICATE BY THE ORGANIZATIONAL GUIDE ........................................................ 2
CERTIFICATE BY THE FACULTY GUIDE .......................................................................... 3
EXECUTIVE SUMMARY ....................................................................................................... 4
ACKNOWLEDGMENT............................................................................................................ 5
LIST OF ABBREVIATION ...................................................................................................... 6
LIST OF TABLES ..................................................................................................................... 7
LIST OF FIGURES ................................................................................................................... 7
CHAPTER 1: INTRODUCTION ............................................................................................ 10
COMPANY PROFILE ................................................................................................ 10
Trading in Equities & Derivatives ............................................................................... 11
Online Trading ............................................................................................................. 11
Future Plans of Success Incorporation ......................................................................... 11
Company Overview ..................................................................................................... 11
CHAPTER 2: BACKGROUND OF THE PROBLEM ........................................................... 12
CHAPTER 3: CONCEPT OF COMMODITY MARKET ...................................................... 13
3.1 HISTORY OF COMMODITY MARKET ................................................................ 13
The Pre-independence Era ....................................................................................................... 13The Control Era........................................................................................................................ 13
3.2 CONTRACTS OR AGREEMENTS IN COMMODITY MARKET .................... 14
3.3 MEANING OF COMMODITY MARKET........................................................... 15
3.4 Different segments in Commodities market: ................................................................. 15
Over the Counter (OTC) market (Forwards): .............................................................. 15
The Exchange based market: ....................................................................................... 16
3.5 STRUCTURE OF COMMODITY MARKET ...................................................... 17
3.6 NEED OF COMMODITY MARKET ................................................................... 19
3.7 PRODUCTS DEALT IN COMMODITY MARKET ........................................... 20
3.8 DIVISION OF COMMODITIES MARKET......................................................... 21
3.9 Commodity Trading ............................................................................................... 30
3.10 MAJOR PLAYER IN COMMODITY MARKET .............................................. 30
3.11 WORKING OF COMMODITY MARKET ........................................................ 31
3.12 10 STEPS TO INVEST IN COMMODITY MARKET ...................................... 33
3.13 COMMODITY TRADING AS AN INVESTMENT VEHICLE ........................ 33
3.14 COMMODITY CONTRACT .............................................................................. 34
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CHAPTER 4: STATEMENT OF PROBLEM ........................................................................ 35
4.1 Management Expectations ..................................................................................... 35
4.2 Project Overview ................................................................................................... 35
4.3 Approach to problem ............................................................................................. 35
CHAPTER 5: RECOMMENDATION .................................................................................... 36
CHAPTER 6: CONCLUSION ................................................................................................ 37
Appendix-I ................................................................................................................... 38
Appendix-II .................................................................................................................. 39
Appendix-III ................................................................................................................ 40
Appendix-IV ................................................................................................................ 41
Appendix-V.................................................................................................................. 42
Appendix-VI ................................................................................................................ 43Appendix-VII ............................................................................................................... 44
Appendix-VIII.............................................................................................................. 45
Appendix-IX ................................................................................................................ 46
REFERENCE ........................................................................................................................... 47
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CHAPTER 1: INTRODUCTION
COMPANY PROFILE
Success Incorporation is a well diversified financial entity offering clients advice onstructuring a complete investment portfolio located at Jabalpur, Madhya Pradesh, started by
Mr. Kumar Rathore, Proprietor Success incorporation in 2006providing an array of financialproducts and services. Its retail and institutional clients have access to products such asequities, derivatives, commodities, currency derivatives, mutual funds, IPOs, insurance and
depository services.
Aim
It aims at maximizing returns of its investors depending upon the investment motive.
Mission
To work together with integrity and make our customers feel valued.
Vision
To create valuable relationships and provide the best financial services most
professionally.
Core Value
Respect our colleagues and the business itself.
Specialties
Our portfolio of services include: A robust trading platform for equities, derivatives,
commodities, access to a wide range of financial products and trading advisory services based
on technical, fundamental and market research.
Commitment
The Company is committed in providing service at par excellence.
Major Offerings
Success Incorporation currently offers the full stock brokerage services in line with the
overall strategy of the group.
Some of the major offerings include the following:
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Trading in Equities & Derivatives
Equity trading is offered to retail clients through multiple channels including online trading
in the BSE and the NSE, for cash & derivatives segments.
Online Trading
The company offers an online trading portal which is developed and maintained by Financial
Technologies (India) Ltd.
Future Plans of Success Incorporation
Success Incorporation plans to enhance its client base by entering into new segments. The
company is further planning to enhance its existing service portfolio by introducing investor
advisory, portfolio management services and merchant banking services in the near future.
Company Overview
Success Incorporation is a SEBI registered financial advisory firm which offers margin
funding facility to its clients.
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CHAPTER 2: BACKGROUND OF THE PROBLEM
80% population of Madhya Pradesh depends on agriculture for their livelihood, there is a
huge potential market that is waiting to be tapped, but due to lack of knowledge among the
farmers and agriculture related businessmen, there is lack of information about the situationin the global commodity market. They also lack information about investment options
available in the market.
Due to this information deficit they lose the value of their money due to the concept of Time
value of money, they even dont take the inflation rate into consideration.
From companys side the problem is small client base with low turnover. Therefore the sole
objective of the study is to know the potential market where we can enter and generate a
sustainable business.
Due to high risk involved in trading in equity market we need to create awareness among theinvestors to focus on low flexible and low risk commodities. Also we need to expand our
client base. Therefore we decided to train some representatives which would help us in
reaching to the potential investors. They would act as financial advisors for farmers and grain
merchants such as.
Instead of selling the commodities they can store them into warehouses and byproducing the receipt from the warehouses they can get loan from banks at a minimal
rate of 7% annually and make some low risk investments.
They can sell the commodities in the futures market at the price which gives themmaximum profit.
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CHAPTER 3: CONCEPT OF COMMODITY MARKET
A commodity market is a market where various commodities and derivatives products are
traded. Most commodity market across the world trade in agricultural products and other raw
materials (like wheat, barley, sugar, maize, cotton, cocoa, coffee, milk products, pork bellies,oil, metals, etc.) and contracts based on them. These contracts can include spot prices,
forwards, futures and options on futures. Other sophisticated products may include interest
rates, environmental instruments, swaps, or ocean freight contracts.
3.1 HISTORY OF COMMODITY MARKET
The Pre-independence EraThe history of organized futures trading in India can be traced to the setting up of Bombay
Cotton Trade Association in 1875.Futures trading in oilseeds was started with the setting up
of Gujarati Vyapari Mandali in 1900 which carried out futures trading in groundnut, castor
seed and cotton.
Before World War II broke out in 1939, several futures markets in oilseed were functioning
in Gujarat and Punjab. Futures trading in Raw Jute and Jute began in Calcutta with the
establishment of The Calcutta Hessian Exchange Ltd in 1919. Later, East Indian JuteAssociation Ltd. was set up in 1927 for organizing futures trading in Raw Jute. These two
associations amalgamated in 1945 to form the present East India Jute & Hessian Ltd. to
conduct organized trading in both Raw Jute and Jute goods.
In case of wheat, futures markets were in existence at several centers at Punjab and U.P., the
most notable amongst them was the Chamber of Commerce at Hapur, which was established
in 1913.Other markets were located at Amritsar, Moga, Ludhiana, Jalandhar, Fazilka, Dhuri, Barnala
and Bhatinda in Punjab and Muzaffarnagar, Chandausi, Meerut, Saharanpur, Hathras,Ghaziabad and Bareilly in U. P. established in the country to trade in such diverse
commodities as pepper, turmeric, potato, sugar and gur (jaggery).
The Control Era
After independence, the Constitution of India brought the subject of Stock Exchanges and
Futures Markets in the Union List. As a result, the responsibility for regulation of
commodity futures markets devolved on the Govt. of India. A Bill on forward contracts wasreferred to an expert committee headed by Prof. A.D. Shroff and Select Committees of two
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successive Parliaments and finally in December 1952, Forward Contracts (Regulation) Act,
1952 was enacted. The Forward Contracts (Regulation) Rules were notified by the Central
government in 1954.
The commodities were divided in to three categories with reference to the extent of
regulation, viz.a. The commodities in which futures trading can be organized under the auspices of a
recognized association.b. The commodities in which futures trading is prohibited.c. The commodities which have neither been regulated for being traded under a recognized
association nor prohibited, are referred to as Free Commodities and the associations
organized in such free commodities are required to obtain the certificate of registration from
the Forward Markets Commission.
3.2 CONTRACTS OR AGREEMENTS IN COMMODITY MARKET
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The Exchange based market:Derivative trading takes place through exchange-based markets with standardized contracts,
settlements etc.
Trading is done on the basis of:- Futures Derivatives
- Warehouse Receipts
Commodities market main purpose is to protect the farmers from forced selling and to
provide them credit so that they dont have to sell their produce to pay off their debts. But
now the market is growing and the purpose of existing is also diversifying.
Now, banks, financial institutions even FIIs and FDIs are being invited as participants so
that the market could get matured and get its sources easily.
The market will be a big thing in near future as it is most promising sector after stock market.
The participants in this market will increase and commodities will be hot favorite investment
in customer portfolio.
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3.5 STRUCTURE OF COMMODITY MARKET
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CommoditiesEcosystem
MCX
Consumers
(Retail/Institutional)
Hedger (Exporters / MillersIndustry)
Producers
(Farmers/co-Operatives/Institutional)
Traders (speculators)arbitrageurs/client
Quality CertificationAgencies
Transporters/ Support
agencies
Clearing Bank
Warehouses
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3.6 NEED OF COMMODITY MARKET To meet the changing needs of globalization, liberalization and commercialization of
agricultural commodities
To have an integrated and strengthen agricultural marketing system, healthyenvironment, smooth channels for the transfer of produce.
To have physical infrastructure to support marketing activities, easy cash support tothe widely scattered community of producers a sense of market orientation among the
farmers.
To help small and marginal farmers from distress sales which are 50% of themarketable surplus out of 54% of the marketable surplus contributed by their
holdings?
To prevent farmers who are forced to sell their produce to square off their debts soonafter harvesting.
To avoid the imbalance between financing production and post-harvest operations, asalso poor linkages between credit and marketing.
To provide cheap credit to farmers easily so that they can be saved from informalsector this includes the commission agents, who provide credit at a higher rate.
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3.7 PRODUCTS DEALT IN COMMODITY MARKET
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3.8 DIVISION OF COMMODITIES MARKETCommodity market is divided into:
I-COMMODITY FUTURES
II-WAREHOUSE RECEIPTS
COMMODITY FUTURES
After equity trading, commodity trading is going to be the next big thing for investors. In
India people have a love for Gold and silver, trading is also going to pick up in Gold and
Silver. Globally, the commodity trade market is about three times the size of equities trade
market. In India, presently, the commodities market is still in a nascent stage and is gradually
picking up taking a cue from global markets.
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COMMODITY EXCHANGE
Commodities exchanges usually trade futures contracts on commodities, such as trading
contracts to receive a particular commodity in physical form. Speculators and investors alsobuy and sell the futures contracts at commodity exchanges to make a profit and provide
liquidity to the system.
The Indian commodity market offers a variety of products like rice, wheat, coal, petroleum,
kerosene, gasoline; metals like copper, gold, silver, aluminum and many more. There are
some commodities such as sugar, cocoa, and coffee which are perishable, so cannot be
stocked for long time. These days, a wide range of agricultural products, energy products,
perishable commodities and metals can be sold under standardized contracts on futures
exchanges prevailing across the globe. Commodities have gained importance with the
development of commodity futures indexes along with the mobilization of more resources in
the commodity market.
India has around 25 recognized commodity future exchanges including three national-level
commodity exchanges. They are:
1. National Commodity & Derivatives Exchange Limited (NCDEX)2. Multi Commodity Exchange of India Limited (MCX)3. National Multi-Commodity Exchange of India Limited (NMCE). All these exchanges
are under the control of the Forward Market Commission (FMC) of Government of
India.
National Commodity & Derivatives Exchange Limited (NCDEX) located in Mumbai is a
public limited company incorporated on April 23, 2003 under the Companies Act, 1956 and
commenced its operations on December 15, 2003.This is the only commodity exchange in the
country promoted by national level institutions like ICICI Bank Limited, Life Insurance
Corporation of India (LIC), National Bank for Agriculture and Rural Development
(NABARD) and National Stock Exchange of India Limited (NSE India). It is a professionally
managed online multi-commodity exchange. It is a technology driven demutualised on-line
commodity exchange with an independent Board of Directors and professional management.
Multi Commodity Exchange of India Limited (MCX) in Mumbai is also an independent and
demutualised exchange recognized by the Government of India. This commodity exchange
which started operations in November 2003 has above 40 commodities on its platform and
has a market share of around 80% in the Indian commodity market. 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. This commodity exchange facilitates
online trading, clearing and settlement operations for commodity futures market across the
country.
National Multi Commodity Exchange of India Limited (NMCE) is the first demutualized,
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List of exchanges and their respective traded commodities is given below -
1. Om & Oil Exchange Ltd.
Bhatinda.
Gur
2. The Bombay Commodity
Exchange Ltd Mumbai
Groundnut Oil, Sunflower Oil, Cotton Seed, Safflower,
Groundnut, Castor oil-Int'l, Castor seed, Cottonseed oil,
Sesa mum oil, Sesa mum Oil Cake, Safflower, Oil Cake,
Rice Bran, Rice Bran Oil, Rice Bran Oil Cake, Safflower
Oil, Crude Palm Oil
3. The Rajkot Seeds oil & Bullion
Merchants` Association Ltd
Groundnut Oil, Castor seed
4. The Meerut Agro Commodities
Exchange Co. Ltd., Meerut
Gur
5. The Spices and OilseedsExchange Ltd
Turmeric
6. Ahmadabad Commodity
Exchange Ltd.
Cotton Seed
Castor seed
7. Vijay Beopar Chamber Ltd,
Muzaffarnagar
Gur
Mustard Seed
8. India Pepper & Spice Trade
Association Kochi
Pepper Domestic-MG1
Pepper Domestic-500g/l
Black Pepper Int'l-MLS ASTA
Black Pepper Int'l-VB ASTA
Black pepper Int'l FAQ
Pepper 550 G/L
Rubber RSS4
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9. Rajdhani Oils and Oil seeds
Exchange Ltd Delhi
Gur
Rapeseed/Mustard seed
10. National Board of TradeIndore.
Rapeseed/Mustard seedRapeseed/Mustard seed Oil
Rapeseed/Mustard seed oil-Cake
Soy bean
Soy Meal
Soy Oil
Crude Palm Oil
11. The Chamber Of Commerce,
Hapur
Gur
Rapeseed/Mustard seed
12. The East India Cotton
Association Mumbai
Indian Cotton
13. The Central India Commercial
Exchange Ltd, Gwalior
Gur
Rapeseed/Mustard seed
14. The East India Jute & Hessian
Exchange Ltd,
Hessian
Sacking
15. First Commodity Exchange of
India Ltd, Kochi
Copra
Coconut oil
Copra cake
16. Bikaner Commodity ExchangeLtd Bikaner
Rapeseed/Mustard seedRapeseed/Mustard seed Oil
Rapeseed/Mustard seed oil-Cake
Guar seed
Gram
Guar Gum
17. E-sugar India Limited Sugar GradeM
Sugar Grade - S
18. National Multi Commodity Gur
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Exchange of India Limited.
Groundnut Oil
Sunflower Oil
Rapeseed/Mustard seed
Rapeseed/Mustard seed Oil
Rapeseed/Mustard seed oil-CakeSoy bean
Soy Oil
Copra
Cotton Seed
Safflower
Groundnut
Sugar
Sacking
Coffee-Robusta Cherry AB
Coconut oilCastor seed
Castor-oil
Groundnut oil Cake
Cottonseed oil
Sesa mum (Til or Jiljili)
Sesa mum oil
Sesa mum Oil Cake
Safflower Oil Cake
Rice Bran Oil
Safflower OilSunflower Oil Cake
Sunflower Seed
Pepper
Crude Palm Oil
Guar seed
Castor Oil Cake
Cottonseed - Oilcake
Aluminum Ingots
Nickel
Vanaspati
Soybean Oilcake
Rubber
Copper
Zinc
Lead
Tin
Linseed
Linseed Oil
Linseed Oilcake
Coconut Oilcake
Gram
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Guar Gum
Castorseed-5
Silver-M
Steel - Flat
Steel - Long
Yellow PeasLong Staple Cotton
Medium Staple Cotton
Castor seed - Disa
Mustard Seed
Guar seed Bandhani
Gold - HNI
Silver - HNI
Red Chilly
Maize
Guar Gum BandhaniCASHEW KERNEL W320
Basmati Rice
Jeera
Mustard Seed Jaipur
Crude Oil
Sarbati Rice
Sesame Seed ( Natural 99.1)
Cotton Long Kadi
Cotton Med Abohar
Cotton Short StapleSteel Long Bhavnagar
Mentha Oil
21. National Commodity &
Derivatives Exchange Ltd.
S06 L S Cotton Ahmadabad
J34 M S Cotton Bhatinda
Crude Palm oil - Kandla
RBD P'Olein - Kakinada
EXP R/M oil - Jaipur
Rape/Mustard seed - Jaipur
Ref Soya oil - Indore
Soy bean - IndorePure Gold - Mumbai
Pure Silver - New Delhi
Pure Gold - Mumbai - 1 Kg
Pure Silver - New Delhi - 30 Kg (Mega)
Rubber - Kottayam
Pepper - Kochi
Gram(Chana) - New Delhi
Guar seed - Jodhpur
Jute (B twill-665 gms) - Kolkata
Turmeric - NizamabadCastor seed - Disa
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Raw Jute - Kolkata
Guar Gum - Jodhpur
Sugar M Grade - Muzaffarnagar
Urad - Mumbai
Sugar S Grade - Vashi
Yellow Peas - MumbaiWheat - New Delhi SMQ
Soy Meal - Indore
SONA995MUM
CHANDIDEL
Cotton Kadi
Cotton Abohar
Gur-chaku - Muzaffarnagar
Yellow Red Maize - Nizamabad
Grade A Raw Rice Delhi
Grade A Parboiled Rice DelhiCommon Raw Rice Delhi
Common Parboiled Rice Delhi
Mulberry Raw Silk
Mulberry Green Cocoons
Jeera Unjha
Chili (Pala) Guntur
Mild Steel Ingots - Ghaziabad
Cashews W-320-Kollam
Whitish Sesame Seed - Rajkot
Cotton Seed Oilcake - AkolaLemon Tur - Mumbai
Maharashtra Lal Tur - Akola
Arabica Coffee - Hassan
Robusta Coffee - Kushalnagar
22. Haryana Commodities Ltd,
Hissar
Rapeseed/Mustard seed
Rapeseed/Mustard seed Oil
23. The Bullion AssociationLimited
24. E-Commodities Ltd
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3.9 Commodity Trading
Commodity markets are quite like equity markets. The commodity market also has twoconstituents i.e. Spot market- The commodities are bought and sold for immediate delivery.
Derivative market-Various financial instruments having commodities as underlying are
traded on the exchanges.
3.10 MAJOR PLAYER IN COMMODITY MARKET
The player in future commodity market fall into three categories-
Hedger Speculator Arbitrage
Hedger:
A Hedger can be Farmers, manufacturers, importers and exporter. A hedger 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. This helps protect against price risks.
The holders of the long position in futures contracts (buyers of the commodity), are trying to
secure as low a price as possible. The short holders of the contract (sellers of the commodity)
will want to secure as high a price as possible. The commodity contract, however, provides a
definite price certainty for both parties, which reduces the risks associated with price
volatility. By means of futures contracts, Hedging can also be used as a means to lock in an
acceptable price margin between the cost of the raw material and the retail cost of the final
product sold.
Speculators:
Other commodity market participants, however, do not aim to minimize risk but rather to
benefit from the inherently risky nature of the commodity market. These are the speculators,
and they aim to profit from the very price change that hedgers are protecting themselves
against. A hedger would want to minimize their risk no matter what they're investing in,
while speculators want to increase their risk and therefore maximize their profits. In the
commodity market, a speculator buying a contract low in order to sell high in the future
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Trading:At this stage the following is the system implemented:
Order receiving Execution-Matching Reporting Surveillance Price limits
Clearing: This stage has following system in place:
Matching Registration Clearing Clearing limits Notation Margining Price limits Position limits Clearing house
Settlement: This stage has following system followed as follows:
Marking to market Receipts and payments Reporting Delivery upon expiration or maturity
The future trading in commodities has emerged as a major investment option in India.
Commodity market performances are equal to that of the stock market and analysts predict
that the commodities market will overtake the capital market in trade volumes sooner than
later. But since commodities futures market is a relatively new entrant in India, not many
investors know how to tap and benefit from trading in various commodities.
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3.12 10 STEPS TO INVEST IN COMMODITY MARKET:
Step 1:Locate a brokerage house with a reputation for service.
Step 2:Fill a demat account opening form with a registered brokerage house and a member
with the national commodity exchanges. You could require PAN card, address proof and
passport size photos.
Step 3:Be clear of the rules and regulations especially transaction costs.
Step 4:Choose the right brokerage plan that optimizes your costs, brokerage fees ranging
from 0.03% to 0.08% on contract value.
Step 5:Be clear of the service deliverables from your broker.
Step 6:Insist on regular reports and special knowledge / training opportunities.
Step 7: Set aside funds for commodity investing, but remember not at the cost of
other traditional investing avenues.
Step 8: Focus on a few commodities, gather requisite knowledge and pay up the
initial amount for margin money, account opening charges and annual maintenance charges.
Step 9:Clear any or all doubts now, set stop loss and book profit levels.
Step 10: Get ready for investing and track your success and losses all the time.
3.13 COMMODITY TRADING AS AN INVESTMENT VEHICLEThe commodities market is one of the fastest-growing areas in the investment world. And it
offers some major advantages over stocks that you might not have considered before.
Recently, commodity market is booming irrespective of global meltdown and recession.When equity market is underperforming, this commodity market has given tremendous
returns in gold, silver, zinc and in other metals and agro products; hence people have
withdrawn their funds from equity market and shifted their investment in commodity market.
Commodity investing was initially received well only by a few sectors. Such investments
were first restricted to the trade and exchange of commodities meant for regular and day to
day use. However, the awareness in the subsequent stages has enabled speedy movements,
transfer and transactions of goods and services.
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3.14 COMMODITY CONTRACTLet's say, for example, that you decide to subscribe to satellite TV. As the buyer, you enter
into an agreement with the company to receive a specific number of channels at a certain
price every month for the next year. This contract made with the satellite company is similarto a futures contract, in that you have agreed to receive a product or commodity at a later
date, with the price and terms for delivery already set. You have secured your cost for now
and the next year, even if the price of satellite rises during that time. By entering into this
agreement, you have reduced your risk of higher prices. That's how the futures market works.
Except instead of a satellite TV provider, a producer of wheat may be trying to secure a
selling price for next season's crop, while a bread maker may be trying to secure a buying
price to determine how much bread can be made and at what profit. So the farmer and the
bread maker may enter into a futures contract requiring the delivery of 5,000 bushels of grain
to the buyer in June at a price of $4 per bushel. By entering into this futures contract, the
farmer and the bread maker secure a price that both parties believe will be a fair price in June.It is this contract that can then be bought and sold in the commodity market. A futures
contract is an agreement between two parties: a short position, the party who agrees to deliver
a commodity, and a long position, the party who agrees to receive a commodity. In the above
scenario, the farmer would be the holder of the short position (agreeing to sell) while the
bread maker would be the holder of the long (agreeing to buy).
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CHAPTER 4: STATEMENT OF PROBLEM
Due to severe competition, it is very necessary to have some regular clients in order to have a
handsome turnover. Thus the problem is to see beyond existing clients and search for some
other clients to have a smooth business.
4.1 Management Expectations
To have regular clients To promote business in new markets To have new clients as well as representatives
4.2 Project OverviewResearch Objective:
1. To advice current clients.2. To analyze past data for better understanding of working.3. To identify the new clients for expansion of client base.4. To create a model to keep track of existing clients with adding new clients regularly.
Steps Involved:
1. Financial advice to existing clients.2. Make suggestions and recommendation to representatives.3. Train the representatives4. Update clients and representatives.
4.3 Approach to problemThe basic approach was to have some new clients which would give a regular and a
handsome turnover. Thus our target clients were the farmers and the grain merchants in small
villages and Talukas. Therefore we trained representatives from 20 Talukas and provided
with software to make some predictions and advice new clients and make new clients.
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CHAPTER 5: RECOMMENDATION
Improve the brand awareness of Success Incorporation by increasing advertisements and
promotional activities like performing training programs for clients and prospects. This will
improve the brand of Success Incorporation which will help to attract more clients.
Introduce some programs which will help to attract more of farmers and traders. Most of the
investors are businessmen, and very few of the farmers invest in these markets. Thus there is
still a huge number of client bases in Madhya Pradesh which can be attracted towards these
markets by educating them about these markets.
The investors do not have much knowledge about the commodities market and the various
concepts like hedging and arbitration present in these markets. The first priority should be to
educate the investors about the market and the various techniques to invest in these markets
which will enable the investors to extract better return from these markets.
The investors mainly follow the television and the newspapers to update themselves about the
market. So it will be beneficial for Success Incorporation if they come out with weekly article
in the leading newspapers regarding market research and present market condition.
Providing the clients better guidance to diversify their portfolio to minimize the risk
involved.
The service of the company can be improved keeping in mind the suggestions provided by
the investors.
More franchisees & branchs must be opened at key locations, so as to attract more
investors. Once in Every month, the client must be invited for feedback and suggestions.
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Appendix-I
Ami Broker software used to see the trend and forecast future movements in commodities
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Appendix-II
Ami Broker software used to see the trend and forecast future movements in commodities
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Appendix-III
Ami Broker software used to see the trend and forecast future movements in commodities
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Appendix-VII
Ami Broker software used to see the trend and forecast future movements in commodities
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Appendix-VIII
Ami Broker software used to see the trend of nifty
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Appendix-IX
Ami Broker software used to see the trend of nifty
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REFERENCE
Multi commodity index websitewww.mcxindia.com National commodity and derivatives exchange limited website
www.ncdex.com
For news and updates about the marketwww.businessstandard.com History and growth of commodity marketwww.wikipedia.com National stock exchangewww.nseindia.com Bombay stock exchangewww.bse.com Stock exchange board of Indiawww.sebi.com
http://www.mcxindia.com/http://www.mcxindia.com/http://www.mcxindia.com/http://www.ncdex.com/http://www.ncdex.com/http://www.businessstandard.com/http://www.businessstandard.com/http://www.businessstandard.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.nseindia.com/http://www.nseindia.com/http://www.nseindia.com/http://www.bse.com/http://www.bse.com/http://www.bse.com/http://www.sebi.com/http://www.sebi.com/http://www.sebi.com/http://www.sebi.com/http://www.bse.com/http://www.nseindia.com/http://www.wikipedia.com/http://www.businessstandard.com/http://www.ncdex.com/http://www.mcxindia.com/