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A REPORT

ON

Future with Commodity ‘Futures’

By:

MUSTI RADHIKA

SHAREKHAN

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A REPORT

ON

Future with Commodity ‘Futures’

By:

MUSTI RADHIKA

A report submitted in partial fulfillment of

the requirements of

MBA Program

Distribution List:

Faculty guide:

Dr. K.K. RAY

Company guide:

Mr. Suman Kumar Adepu

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Acknowledgement

I would like to express word of thanks to all those who have provided me with sincere advice,

and information during the course of my training period. It was indeed a great pleasure for me to

work in a very co-operative, enthusiastic and learning atmosphere at Share Khan.

I would like to extend my regards to my company guide Mr. Suman Kumar Adepu , Manager

Equities and Commodities, Share khan for helping me and providing me with right direction

during the course of my project. The interaction with him has provided me with the knowledge

which will definitely help me to enrich my career and help me to perform better in future.

I would also like to express my sincere thanks to Dr. K.K. Ray (Faculty Guide-ICFAI Business

School, Hyderabad) for his unstinting guidance and support throughout the project. He has been

a great source of motivation to me.

I would also like to take this opportunity to thank all my faculty members, senior officials and

colleagues at Share Khan for their help and support during the project.

With all the heartiest thanks; I hope my final project report will be a great success and a good

source of learning and information.

Musti Radhika

TABLE OF CONTENTS

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Acknowledgement……………………………………………………………………………3

Abstract……………………………………………………………………………………....................6

PART-1

1. Introduction…………………………………………………………………………….….7

1.1 History of commodity trading…………………………………………………………..8

1.2 Commodity Exchanges in India………………………………………………………...9

1.3 Commodities traded over exchanges…………………………………………………..11

1.4 Participants……………………………………………………………………………..11

2. Derivatives……………………………………………………………………………………………13

2.1 Derivatives……………………………………………………………………………..14

2.2 Commodity Futures Contract……………………………………………………….....15

3. Hedging and price risk management…………………………………………………....18

3.1 Hedging………………………………………………………………………………..19

3.2 Commodity futures in price discovery and risk management…………………………21

PART-2

4. Fundamental Analysis…………………………………………………………………..22

5. Fundamental Analysis on Red Chilly………………………………………………….25

5.1 Introduction……………………………………………………………………….....26

5.2 Indian Scenario………………………………………………………………………27

5.3 Trade Statistics……………………………………………………………………....28

5.4 World Scenario……………………………………………………………………....30

5.5 Factors Influencing Prices…………………………………………………………...30

5.6 Market influencing factors…………………………………………………………...31

5.7 Red Chilly Outlook…………………………………………………………………..31

6. Fundamental Analysis on Nickel…………………………………………………………36

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6.1 Introduction……………………………………………………………………………37

6.2 Global Scenario………………………………………………………………………..37

6.3 Main Drivers of Demand………………………………………………………………39

6.4 Factors influencing Nickel Markets……………………………………………………39

6.5 Nickel Outlook………………………………………………………………………...40

6.6 Correlation and Regression Analysis………………………………………………….44

7. Company Profile………………………………………………………………………….,52

PART-3

8. Primary Research………………………………………………………………………….55

9. Analysis and Interpretation of Primary Research………………………………………..61

10. Conclusion and Limitation of the Research …………………………………………....78

References…………………………………………………………………………………....81

Annexure-1 (List of regional commodity exchanges in India)…………………………......83

Annexure-2 (Global supply and Demand of Nickel)………………………………………..84

Annexure-3 (Average Prices of Nickel)………………………………………………..……85

Annexure-4 (Questionnaire)…………………………………………………………….......86

Annexure-5 (Metal Manufacturer’s Email Draft)………………………………………….88

Annexure-6 (Education Campaign)…………………………………………………………89

Annexure -7 (Secondary Data)………………………………………………………….......90

Abstract

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The report contains three parts namely, Understanding commodity markets, fundamental

analysis on Red Chilly and Nickel and the primary research.

In the first part, a brief introduction is given about the commodity markets, the working of the

commodity exchanges, the commodities being traded, the participants in the commodity markets

and the benefits of trading in the commodity market.

In the second part, the need of fundamental analysis is explained and justified by citing one

example each from agricultural sector and the metal sector. Two different commodities are

explained as the fundamental factors affecting each of them is different and the approach of

predicting the price movement is different for both of them.

The third part of the report consists of the primary research having two main objectives; the first

one being to understand the level of awareness of the commodity market relative to the share

market and the second one being to determine the profile of the customer participating in the

market. The primary research is being conducted by direct interaction with the customers which

include all kind of investors, traders, manufacturers’, importers / exporters. The analysis is done

with the help of the statistical tools and SPSS software.

Finally, at the end of the project, conclusions and limitations of the study are provided on the

basis of the results of the analysis of the primary research.

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PART-1

CHAPTER -1

INTRODUCTION

1.1 History of Commodity trading:

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Commodity futures’ trading has been first recorded in the 17th century in Japan. The futures’

trading was basically done with the seasonal agricultural products so as to ensure their

continuous supply all the year around. Japanese merchants used to store rice in the warehouses

for their future use and used to sell receipts against such stored rice. These receipts were called

as ‘rice tickets ‘which then eventually became the basis for their commercial currency. The rules

which were established during this time for trading these rice tickets are similar to the rules set

for American futures trading. In the United States, the commodity futures trading first started in

the middle of the 19th century with the help of the Chicago Board Of Trade set up in the year

1848.Gradually then about 10 commodity exchanges were set up with a wide variety of

agricultural products being traded.

Commodity derivative market first started in India in cotton in the 1875 and in the oilseeds in

1900 at Bombay. Forward trading in raw jute and jute goods started at Calcutta in the year 1912.

But however, within few years of their establishment, the forwards trading in these commodities

was banned in the year 1960. Recently, in the year 2003, such ban on trading was lifted and the

trading in commodity futures was started. Permission was given to establish online multi-

commodity exchange in order to facilitate trading. The long period of prohibition of forward

trading in major commodities like cotton and oilseeds complex has an enduring impact on the

development of the commodity derivative markets in India and the futures market in

commodities find themselves left far behind the derivative markets in the developed countries,

which have been functioning uninterruptedly. Thus, today the challenge before the commodity

markets is to make up for the loss of growth and development during the three decades of

government policies, which had the effect of restricting the growth of the derivative markets.

1.2 Commodity Exchanges in India:

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Commodity exchanges are places which trade in particular commodities, neglecting the trade the

trade of securities, stock index futures and options etc. Exchanges are the centralized places

which provide a platform for both the buyers and the sellers to meet, set quality standards and

establish the rules of businesses. Commodity exchanges in India plays a important role as it

offers a tool for efficient risk management and price transparency.

In India, there are about 25 recognized regional exchanges (Annexure-1- List of all the Regional

Commodity Exchanges), of which three are national level multi-commodity exchanges. These

three national level multi-commodity exchanges are,

· National Commodity and Derivative Exchange Limited( NCDEX)

· Multi-Commodity Exchange Of India( MCX)

· National Multi-Commodity Exchange Of India Limited ( NMCEIL)

All the above exchanges have been set up under the overall control of Forward Market

Commission of Government of India.

National Commodity & Derivative Exchange Limited (NCDEX)

National Commodity & Derivative Exchange Limited (NCDEX) located in Mumbai is a public

limited company incorporated 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 the national level institutions. It is promoted by ICICI Bank Limited, Life

Insurance Corporation of India ( LIC) , National Bank for Agriculture and Rural Development

( NABARD) and National Stock Exchange ( NSE) .It is a professionally manages online multi-

commodity exchange. NCDEX is regulated by Forward Market Commission and is subject to

various law of land like the Companies Act, Stamp Act, Contracts Act, Forward Commission

(Regulation) Act and various other legislations.

Multi Commodity Exchange of India Limited (MCX)

Multi Commodity Exchange is headquartered in Mumbai and is an independent, de-mutualised

exchange with the permanent recognition from Government of India. Key Shareholders of MCX

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are Financial Technologies (India) Ltd., State Bank of India, Union Bank of India, Corporation

Bank, Bank of India and Canara Bank. MCX facilitates online trading, clearing and settlement

operations for commodity futures market across the country.MCX started offering trade in

November 2003 and has built strategic alliances with Bombay Bullion Association, Bombay

Metal Exchange, Solvent Extractors’ Association of India, Pulse Importers Association and

Shetkari Sanghatana.

National Multi-Commodity Exchange of India Limited (NMCEIL)

National Multi-Commodity Exchange of India Limited (NMCEIL) is the first de-mutualised,

Electronic Multi-commodity Exchange in India. On 25th July, 2001, it was granted approval by

the government to organize trading in the edible oil complex. It has been operationalised from

November 26 2002. It has been supported by Central Warehousing Corporation Ltd. Gujarat

State Agricultural Marketing Board and Neptune Overseas limited. It has got its recognition in

October 2002.

1.3 Commodities traded over the exchanges:

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Commodities that can be traded over the exchanges are as follows:

Bullion Gold and Silver

Oil &

Oilseeds

Castor Seeds, Soya Seeds, Castor Oil, Refined Soya Oil, Soya meal, Crude Palm

Oil, Groundnut Oil, Mustard Seed, Cotton Seed Oil Cake, Cottonseed.

Spices Pepper, Red Chilly, Jeera, Turmeric, Cardamom

Metals Steel Long, Steel Flat, Copper, Nickel, Zinc, Tin, Steel, Aluminum

Fibre Kapas, Long Staple Cotton, Medium Staple Cotton

Pulses Chana. Urad,Yellow Peas, Tur,

Grains Rice, Basmati Rice, Wheat, Maize, Sarbati Rice, Jeera

Energy Crude Oil, Natural Gas, Brent Crude

Others Rubber, Guar Seed, Guar Gum, Cashew, Cashew Kernel, Sugar, Gur, Coffee, Silk,

Sugar.

1.4 Participants:

Participants who trade in the commodity market can be classified under three broad categories

namely, Hedgers, Speculators and Arbitragers. These can be discussed as follows—

Ø Hedgers: Hedgers face the risk associated with the asset. They use the futures market to

reduce a particular risk that they face. Hedgers are people who hold simultaneous

positions in the spot market also. These are generally the actual consumers or producers

of the commodities. For example: A wheat farmer who expects his harvest to be over in 3

months time may sell a futures contract with an expiry of three months, so that even if the

prices happen to fall after three months, he can still manage to sell his produce at a price

at which the contract was struck. The large scale consumers of the products can also

make use of the futures to secure their purchase. For example, A cool drinks can

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manufacturing company may buy a tin futures contract, so that even if the price happen to

rise later, he can be assured of supply of raw materials at the pre-determined price.

Ø Speculators: Speculators are those people who participate in the market for the profits

and are ready to face the risk involved in the market.A speculator can be anyone from an

individual who has a small surplus income to treasury desks of banks and corporate.

Ø Arbitrageurs: Arbitrageur are the market participants who make profit using price

differences in two different markets without exposing oneself to any type of risk.

Arbitraging is a very profitable business. It is possible to arbitrage between two different

future markets or between the futures market and the spot market. However, in an

‘efficient’ market arbitraging is not possible, because any price gap is closed immediately

as soon as the arbitragers enter the market.

All the market participants use commodity futures to hold a position in the market to achieve a

pre-determined objective. Commodity futures are a type of derivative contract. So, in order to

understand what commodity futures are? it is important to know what derivatives are?

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CHAPTER-2

DERIVATIVES

.1 Derivatives:

A derivative contract is enforceable agreement whose value is derived from the underlying asset;

the underlying asset can be a commodity, precious metal, currency, bond, stock, or indices. Four

most common examples of derivative instruments are forwards, futures, options and swaps/

spreads.

Contracts/ Agreements

Cash Derivatives

Forward Others like SWAPS & FRA’s

Merchandizing Customized

Futures Options

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Forward Contract:

A forward contract is an agreement between two parties to buy or sell an asset at a future date for

an agreed price. A forward contract is not traded on a exchange.

Futures Contract:

A Futures contract is an agreement between two parties to buy or sell the underlying asset by a

certain date at a certain price agreed at the time of entering into the contract on the futures

exchange. If one buys a future contract, it means that he has made a promise to pay the price of

the asset at a specified time. Similarly, if one has sold a futures contract, it means that the person

is ready to transfer the underlying asset to the buyer of the future at a specified price at a

particular time. Thus, any futures contract has a buyer, seller, price and an expiry.

The difference between the price of an asset in the spot market and the futures market is called as

the ‘Basis’. The basis is usually negative, which means that the price of a commodity in the

futures contract is more than that in the spot market. This is because of the storage cost, interest

rate, insurance premium etc. This condition of basis being negative is called as ‘Contango’.

Sometimes it is more profitable to hold futures in the form of the physical form than in the form

of futures. When the benefits overshadow the expenses associated with the holding of the asset,

the basis become positive. This condition is called as the ‘Backwardation’, Backwardation

generally happens when the prices of the commodity is expected to fall. Also, when the futures

contract approaches maturity, the futures price and the spot price tend to coincide with each other

and the basis becomes zero.

2.2 Commodity futures Contract:

A Commodity futures contract is a contractual agreement between two parties to buy or sell a

specified quantity and quality of commodity at a certain time in future at a certain price agreed at

the time of entering into the contract on the commodity futures exchange.

Commodity futures are beneficial to a large section of the society, be it farmer, businessman,

industrialist, importer, exporter, consumer etc.

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The benefits that an investor could reap by investing in the commodity futures are as follows:

· Diversification: The returns from commodities market are free from the direct influence

of the equity and the debt market, which means that they are capable of being used as

effective hedging instruments providing better diversification.

· Less Manipulation: Commodities markets, as they are governed by international price

movements are less prone to rigging or price manipulations by individuals. But since,

Indian markets are less matured to be escaped from the manipulations. In India, in

absence of liquidity in the commodity markets, the sole producers of the commodity try

to manipulate the commodity markets.

· High Leverage: The margins in the commodity futures market are less than the F&O

section of the equity market.

For an importer or an exporter, the commodity futures can help in the following ways:

· Hedge against the price fluctuations: Wide fluctuations in the prices of the import or

export products can directly affect the bottom-line as the price at which the products are

imported or exported are decided beforehand. Commodity futures help to procure or to

sell the commodities at a price at which the exporter or the importer wishes to sell his

produce.

For the producer of the commodity, the commodity futures are beneficial in the following way:

· Lock-in the price for the produce: For a farmer, there is every chance that the price of

his produce may come down drastically at the time of the harvest. By taking positions in

the commodity futures, the farmer can effectively lock-in the price at which he wishes to

sell his produce.

· Assured Demand: Any glut in the market can make the producer to wait unendingly for

the buyer. Selling commodity futures contract can give the producer an assured demand

at the time of the harvest.

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· Increasing the holding power: The producer can store the underlying commodity in the

exchange approved warehouses and sell in the futures to realize the future value of the

commodity.

For the large scale consumer, commodity futures are beneficial in the following way:

· Control the cost: For an industrialist, the raw material cost dictates the final price of his

produce. Any sudden rise or fall in the price of the raw materials can compel the

industrialist to pass the hike to the customers and make his products unattractive in the

market. Thus, buying the commodity futures, he can fix the price of the raw material.

· Ensure continuous supply: Any shortfall in the supply of the raw materials can stop the

production and make the producer to default his sale obligations. The producer can avoid

this risk of default by buying the commodity futures contract, in order to have an assured

supply of a fixed quantity of materials at a pre-decided price at the appointed time.

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CHAPTER-3

HEDGING AND PRICE RISK

MANAGEMENT

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3.1 Hedging:

Hedging is a mechanism by which the participants in the physical market can cover their price

risk. Theoretically, the relationship between the futures and the cash prices is determined by the

cost of carry. The two prices therefore move in tandem. This enables the participants in the

physical market to cover their price risk by taking opposite positions in the futures market.

Hedging can be better understood by two hypothetical illustrations:

Hypothetical illustration: 1

A Wheat miller enters into a contract to sell flour to the bread manufacturer four months from

now. The price is agreed upon though the flour would be delivered only after four months. The

wheat miller is worried that the price of the wheat would increase during the course of next four

months. A rise in the prices would lead to losses on the contract of the miller. To safeguard

against the risk of increasing prices of wheat, the miller buys the Wheat futures Contract that call

for delivery of wheat in the four months time. After the expiry of the four months, as feared by

the miller, the prices of wheat may have risen. The mille then purchases Wheat in the spot

market at a higher price. However, since he has hedged in the futures market, he can sell contract

in the futures markets at a gain since there is a gain in the future price as well. Thus, he offsets

his purchase of wheat at a higher cost by selling the futures contract thereby protecting his profit

on the sale of the flour. Thus, the wheat miller hedges against exposure to price risk.

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Hypothetical Situation: 2

A farmer plans to harvest the guar seed crop in the month of November. But in the harvesting

season the Guar Seed prices usually decline due to excess supply in the market. This usually

forces the farmer, who requires income for the nest subsequent harvesting season, to sell his

harvest at a discount. The farmer has two options to counter this risk he is exposed due to price

fluctuations:

Option 1:

Store the Guar Seed, which has been harvested for few months and subsequently sell the Guar

Seed when the prices increase. But, this would not b possible if the farmer requires the proceeds

from the sale of his harvest to finance the next crop season. Also, the farmer would require

April

July

Wheat Miller

Buy Wheat Futures Contract

Sell wheat futures contract

Buy Wheat in the spot market for delivery to the bread manufacturer

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adequate storage space and would require following preservation techniques to ensure that the

stored harvest would not be destroyed due to infestation.

Option 2:

Alternatively, the farmer can hedge himself by selling November Guar Seed future contract in

the month of September. Any decline in the spot prices in the month of November would

decline in the futures prices, which he has already sold for a higher price. Upon harvest, the

farmer would offset his futures transaction by buying Guar Seed November futures contract and

simultaneously sell his Gaur Seed crop harvest in the physical market. This ensures that the

farmer is protected against any decline in the prices in the physical market.

3.2 Commodity futures in price discovery and risk management:

Price Discovery:

Price discovery is the process by which future prices of commodities are arrived at by a large

number of buyers and sellers across a wide geographical area that anonymously trade contracts

that are to mature at a future date. Such contracts are technically known as ‘futures’ and are

traded on a single trading platform like MCX. Sellers and buyers use this information they have

on the demand and supply of commodities and thus eliminate the possibility of price

September

November

Farmer

Sell Gaur Seed November Futures

Buy Guar Seed November Futures

Sell Guar Seed Harvest in the Physical Market.

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manipulation by vested interests. The participants in the price discovery process would include

producers, bulk consumers, processors, exporters, importers, arbitragers and investors.

All these users participate in buying and selling of commodities based on various domestic and

global parameters such as price, demand and supply, climatic and market related information.

These factors, together, result in efficient price discovery, allowing large number of buyers and

sellers to trade on the exchange. MCX is communicating these prices all across the globe to

make the market more efficient and to enhance the utility of this price discovery.

Price risk management:

Hedging is the practice of off-setting the price risk inherent in any cash position by taking an

equal but opposite position in the futures market. This technique is very useful in case of any

long-term requirements for which the prices have to be firmed to quote a sale price but to avoid

buying the physical commodity immediately to prevent blocking of funds and incurring large

holding costs.

PART-2

CHAPTER-4

FUNDAMENTAL ANALYSIS

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Fundamental Analysis:

Fundamental analysis focuses on the cause and effect which are external to the trading markets

and affect the prices in the market. These factors can be weather, current inventory levels,

government policies, economic indicators, trade balances. Few of the fundamental factors that a

trader focuses on are:

Ø Demand and supply:

Analysts give more emphasis on the demand and supply factors. This is basically because

as the demand increases, supply remaining constant, the prices of the commodities raises

and when the supply decreases and demand increases or remains the same, the price of

that commodity rises.

Ø External event:

Fundamental analyst focuses on the outcome of a particular event, i.e., what is the effect

on the price of a commodity due to the occurrence of a particular event. These factors

give an indication to the analyst as at what time the price of the commodity would

increase or decrease. For example, unseasonal rainfall would destroy the crop. Such an

external event would increase the price of that agricultural commodity.

Ø Public information:

As public information is readily available to all, fundamental analyst study how and when

this information is passed on to the price of the commodity and examine when the trade

can take place. For example, news of discovery of new iron ore mines is available to all.

Such news in the market would be reflected in the market in the form of decrease of

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prices of iron as he supply would increase. Although supply has not actually increased,

just the news has impacted the prices.

Ø Agricultural fundamentals:

In order to predict the price movement of the agricultural commodity, fundamentalists

study the cropping pattern, last year’s carry over stock, this year’s projected production,

usage and ending stock. Fundamental analysts project the prices of the agricultural

commodities by study the statistical data released by the government organization in the

past and present and study how the price has moved in the similar situations. They also

focus on the acreage and the yield numbers. Weather forecast during the cropping season

also helps in determining the prices of the agricultural commodity.

Thus, fundamentals play a very important role in determining the price of the commodity.

Although, there would not be any short term change in the prices, fundamentals always impact

the long term prices of the commodity.

In the following chapters, an attempt is made to apply these fundamental factors and forecast the

prices in the future.

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CHAPTER -5

FUNDAMENTAL ANALYSIS ON RED

CHILLY

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5.1 Introduction:

Chilly forms a very important culinary spice all over the world. It is basically used in

preparation of beverages and in preparation of medicines. It belongs to the genus Capsicum,

under the solanaceae family. It is believed to have its roots in South America and eventually

spread all over the world.

The fruit is available in different sizes, shapes and color. It is principally valued for its

pungency and color. The important quality parameters that are looked for while selecting chilly

are color, length, width, skin thickness and pungency.

Chillies are grown all over India throughout the year and are thus available in 70 or so

different varieties. The major chilly producing states in India are Andhra Pradesh, Karnataka,

Madhya Pradesh, Maharashtra, Orissa, West Bengal, Rajasthan and Tamil Nadu. The various

types chillies available are bird’s eye Chilly, Byadgi, Ellachipur Sannam S4 type, Guntur

Sannam- S4,Hindpur S7, Jwala, Khatari White, Kashmir Chilli, Madhya Pradesh G.T Sannam.

Each of these varieties is available in various shapes, sizes, colour and pungency. Each of it is

known for its own specifications.Sannam-4 is primarily grown in Andhra Pradesh and accounts

for around 30-35% of the total production .This is also the main variety that is exporting. If this

single variety is offered for futures trading, it will be possible to offer relatively a homogenous

product for futures trading.

The cropping of chillies starts from august and extends till October, while the harvesting

starts from December onwards. About 5% of the arrivals of chilly are reported during this month.

However, the major arrival season extends from February to April.

Of all the states, Andhra Pradesh is the major producer of chillies with Guntur, Warangal,

Khamam, Krishna and Prakasham are the major areas of production.

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5.2 Indian Scenario:

India is world largest producer, consumer and exporter of chillies in the world. India also has

largest area under cultivation of chillies in the world. India produces about 25% of the world’s

total production, whereas it consumes 90% of its total production. The area under cultivation

according to the statistics in 2006 was around 30000-32000 hectares as compared to 35000

hectares in 2005. The production distribution all over the nation is as follows:

The production level can be influenced by the use of hybrid seeds and proper crop management.

Thus, the increase in the production levels can increase the supply and decrease the prices which

might probably lead to less interest of the farmers.

CHART -1

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Area and Production of Chilli in India:

Over the years the area under cultivation of chilly is decreasing due to the increase in

productivity of the crop. The yield has increased over the years due to the use of hybrid seeds

and better crop management. This has resulted increase in the crop decreasing the price of the

chilly. Decrease in the prices has disincentivized the farmers to grow more red chilly crops and

hence they have shifted to alternative crops, thus decreasing the area under cultivation.

5.3 Trade Statistics:

India’s export market is observing an upward trend during the past few years and is assumed to

remain so looking at the global demand of chillies. India mainly exports to Sri lanka, USA,

Nepal, Mexico and Bangladesh. Of these USA, Sri Lanka and Mexico are the major importers of

CHART-2

CHART -2

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Indian chillies. The average percentage share of each of these nations can be observed as

follows:

India exports chillies in various processed forms namely, Chilli Powder, dried chillies, pickled

chillies etc and it is mainly exported to USA, Sri Lanka, Bangladesh, Far East and the Middle

East. Since India has already established markets in these areas, processed chilly can further give

impetus to exports. Of the total exports, 72% is of dry chillies, 27% is of powder chillies and

chilly seed is of about 1%. Looking at the statistics we can say that, there is sufficient room for

the processed chilly in the export market.

In India, the well established spot markets are situated at Guntur, Warangal, Khamam in Andhra

Pradesh; Raichur, Bellary in Karnataka as these are also production centre. The trade channel

involves several members, viz, a village level trader, Commission agent, Wholesaler, retailer,

agents for exporters and importers. Thus, the commodity changes several hands exposing all

these members to price risk.

During the peak arrival season in Guntur, around 0.8-1 lakh bags weighing 35-50 kgs are traded

here daily. Around 35-40% of the crop that arrives at Guntur is estimated to be stored in the cold

storages present at Guntur and surrounding areas. The arrival of chilly start in the last week of

March in major markets and extends till May end.

5.4 World Scenario

CHART - 3

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Although India is the major exporter in the world market, it exports on an

average only 4% of its total production to the world market. India exports about 80000 to 1 lakh

ton of chilly every year. Moreover, the supply of chillies is not constant mainly due to the erratic

monsoon patterns and uneven demand within the country.

Other than India, today China has also become an export giant in the world

market and as a serious competitor to India. China is entering into all the major markets of the

world such as USA and Indonesia. Japan is also known for its special variety chilly such as

Bird’s eye, Santaka and Hontaka type of chillies. Since, the domestic demand in Japan itself is

very huge it has not been able to become a major exporter of chilly.

The imported chilly in the western countries is basically used in the food

processing industry for its colour and pungency whereas in countries such as USA, UK,

Germany and Sweden large quantities of chillies is used in the preparation of oleoresins and

extracts. Apart from India, the major producers and exporters of chillies are China, Pakistan,

Morocco, Mexico and Turkey.

5.5 Factors influencing prices:

The price variation depends on the trade activities like the export, import, and domestic demand

and crop conditions in the major crop growing countries. In India, there is no peak and low

arrivals, as there is continuous supply of chilly all throughout the year. Traders stock the Chillies

as soon as they arrive and sell them off when the demand increases and prices go up. Dry chillies

and be stored for a period of about two years without any damage.

The entire price fluctuations depend upon the supply- demand theory, i.e, when the supply goes

up the prices fall and when the demand goes up the prices also go up. The prices of the major

varieties sold in the country are co-related with each other. As a result the players in other

varieties can hedge their risks through this single variety.

5.6 Market influencing factors:

The major market influencing factors can be explained in short as follows:

P a g e | 30

· The commodity displays high volatility, with the prices heavily dependent on season,

production in different producing tracts spread across the country, demand from exporters

and the stock available at the cold storages.

· The prices of the major chilly variety sold in the country are correlated to each other. As

a result, the players in the other varieties can also hedge their risks through this single

variety.

· Historical price movement.

· Climatic conditions

· Shifting towards alternate crops.

5.7 Red Chilly Outlook:The price variation of chilly depends on the trade activities like import, export, and domestic

demand and crop conditions in the major growing countries. To analyze the domestic price

outlook above factors play an important role, these factors as compared with the historical prices

will give us the proper price outlook on chilly.

Since, Guntur market is the largest chilly market in Andhra Pradesh, an historical data of arrivals

can give an brief idea of the price fluctuations in the market.

CHART-4

P a g e | 31

Arrivals in 2008:

Ø Trade sources have confirmed that the stocks available in the cold storages in Guntur are

25 lakh bags of 40 kg each.

Ø The Guntur chilli crop is expected to be better than that of the last year.

Ø The Tamil Nadu crops are expected to be delayed by one month due to late sowing .

Ø The chilli production has decline in the year 2007-2008 by 10% due to unseasonal

rainfall in Tamil Nadu.

Ø There is a good demand for Chilli from Sri Lanka, Bangladesh, Singapore and Malaysia.

Ø There has been a crop failure in China due to its bad weather. This might lead to

increased export orders from India.

Ø In the year 2007-2008, India has exported about 128,000 tons of chilli which is up by 56

percent as compared to a year ago.

Ø Due to heavy rains in Andhra Pradesh and Tamil Nadu, the second harvesting has been

stopped. Also the harvested crops that were standing on fields were also damaged as the

CHART-5

P a g e | 32

fields badly plunged into water. The crop that was stored in the Guntur market was also

damaged as the dark clouds were hovering over the market.

Ø With the supply of fresh red chilies in the market in the early march, prices came down

only for a week and then rose drastically as almost 25% of the chilly that was arrived in

the market was not good in terms of the required quality.

Looking at the above said global and domestic factors, we can say that the chilly futures would

be bullish in the near term.

The above analysis can be justified from the historical data also,, as shown below,

As we can see from the above graph, the arrival curve and the price curve move in the opposite

directions ,i.e., with the increase in the quantity of arrival, the price of the red chilly is decreasing

and with the decrease in supply the prices of the commodity is rising.

The usual pattern of the rise or decrease in the price of red chilly is dependent on the quantity of

the chilly being supplied to the market. During the harvesting season, the supply of Red Chilly in

the market increase leading to decrease in the price and in the other seasons the price increases

CHART-6

P a g e | 33

due to non-availability of chillies in the market. In general, the price movement in the market can

be observed from rand in the Guntur Chilly Market.

From the above graph we can conclude that in general following trend can be observed in the

prices of the red chilly in general:

Ø Prices begin to rise in the month of June as the arrivals of red chilly cease to come to the

market at the end of the month of May.

Ø The prices that are observed in the month of June, more or less tend to continue till the

month of September and October.

Ø Due to the new arrivals in the month of November, prices fall from the high levels in the

month of November and December. This trend continues till the month of January and

February.

Ø The prices will fall further in the month of March due to new arrivals in the market.

Based on the price trend and the current news in the market, we can conclude that chilly market

would be bullish in the near future due to the supply constraints.

CHART-7

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P a g e | 35

CHAPTER -6

Fundamental Analysis on Nickel

6.1 Introduction:

Nickel is a shiny metal, silvery white in color that belongs to the iron group and is used in a wide

number of industries such as engineering, electrical and electronics, infrastructure, automobile

and automobile components, packaging, batteries etc. About 65% of nickel is used in the

P a g e | 36

manufacture of stainless steel and other 20% in the other steel and non-ferrous including “super”

alloys, often for highly specialized industrialized, aerospace and military applications.

Domestic Scenario:

India does not have resources for producing nickel nor does it indulge in mining or any

production activities. Since, India is one of the developing nations; the demand for stainless steel

is rising due to which the demand for nickel is also rising. Hence, Indian market is completely

dependent on imports. India imports about 45,000 to 50,000 tons of Nickel every year. With the

growth in the stainless steel sector, the demand for steel is expected to increase in the coming

years.

6.2 Global Scenario:

Demand for Nickel is increasing all over the globe whereas the supply is constrained. About 54%

of the supply comes from just five companies. The global average consumption is growing at a

rate of 3.1% every year. The major producers of Nickel are Russia, followed by Australia,

Canada, New Caledonia and Indonesia. All these countries constitute about 65% of the total

world production. World’s primary Nickel consumption is about 1 million tons, of which 2 lakh

tons are consumed in Japan, 3.74 tons in the European Union.

Nickel Producing Countries:

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Global Demand of Nickel:

Global demand for nickel is observed to increase as its usage has increased in more

industrialized products. Stainless steel is the dominant consuming sector, followed by alloys.

Developing countries like India and China play an important role in development of the global

nickel industry. Also, the demand for nickel is likely to come from the aerospace and automotive

sectors of the US, UK and Germany.

Demand for Nickel:

CHART-8

CHART-9

P a g e | 38

6.3 The main drivers of demand:

· Nickel consumption is dominated by the Stainless Steel industry, which accounts for

about 65% of the global consumption of the primary Nickel.

· 20% of the demand arises from the other steel and the alloys sectors.

· The plating sector constitutes about 9% of the demand for Nickel.

· The remaining 6% is used to make coins and other chemicals.

6.4 Factors influencing the Nickel markets:

Ø Above ground supply from scrap.

Ø New mines discovery.

Ø Nickel demand is derived demand, thus the situation in various industries.

Ø Growth in consumption of stainless steel.

6.5 Nickel Outlook:

As most of the nickel produced in the world goes into the preparation of the stainless, stainless

steel industry is the major driver of the demand for nickel. In the developing nations, with the

growth of the economy, the infrastructure industry also rises leading to demand for stainless steel

and consequently nickel. In the year 2007, the prices of nickel have grown up due to the

constrained supply and increasing demand. This demand has come from developing BRIC

countries, more specifically China. Since the last 5 years China has been experiencing double

digit growth but however this year it might fall to a single digit growth. This might lead to

reduced demand of nickel this year.

Thus, until the year 2003, there was very little demand for nickel. But after the year 2003, due to

the rapid economic growth was observed by most developing nations of Asia. This included in

P a g e | 39

particular China which constituted for about 50% of the total global demand. This can be clearly

observed from the graph below:

It can be observed from the above graph that since the year 2003, new mines have been

discovered leading to increase in the mine production at the same time the metal production has

also been increasing. This is basically because earlier, i.e. , prior to 2003 nickel was obtained

only from the supplied ores . But later new technology was developed to produce nickel from the

laterite ores and also from low grade ores from Indonesia and Philippines. In order to meet the

ever increasing demand, new plants were set with huge capacities which are expected to increase

the production leading to increase in supply over demand in the year 2008.

This increase in supply will not sustain for a longer period of time .This is basically because, the

increase in the production of nickel is basically due to the production of nickel from the low

grade pig iron ore from Indonesia and Philippines. However, nickel from pig iron ore is

produced only in China. The cost of production from pig iron ore is more as compared from the

traditional ferronickel ore. Also, pig iron ore contains high phosphorous and sulphur content

which is hazardous to the environment. Chinese government has put some restrictions regarding

such production processes. Due to the above reasons, the production of nickel from pig iron

would not sustain for a long period of time. Although the supply of nickel is more than demand

CHART-10

P a g e | 40

in the year 2008, this is only for a short period of time and for a longer period supply could be

sustained only the normal means.

Incremental mine production:

The rate of production of nickel has lagged consumption for the last 5 years. But the year 2008

and 2009 will observe the surplus of production over consumption due to incremental production

of nickel from the nickel pig iron. New nickel supplies will basically come from laterite ores and

most of the projects will be functional from the year 2008.These new mines will release some of

the supply constraints from the second half of 2008.

The major project that are due to be operational are:

Project Country Company Capacity

(‘000tons)

Start up

Initial

Start Up

Current

Goro New

Calendonia

CVRD Inco 60 2004 Q4 2008

Vermelho Brazil CVRD Inco 46 Q3 2008 Q1 2009

Ravensthrope Australia BHP Billiton 50 Q2 2007 Q1 2008

Koniamba New

Caledonia

Xstrata 60 2009 2010

Caldag Turkey European 20 2007 Q3 2008

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Nickel

Onca Puma Brazil CVRD Inco 57 2008 2008

Thus, with the functioning of these mines, the production of nickel would increase.

Price Fluctuation of nickel:

CHART-11

P a g e | 42

As we can see from the graph, the prices of nickel are following the law of demand and supply.

It has increasing over the last two years, but is seen to fall in the early 2008.( Annexure-3 :

Average Monthly prices of Nickel for the last 3 years)

Nickel Market may be influenced by the following factors in the year 2008:

· In the year 2007, Nickel prices were all time high which led the consumers of 300 series

stainless steel ( where nickel is the major constituent) to look for an alternative or use 400

series stainless steel ( where the nickel content is zero or lower) thus decreasing the

demand for nickel although the demand for stainless steel has risen

· Slowing down US economy has led to decreased demand in overall base metals including

nickel.

· Although stainless steel production has increased, it has been increasing in a decreasing

rate, which has led to less consumption of Nickel.

· Many new capacities that were delayed due to some economic or technological reasons

are planning to start this year. This will increase the supply of Nickel.

· Most of the surplus Nickel that is available in the market is obtained from the lower grade

pig iron ore that is available in Indonesia and Philippines. The cost of production of

Nickel from this ore is very high as compared to the nickel obtained from the ferronickel

ore.

· The major consumer of Nickel in the world- China will observe a single digit growth this

year, as compared to double digit growth in the last 5 years. This will lead to lesser global

demand of Nickel in the world.

· As India has no resources for producing Nickel, it will continue to import nickel for the

preparation of the 300 series Stainless steel. This is basically due to the development of

the infrastructure industry in India and 300 series Stainless Steel used for industrial

purpose. Thus, increasing the overall demand of nickel in India.

Thus, from the above factors we can conclude that the Nickel market may be bullish in the near

term due to costly Nickel from the Pig iron ore, but in the longer run it would be bearish as new

P a g e | 43

mines would start operating in the second half of the year 2008, as with the start up of new mines

there would be excess supply than demand.

The above outlook of Nickel is dependent on the supply and demand factors. The other factors

on which the prices of Nickel would be dependent on are the US Dollar, US Inflation, US

Unemployment rate, Crude Oil prices, Fed rate and other such factors. In order to ascertain the

relation between the prices of Nickel and these fundamental factors, correlation and regression

analysis has been done. The results and interpretations of the analysis is as follows:

6.6 Correlation and Regression Analysis:

Correlation and regression analysis has been used to understand the cause and effect relationship

between the change in the Nickel prices and the fundamental factors that are under study.

Correlation analysis helps us to predict the direction of movement of the prices of the Nickel

with the direction of the movement of the fundamental factors considered. It also predicts the

strength of association between the two variables. Regression analysis determines the cause and

effect relationship between the dependent and the independent variables. It also helps us to

determine which variables participate more in predicting the dependent variable. In the

secondary research, following is the classification of the variables:

Classification of Variables

Dependent variable

Independent variable

Nickel Prices US Inflation

US Dollar

Fed rate

Steel Prices

US Unemployment

Crude Oil prices

SPSS software has been used to perform the Correlation and the Regression Analysis.

Data Analysis and Interpretation:

P a g e | 44

SPSS Output:

Correlation table:

Interpretation:

Nickel price and Steel price:

There is a positive correlation of 0.294 between nickel prices and the steel prices. This shows

that with the increase in the steel prices there should be an increase in the Nickel prices. There is

a positive correlation because nickel is the major constituent of the stainless steel. It gives

strength and durability to the steel which is used for the construction purposes. Since, the

significance level is more than 0.05 we can say that the two variables are not linearly related.

This means that the prices of Nickel and Steel move in the same direction but not in the same

proportion. This shows that the Steel is not the main driver of the price of Nickel.

Nickel Price and the Dollar rate:

There is a negative correlation of - 0.262 between the prices of Nickel and The US dollar. This

implies that with the appreciation of the dollar the prices of Nickel would fall and vice – versa.

P a g e | 45

Also, as the significance value is higher than the 0.05 we can say that the two variables are not

linearly related.

Nickel prices and the Crude Oil prices:

There is a positive correlation of 0.101 between crude oil prices and the Nickel prices. This

shows that with the rise of the crude oil prices the nickel prices would also raise. This is most

evident because with the rise in the crude oil prices, the transportation costs would increase. This

increase in the transportation costs would be transferred to the prices of the Nickel. Thus, there is

an transferred relationship, which is also shown in the level of significance which is very high

than 0.05.

Nickel prices and the US Unemployment rate:

There is a strong negative correlation of -0.732 between Nickel prices and the US

Unemployment rate. This shows that with the increase in the Unemployment rate in the US the

prices of Nickel would fall. Also, the significance level is very low than 0.05. This shows that

there is a linear relationship between the prices of the Nickel and that of US Unemployment rate.

This can be interpreted in the following way; increase in unemployment levels indicates that the

economy is not performing well which means the expenditure in the infrastructure and other

developmental activities has become low. Due to less investment in the infrastructure sectors, the

demand of Nickel is less and hence the price of Nickel would become less.

Nickel Prices and the fed rate:

There is a positive correlation of 0.584 between the Nickel prices and the Fed rate. This means

with the increase in the fed rate the prices of the Nickel would increase and the with the decrease

of the Fed rate the prices of the Nickel would fall. Since the significance level is low, there is a

linear relationship between the two.

Nickel Prices and the US Inflation:

There is a negative correlation of -0.498 between the prices of Nickel and the US Inflation. This

means that with the increase in the US inflation the prices of Nickel would fall. This is basically

because with the increase in price level of all the commodities, the tendency to buy by the people

decreases. Also, with the increase in inflation the real value of money decreases and investments

P a g e | 46

also decreases. Due to decrease in the investments, the overall demand for commodity decreases

leading to the decrease in prices. As the significance level is less than 0.05 we can that there

exists linear relationship between the Nickel prices and the US inflation.

The above correlation analysis has not given any cause and effect relationships. It has indicated

only the direction of the movement of the two variables and their strength of association. The

following regression analysis will help us to indicate which factors are more influential in

determining the price of the Nickel.

Regression Analysis:

A stepwise regression model has been used in the regression analysis. This model is used

because this model considers variables one by one and then forms the equation. Based on the

values of the Coefficient of determination we can select a particular equation which predicts the

value of the dependent variable to the maximum possible extent.

SPSS output:

Interpretation:

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The above table shows R, R square and the adjusted R Square. The R is the multiple correlations

co-efficient, which shows the correlation between the observed and predicted values of the

dependent variable. Of the five models, the value of R for the fourth model is high which is equal

to 0.898. This is because higher values of R indicate stronger relationships. So, we would select

the fourth model as the predictor equation.

In the fourth model, the independent variables selected are the unemployment rate, Steel Prices,

Fed Rate and the crude oil prices.

R- Squared is the proportion of the variation of the dependent variable explained by the

regression model. From the output we can say that, almost 81% of the variations in the Nickel

prices are explained by the unemployment rate, Steel prices, Crude prices and the Fed rate.

Since, the value of R-squared is high we can say that the model fits the data well.

Adjusted R- Squared attempts to correct R- Squared to more closely reflect the goodness of fit of

the model in the population.

ANOVA table:

Interpretation:

This table summarizes the results of the analysis of variance. The output of the regression

displays information about the variation accounted for the model selected. The residual displays

the information that is not accounted by the model that is selected. The output total is the

summation of the regression values and the residual values. As the regression sum of squares is

large in comparison to the residual sum of squares, we can say that the model accounts for the

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most of the variation in the dependent variable. Also, as the value of significance is small equal

to 0.00, we can say that the independent variables do a good job of explaining the variation in the

dependent variable.

SPSS Output:

Interpretation:

Un-standardized co-efficient B is the co-efficient of the estimated regression model.

Thus, the estimated model can be written as:

Nickel Price = 325.117 + 0.092 × Steel Price – 0.231×Crude oil Prices – 451.892 ×

Unemployment rate +356.105 ×Fed rate.

The t-statistic helps to determine the relative importance of each variable in the model. Usually,

values far from the 2 to -2 are considered as more important. Thus, we can say that the Steel

prices, the Fed rate and crude prices are the relatively important variables in the model selected.

Conclusion:

P a g e | 49

From the above correlation and regression analysis, we can conclude that there is strong negative

correlation between the US unemployment rate and US inflation with the Nickel prices. But

however for predicting the prices of the Nickel, steel prices, fed rates and the crude prices play

an important role.

Thus, we say that other than the prices of the Steel, the US dollar, Unemployment rate and Crude

oil prices act as indicators of the price change in the Nickel.

Limitations and Assumptions of the Study:

Ø Only past three years data have been considered for the study.

Ø External factors such as demand and supply factors have not considered for analysis

during the course of the study.

Ø The results are statistically validated; the practical results can be different from that of the

theoretical results obtained.

P a g e | 50

CHAPTER -7

Company Profile

Establishment and network:

Share khan is an 80 year old company and has its link to SSKI. Share Khan started as a retail arm

of SSKI and slowly developed into a large organization having 704 share shops in 280 cities

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across the country. It has about 31,000 employees with a customer base of more than 5, 00,000.

Share khan deals with wide variety of products namely equities, derivatives, commodities, IPO,

mutual fund, research, portfolio management and other structured products. The mission of

Share khan is “… to educate and empower the individual investor to make better investment

decision through Quality Advice, Innovative products and superior service.”

It offers both offline and online services. It had launched its website www. Sharekhan.com in the

year 2000 and now within a timeframe of 8 years almost 50% of the total services are given

online to its customers. It is one of the most preferred website by all the customers as it provides

a whole range of in depth research reports on top companies and commodities. All the

information pertaining to any financial product is easily available on the company’s website.

Operations:

Share Khan offers three modes of trade transaction means. They are –

· Share shops – A customer can directly visit any of the share shop to trade .

· Online trading – A customer can trade on his own by using the online trading mode.

· Dial & trade – A customer can ring up to any dealer or the relationship manager and can

execute his trade.

Thus, based on the convenience of the customer he can choose any of the above modes of

transaction.

Services:

Share Khan also offers different range of services depending on the profile of the customer. All

the services are offered with the help of the exclusive research team consisting of 25 analysts in

fundamental, technical and derivatives research team.

These services are –

· First step – This service is for those customers who are investing for the first time.

· Classic – This service is for customers who transact occasionally.

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· Speed trade – This service is for those customers who are very are day traders and

participate actively in the market.

· Platinum Circle – This service is exclusively for HNI’s who are looking for

personalized and exclusive investment and portfolio management services ( PMS)

It provides continuous educational programs to guide their customers by means of seminars

and workshops or by means of booklets and reports. Customer care is the top priority for

Share Khan.

Awards and recognition for Share khan:

· It is being rated among the top twenty wired companies along with Reliance, HLL,

and Infosys etc by business today.

· It is awarded as one of the most preferred broker in India by the Awaaz Consumer

Awards.

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CHAPTER-8

Primary Research

Getting Started…..

At the start of our SIP, our very first objective was to understand the commodity markets and its

dos and don’ts .After having understood the intricacies of the working and the functioning of the

commodity market, our job was to approach traders, manufacturers, importers& exporters, and

explain them the use of trading in the commodity markets. We basically discussed with them the

P a g e | 54

advantages of hedging and how hedging can be beneficial to them. We also explained them how

risk can be minimized by taking a position at the exchange.

Plan of Action…….

In order to approach the traders, manufacturers, traders, importers/ exporters, we first created a

plan of action by segregating all type of investors into agricultural traders, metal traders, bullion

traders. The method of approaching each of these clients was different. As it was assumed that

the agricultural traders would believe in a more personal approach whereas metal traders would

believe in a more professional approach. The level of education and the experience in the trading

played an important role in interacting with the customers.

Interaction with Sugar Manufacturer’s and Chilly traders…..

We focused our survey on two markets basically sugar industry and the chilly markets from the

agricultural sector. For approaching these two markets, we first searched for the associations and

big markets situated in the city of Hyderabad.

On searching we got to know about The Indian Sugar Mill Association

(http//www.indiansugar.com/.) and then for the South Indian States the association is known as

The South Indian Sugar Mill Association (SISMA). We then had a telephonic conversation with

the General Secretary of the SISMA Mr. R.S.Bhale Rao and then fixed up appointment with him.

Then we went to the association and collected the whole database of sugar mills and the traders

situated in the city. After having collected the database, we sent all of them informative mail

regarding the advantages of hedging and price risk management.

For approaching the chilly market traders, we went to the biggest chilly market in the city

situated at Malakpet. It is next largest market in AP after Guntur. About 10% of the total chilly

trade comes from this market. A large number of traders were located in a row. As month of

March was the period of arrival of chilly in the market, most of the traders were very busy with

their daily chores. But few of the traders gave us ten to fifteen minutes of their precious time and

had a talk with us. They explained us the methodology of functioning of the chilly spot market.

They also shared with us their experiences in the futures market.

Our Findings:

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Ø Very few traders traded in the futures market. This was basically because they were not

fully aware of hedging and the benefits that can be accrued from it.

Ø They did not have the confidence in the technology that is adopted in trading, ie, the

traders were not well-versed in accessing the internet. Thus, the traders were good

businessmen but not very tech-savvy.

Ø Almost all the traders had the issues regarding the delivery system, as there are not

enough warehouse of the exchanges situated at nearby distances. Thus adding additional

cost of transportation to the traders.

Ø Few of the traders had issues regarding the quality specification of the chillies and told

that the quality specification prescribed by the MCX and NCDEX is very rigid and is

difficult always to arrange for such a specification of the product.

We also asked them to fill up a questionnaire for us, whose analysis and discussion will be

provided in the following chapters.

Understanding the metal manufacturers…….

After understanding the scenario in the agricultural markets, we then focused our primary

research on the metal traders. As we already had an interaction with the chilly traders, with were

now in a position to understand the practical aspect of traders view point. For approaching the

metal traders we sought two way methodologies, first we collected the list of all the metals

manufacturers, corporate’s database from the Share Khan and also searched for the list of various

metals association situated in the city of Hyderabad.

We again sent an informative mail (ANNEXURE- 5) to all these manufacturers’s, traders

regarding hedging and risk management we also received responses from few of them. As there

is no association situated in the city, we planned to visit the largest industrial area in the city –

Balanagar. There are a quite a few number of metal manufacturers situated in this industrial area.

We interacted with the head of the purchase and the finance departments and asked them to fill-

up our questionnaire.

Our Inference:

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Ø Manufacturers were aware of what hedging is and few of them practiced it also.

Ø Few of these hedged their position in the London Stock Exchange and other international

commodity exchanges.

Ø Very few manufacturers hedge their position in the Indian markets as they believed that

the Indian markets are not mature enough to participate in trading.

The Bullion Traders…….

After having covered the metal markets, we focused our study on the Bullion markets, more

specifically on gold traders. Gold is the most actively traded commodity over the exchange.

More amount of liquidity is observed in the MCX exchange. Hence, there would be a greater

opportunity of trading and hedging for its investors. Keeping in view this point, we focused more

on gold rather than on silver.

We interacted with the Gold Merchants situated in Begaum Bazar, Hyderabad. We selected this

bazaar as most of the city’s oldest Jewelers are situated in this area. We interacted with these

merchants and tried to explain them the importance of hedging and how it can be beneficial to

them. Very few merchants showed interest in our conversation as they already had a blind belief

that trading in commodity market is just like gambling. After having in depth discussion with the

merchants, we came to know the main reason for reluctance is that they had suffered huge losses

in the past and are now scared to invest more in the same market.

But other than these few, some merchants who had knowledge about hedging traded over the

exchange to protect themselves from the price fluctuations. These discussions with the merchants

were of great help as it helped us in the analysis of the primary research.

Opportunity with HNI’s……………….

Share Khan Pvt Ltd. had organized an educational campaign for the HNI’s at the hi-tech city

(Annexure -) , Hyderabad. The main objective of the campaign was to educate the HNI’s about

various investment opportunities available in the market. It was a two day program and we had

an great opportunity to interact with the HNIs and understand their perspective about the market.

As we had a pretty good exposure to the market movements and other technicalities of trading at

Share khan we were given the responsibility to explain the HNI’s about the company’s product.

P a g e | 57

Most of the HNIs there were either NRIs or working for big MNCs such as Google, Microsoft,

etc. Others were lawyers, Judges etc. We observed the following from the interaction with these

clients.

Ø All the clients were well informed about the happenings in the market.

Ø They had very huge portfolios which basically included mutual funds and diversified

stocks. Very few people invested in commodities which was basically lack of awareness

about the commodity markets.

Ø People, who invested, invested only for the speculation purpose only and to book profits.

We also asked them to fill in the questionnaires and got a positive response from them.

Investors at Share khan…..

We also interacted with the investors visiting the Share Khan’s office. We also asked them to fill

up the questionnaires and tried to understand their perception about the commodity market and

the equity market as a whole. Investors at Share khan were more of a learning opportunity to us.

Value Addition to Share Khan:

Summer Internship Program at Share Khan was a great learning opportunity for me as the entire

duration of the course was equally distributed in gaining theoretical knowledge about

commodities and the practical exposure provided by them in terms of meeting the clients. The

employees at Share khan were always readily available for clarifying my doubts in every petty

issue. With the support of my Company guide and the employees I was successful in attaining

the following goals for Share Khan:

Ø I was able to get new clients for Share Khan.

Ø During the course of my interaction with the clients, I propagated about the services

offered by Share Khan. Thus, I made an attempt to make its presence feel among the

investors in Hyderabad.

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CHAPTER -9

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ANALYSIS AND INTERPRETATION

OF THE PRIMARY RESEARCH

Objective:

The objective is to test whether the awareness of the commodity markets and the stock market is

the same.

Analysis of Respondents:

To determine the number of people who have any kind of trading account in equities or in

commodities.

P a g e | 60

As we can see from the above pie-chart, 77% of the respondents have a trading account either

with Share khan or with any other firm and the rest of them, i.e., 23% of the respondents do not

have any kind of trading account for equities or commodities.

Of all the respondents, 14% are businessman, 61% work for an organization, 1% is exporter and

importer, 23% are trader and 1% is others. Thus, maximum people that were surveyed were

service people and traders. So, the results of the analysis can be applied to the service people in

general. The service people also include the HNIs and general salaried people.

P a g e | 61

Analysis of awareness of commodity markets in comparison to Share

Markets:

Chi-Square Analysis:

Hypothesis:

Null Hypothesis:

Ho: There is no significant difference between the level of awareness between the investors of

the share market and that of the commodity market.

Alternate Hypothesis:

Ha: There is significant difference between the level of awareness between the investors of the

share market and that of the commodity market.

Statistical test to be used:

Chi-square test would be used to test the null hypothesis.

Significance level:

The level of significance to be used for the test is 0.05, i.e., α =0.05

Calculations:

Observed Frequency table:

Strongly Agree

Agree Neutral Disagree Strongly Disagree

Total

Awareness about shares 15 54 9 13 9 100

Awareness about futures and options

20 32 16 31 1 100

Awareness about Commodity market

12 51 20 17 0 100

Awareness about 14 40 20 16 10 100

P a g e | 62

Hedging

Total 61 177 65 77 20 400

Calculation of expected frequency:

E (15) = (61×100)/ 400 = 15.25 E (20) = (61×100)/ 400 = 15.25

E (54) = (177×100)/400 = 44.25 E (32) = (177×100)/400 = 44.25

E (9) = (65 × 100)/400 =16.25 E (16) = (65 × 100)/400 = 16.25

E (13) = (77 ×100)/400 =19.25 E (31) = (77 ×100)/400 = 19.25

E (9) = (20× 100)/400 = 5 E (1) = (20× 100)/400 = 5

Similarly, expected frequencies can be calculated for other parameters also.

Expected Frequency Table:

Strongly Agree

Agree Neutral Disagree Strongly Disagree

Total

Awareness about shares 15.25 44.25 16.25 19.25 5 100

Awareness about futures and options

15.25 44.25 16.25 19.25 5 100

Awareness about Commodity market

15.25 44.25 16.25 19.25 5 100

Awareness about Hedging

15.25 44.25 16.25 19.25 5 100

Total 61 177 65 77 20 400

Calculation of the Chi-square:

Observed Frequency

(O)

Expected Frequency

(E)

(O-E) (O-E)^2 (O-E)^2/E

15 15.25 - 0.25 0.0625 0.004098

P a g e | 63

54 44.25 9.75 95.0625 2.15

9 16.25 -7.25 52.5625 3.23

13 19.25 - 6.25 39.0625 2.03

9 5 4 16 3.2

20 15.25 4.75 22.5625 1.48

32 44.25 -12.25 150.0625 3.39

16 16.25 -0.25 0.0625 0.0039

31 19.25 11.75 138.0625 7.172

1 5 -4 16 3.2

12 15.25 -3.25 10.5625 0.6926

51 44.25 6.75 45.5625 1.03

Observed Frequency

(O)

Expected Frequency

(E)

(O-E) (O-E)^2 (O-E)^2/E

20 16.25 3.75 14.0625 0.8654

17 19.25 -2.25 5.0625 0.2630

0 5 -5 25 5

14 15.25 -1.25 1.5625 0.1025

40 44.25 -4.25 18.0625 0.4081

20 16.25 3.75 14.0625 0.8654

16 19.25 -3.25 10.5625 0.5487

10 5 5 25 5

Chi- Square = ∑ (O-E) ^2 / E

= 40.64

Degrees of freedom = (r-1) ×(s-1)

= (4-1) × (5-1)

P a g e | 64

d.f = 12

Theoretical value of chi-square at d.f =12 and level of significance 0.05 is 21.026

Conclusion:

Since, the calculated value is more than the theoretical value; we reject the null hypothesis and

conclude that statistically there is significant difference between the level of awareness among

the investors of shares and investors of commodity markets.

Interpretation:

The awareness about the commodity market is less as compared to the equity market as the

commodity markets are still in the nascent stage and need some more time to get mature.

Objective 2:

The objective is to determine whether people who trade in futures and options of the stock

market trade in commodity market also or not.

Hypothesis:

Null Hypothesis: Ho

There is no significant difference between people who trade in futures and options in the share

market and that of the people who trade in commodity market.

Alternate Hypothesis: Ha

There is a significant difference between people who trade in futures and options in the share

market and that of the people who trade in commodity market.

Statistical test to be used:

Chi-square test would be used to test the null hypothesis.

P a g e | 65

Significance level:

The level of significance to be used for the test is 0.05, i.e., α =0.05

Calculations:

Observed frequency table:

Strongly Agree

Agree Neutral Disagree Strongly Disagree

Total

Trade in Stock Futures & Options

8 28 27 25 12 100

Trade in Commodity futures

1 20 24 41 14 100

Total 9 48 51 66 26 200

Expected frequency:

E (8) = 9×100/200 = 4.5 E (1) = 9×100/200 = 4.5

E (28) =48 ×100/200 = 24 E (20) =48 ×100/200 = 24

E (27) = 51×100/200 =25.5 E (24) = 51×100/200 =25.5

E (25) = 66×100/200 = 33 E (41) = 66×100/200 = 33

E (12) = 26 ×100/200 =13 E (14) = 26 ×100/200= 13

Expected frequency:

P a g e | 66

Strongly Agree

Agree Neutral Disagree Strongly Disagree

Total

Trade in Stock Futures & Options

4.5 24 25.5 33 13 100

Trade in Commodity futures

4.5 24 25.5 33 13 100

Total 9 48 51 66 26 200

Calculations for Chi- Square:

Observed Frequency (O) Expected Frequency (E) (O-E) (O-E)^2 (O-E)^2/E

8 4.5 3.5 12.25 2.72

28 24 4 16 0.667

27 25.5 1.5 2.25 0.0882

25 33 -8 64 1.9392

12 13 -1 1 0.0769

1 4.5 -3.5 12.25 2.722

20 24 -4 16 0.667

24 25.5 -1.5 2.25 0.0882

41 33 8 64 1.9393

14 13 1 1 0.0769

Chi- Square = ∑ (O-E) ^2 / E

= 10.99

Degrees of freedom = (r-1) ×(s-1)

= (2-1) × (5-1)

d.f = 4

P a g e | 67

Theoretical value of chi-square at d.f = 4 and level of significance 0.05 is 9.488

Conclusion:

Since, the calculated value is more than the theoretical value; we reject the null hypothesis and

conclude that statistically there is significant difference between people who trade in futures and

options of stock and people who trade in commodity market.

Interpretation:

People who trade in futures and options of the equity market do not trade in the commodity

market possibly due to the following reasons:

Ø As the commodity markets are not yet mature the number of participants is very less, due

to which the liquidity is less as compared to the stock markets.

Ø The minimum margin money required for trading in commodity futures is more as

compared to the margin money required for trading in the share market.

Ø The awareness of the commodity futures is less as compared to the stock futures and

options.

Objective- 3

The objective is to analyze the purpose of usage of the commodity market by the people

participating in commodity market.

P a g e | 68

From the above pie-chart we can conclude that, of all the participants in the commodity market

only 14% trade for the purpose of hedging.

Of the total participants in the commodity market, 31% of them trade as speculators. The basic

aim of the speculators is to book profit. These are that segment of the investors who actually do

not have interest in the physical possesion of the commodity, but trade in the commodity market

to book profit only.

Intepretation:

P a g e | 69

Most of the people participating in the commodity markets trade only as speculators and not as

hedgers due to the following reasons:

Ø Hedgers have a problem with the delivery mechanism of the goods, hence they would

prefer squaring off their position rather than taking the delivery of the goods.

Ø Historical data shows that there is a greater scope of high returns ( more than 25%) in the

commodity markets, high returns incentivizes the speculators to invest more for profit

maximisation.

Ø As compared to the total market participants, very few people participate in the

commodity markets due to the high risk involved in the commodity markets.

Objective -4

The investment atttitude of the investors while investing in any kind of asset.

From the above graph we can see that 77% people invest in any asset class for achieving high

returns.

P a g e | 70

From the graph above we can say that security in the investing in any asset class is the most

important for the investors.

Interpretation:

From the above two pie – charts we can conclude that people give first priority to security in

investments and then to the high returns on the investments. This might be the probable reason

for not investing in commodity markets by most of the people as the commodity markets are

more risky. Lack of awareness is also additional reason for not investing in the commodity

market.

Objective -5

The next objective is to do the profiling of the customer.

Methodology:

The profiling of the customer would be done with the help of the Discriminant analysis. Using

Discriminant analysis an equation would be developed using which we can categorize, whether a

customer would be a prospective client or not. The responses were collected while interacting

with the customers with the help of the questionnaires. The data collected is in the form of

P a g e | 71

nominal data. So, in order to analyze such a nominal data, numeric values from 1 to 4 or5 are

being assigned to the data and then it is entered in the SPSS. For example, if the response of a

particular customer is Businessman ( See Annexure-4) then it is entered as 1 in the SPSS. Other

responses are also entered in the similar way.

The Discriminant analysis would be done by using the SPSS software. The output can be

analyzed in the following way.

Null Hypothesis:

Ho: The clients cannot be grouped in to two categories based on few discriminating variables.

Alternate Hypothesis:

Ha: The clients can be grouped into two categories based on few discriminating variables.

The Discriminant analysis would be done by using the SPSS tool. The output can be analyzed in

the following way.

Eigen value table:

Eigen values

Function Eigen value % of Variance Cumulative %Canonical Correlation

1 2.307(a) 100.0 100.0 .835a First 1 canonical Discriminant functions were used in the analysis.

Interpretation:

The larger the Eigen value, the more the variance in the dependent variable is explained by the

discriminating function. Since the dependent in our case has only two categories, there is only

one Discriminant function. The two categories are whether a customer is a prospective client or

not. The second column explains the variance explained by each of the Discriminant function.

The third column is the cumulative percent of the variance explained. The last column is the

canonical correlation, explains the percent of variation in the dependent variable discriminated

by the independents in the Discriminant function.

P a g e | 72

Wilk’s Lambda table:Wilks' Lambda

Test of Function(s)

Wilks' Lambda

Chi-square df Sig.

1 .294 116.238 6 .000

Interpretation:

Wilk’s lambda is used to test the significance as a whole. Since, the value of Wilk’s lambda is

low, i.e., near to zero, we can reject the null hypothesis and accept alternate hypothesis. Thus, we

can say that customers can be classified as prospective clients or not on the basis of few

variables. These variables can be selected on the basis of the correlations observed by the

Discriminant function and the independent variables. Greater is the correlation better is the

variable as a predictor.

Standardized Canonical Discriminant Function Coefficients

Function1

PROFESSION -.001ANNUAL INCOME .640FUTURE EXPECTATION .064

SAVE ANNUALLY .346DURATION OF INVESTMENT -.230

RETURN EXPECTATION -.438

Interpretation:

The values in the above table indicate the relative importance of the independent variables in

predicting the dependent. Thus, we can say that annual income, amount saved annually and

return expected have relative importance in predicting the independent.

Structure Matrix

Function1

ANNUAL INCOME .885SAVE ANNUALLY .679

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RETURN EXPECTATION -.383

FUTURE EXPECTATION .239

DURATION OF INVESTMENT -.064

PROFESSION .026Pooled within-groups correlations between discriminating variables and standardized canonical

Discriminant functions Variables ordered by absolute size of correlation within function.

Interpretation:

The values in the structure matrix are the correlation values of each variable with the

Discriminant function. Thus, we can observe that annual income, the amount saved annually and

the return expected per annum have high correlations with the Discriminant function. These can

be used as the major predictors of the function

Canonical Discriminant Function Coefficients

Function1

PROFESSION -.002ANNUAL INCOME .990FUTURE EXPECTATION .067

SAVE ANNUALLY .799DURATION OF INVESTMENT -.277

RETURN EXPECTATION -.653

(Constant) -.422Unstandardized coefficients

Interpretation:

The table above has unstandardised discriminant function co-efficient. The values above are used

to construct the prediction equation which can be used to classify the new cases. If the data of all

the independents are available, we can use them all to predict the category. If all the data is not

P a g e | 74

available, three important parameters namely, annual income, savings per year and expectation

about the returns can be used to categorize the variable.

Functions at Group Centroid

TRADING A/C

Function

11 1.9592 -1.200

Unstandardized canonical Discriminant functions evaluated at group meansInterpretation:

The table above is used to determine the cutting point of the two cases. Since the two groups are

not equal the cutting point is not the centroid but the average of the two cutting values. Cases

which lie above the cutting point are classified as people who would like to have a trading

account and those which lie below the cutting point are classified as people who would not like

to have a trading account.

Thus, from the above Discriminant analysis we can form the following classifying equation.

Trading A/c = -0.002×profession+0.990×Annual income +0.067×Future Expectation+0.799×

save annually – 0.277×duration of Investment – 0.653 × return expectation – 0.422

The values of each of the variable can be taken from the questionnaire (Annexure -4)

In our case, the value of the centroid is 0.3795. Thus, if the value of the above equation comes

more than 0.3795, we can say that the customer is the prospective client for the company and if

the value lie below 0.3795 we can say the customer is not a prospective client for the company.

P a g e | 75

CHAPTER-8

CONCLUSION AND LIMITATION OF

THE RESEARCH

P a g e | 76

Conclusion:

India is an agrarian country producing a large variety of crops. It also stands as one of the leaders

in the production of wheat, spices and other such crops. For such a country like ours, commodity

futures trading can prove to be an excellent opportunity to the famers and other such traders for

efficient price discovery. Commodity trading can also be used as a hedging tool for minimizing

risk against future price fluctuations.

In order to attain the actual objective of commodity trading, there should be adequate awareness

among these farmers, traders, manufacturers, importers and exporters. But according to the

primary research, we have concluded that the awareness level about the commodity market is

very less and there is a long way to go to reach the actual beneficiaries of these markets. One can

say this because the awareness level among the qualified and educated people is itself low so it

will take a long period of time to reach these farmers.

The main reason for this lack of awareness is due to the nascent markets and the mechanism of

their operations. Almost all the commonly traded commodities are present over the exchanges;

most of the market participants prefer forward contracts over the exchange traded futures

contracts. The participants who prevail in the market have issues regarding the delivery

mechanism and the specification standards of the contract. Also, as only very few large players

exist in the markets, monopoly is being created by them and thus efficient price discovery is

unable to take place.

People prefer the security in the investments in the assets as compared to the high returns on

those particular assets. As an asset class, commodity market s are said to have high risk with

high returns. So, not many people who have knowledge about commodity trading participate in

the markets.

P a g e | 77

Primary research also reveals the fact that the amount of speculator as more as compared to the

number of hedgers in the commodity markets. Due to this fact, although the volumes are high,

the actual amount of delivery is very meager.

Discriminant analysis reveals that the investment in an asset class by any investor depend on his

annual income, the amount he saves annually and the expectations of the returns.

Limitations of the research:

Ø The analysis result and its interpretations are limited to the city of Hyderabad only.

Ø The random sampling technique has been used for the primary research, i.e., no

segregation is done on the basis of the age, gender, type of trading ( Equity or

commodities )

Ø The research analysis may or may not be extended to the other parts of the state or to the

nation as a whole.

Ø The survey is done among those investors who have some knowledge of trading and not

of the general public.

Ø Survey is done among the qualified people only and the uneducated people have not been

considered for analysis.

P a g e | 78

REFERENCES

Commodity Exchanges:

ü http://www.mcxindia.com

ü http://www.ncdex.com/aboutus/index.aspx

ü http://www.nmce.com

ü http://www.lme.co.uk/

Commodity Market:

ü http://www.sharekhan.com/Commodity/

ü http://www.indiainfoline.com/commodities/commoditieshp.asp?lmn=3

ü http://www.geojit.com/index4.asp

ü http://www.bricssecurities.com/home.asp?option=5

ü http://www.vedikasecurities.net/commodities.html

ü http://www.karvycomtrade.com/

Research Reports:

ü http://www.agedwards.com/public/research/FuturesReports

ü http://www.religarecommodities.com/research_Intro.asp

ü http://www.karvycomtrade.com/commodity_derivatives.asp

ü http://www.commodityresearch.in/

Books:

ü NCFM - Commodity derivative module

ü Donald R Cooper and Pamela S Schindler , Business Research Methods, 9th

Edition ,Tata McGraw Hill , Page No: 502 – 509, Page No: 556-559

ü S.C Gupta , Fundamentals of Statistics, Sixth edition , Himalaya Publishing

House, Page No:18.11 to 18.23

Nickel & Red Chilly

P a g e | 79

ü http://www.economywatch.com/mineral/nickel-production.htm

ü http://www.crnindia.com/commodity/nickel.html

ü http://www.mapsofworld.com/minerals/world-nickel-producers.html

ü http://www.ikisan.com/cache/ap_chilli.shtml

Software Used:

SPSS tool is used for Discriminant Analysis.

P a g e | 80

ANNEXURE-1 (List of Regional Commodity Exchanges in India)

P a g e | 81

Sr.No Name of the Exchange Place

1 Batinda. 2

The Bombay Commodity Exchange Ltd Mumbai

3The Rajkot Seeds oil & Bullion Merchants` Association Ltd

4The Kanpur Commodity Exchange Ltd. Kanpur

5The Meerut Agro Commodities Exchange Co. Ltd. Meerut

6The Spices and Oilseeds Exchange Ltd.

7 Ahmadabad Commodity Exchange Ltd

8Vijay Beopar Chamber Ltd Muzaffarnagar

9India Pepper & Spice Trade Association. Kochi

10Rajdhani Oils and Oilseeds Exchange Ltd. Delhi

11National Board of Trade. Indore

12The Chamber Of Commerce Hapur

13The East India Cotton Association Mumbai

14

Central India Commercial Exchange Ltd, Gwalior

15The East India Jute & Hessian Exchange Ltd

16First Commodity Exchange of India Ltd, Kochi

17Bikaner Commodity Exchange Ltd. Bikaner

18The Coffee Futures Exchange India Ltd Bangalore

19Esugarindia Limited

20National Multi Commodity Exchange of India Limited.

21 Cotton oil & Oilseeds Association Ltd Surendranagar

P a g e | 82

ANNEXURE-2

Global Nickel Supply-Demand:

(‘000 tons) CY03 CY04 CY05 CY06 CY07 CY08E

Mine Production 1,190 1,215 1,300 1,360 1,450 1,610

% yoy growth 1.7 2.1 7.0 4.6 6.6 11

Metal Production 1,220 1,260 1,295 1,330 1,476 1,567

% yoy growth 3.4 3.3 2.8 2.7 11.0 6.2

Metal Consumption 1,218 1,246 1,297 1,375 1,420 1,465

% yoy growth 3.5 2.3 4.1 6.0 3.3 3.2

Balance 2 14 (2) (45) 56 102

LME cash price

( US$ / ton)

9,637 13,844 14,765 24,155 38,360 26,750

% yoy growth 42.1 43.7 6.7 63.6 58.4 (30.1)

Source: India Info line Research, International Nickel Study Group (INSG), World Metal

Statistics (WBMS)

ANNEXURE-3

P a g e | 83

Average prices Of Nickel (Dollar per Pound of Nickel):

ANNEXURE-4

Year/

Month

2005 2006 2007 2008

January 6.58 6.60 16.70 12.56

February 6.96 6.79 18.68 12.68

March 7.34 6.76 21.01 14.16

April 7.32 8.14 22.80

May 7.68 9.56 23.67

June 7.33 9.41 18.92

July 6.61 12.0

6

15.16

August 6.76 13.9

5

12.54

September 6.45 13.6

7

13.40

October 5.63 14.8

4

14.09

November 5.50 14.5

7

13.88

December 6.09 15.6

8

11.79

P a g e | 84

QUESTIONNAIRE

Objective:

1. To estimate the awareness of Commodity market viz.a.viz Share market.

2. To detect the profile of the prospective client for commodity futures market.

Personal Information:

Q1. What is your profession?

a. Businessman

b. Service

c. Exporter/ Importer

d. Trader

e. If other, please specify……………………………..

Q2. Do you have a trading account? If yes, please specify ……………………………

Q3. Your marital status?

a. Married b. Unmarried

Q4. How many members are dependent on you?

a. Less than 3 b. 3-5 c. 5-7 d. More than 7

Q5. What is your annual income? (In Rs.)a. Less than 200000 b. 200001-4000000

c. 400001- 6000000 d. More than 6000001

Q6. What are your expectation regarding annual salary?

a. Less than 500000 b.500001-800000

b. 800001-1500000 d. More than 1500000

Q7. How much do you save annually? (In Rs.)

a. Less than 50000

b. 50001-150000

c. 150001-300000

P a g e | 85

d. More than 300000

Q8. For how long do you want to invest? (In years)

a. Less than 2 years

b. 2-5

c. 5-10

d. More than 10

Q9. How much do you like to earn on your saving?

a. Less than 10% p.a.

b. 10%-18% p.a.

c. 18%-25% p.a.

d. More than 25% p.a.

Q10. Please mark appropriate response to the following:

Strongly Agree

Agree Neutral Disagree Strongly Disagree

I prefer investing my savings in Shares. 1 2 3 4 5

I am fully aware of Futures and Options in Stock Market

1 2 3 4 5

I prefer trading in futures and Options 1 2 3 4 5

I am aware of the Commodity Futures 1 2 3 4 5

I regularly trade in Commodity Futures 1 2 3 4 5

I am fully aware of what hedging is? 1 2 3 4 5

I invest in Commodity Futures for hedging the future price fluctuations

1 2 3 4 5

I invest in Commodity Future as a speculator only in order to book profits

1 2 3 4 5

High Returns is my prime priority 1 2 3 4 5

P a g e | 86

Security in investments is my prime priority

1 2 3 4 5

ANNEXURE-5

METAL MANUFACTURER’S – EMAIL DRAFT

Sir,

We as a team of four students doing MBA from ICFAI Business School, Hyderabad are

working on the commodity research project in collaboration with Share Khan Broking House.

Our main focus is on finding out the reasons of price volatiles in the commodity markets more

specifically the metals sector keeping in view global micro and macro economic factors.

If you are apprehensive about huge fluctuations in the commodity prices, investing in

commodity futures is the safe investment avenue. Commodity futures can be used as a hedging

tool to minimize the risk of price fluctuations at a future date.

The basic objective of hedging is to take a position at the exchange which can neutralize the risk

of price fluctuation to a maximum possible extent. In hedging, a buyer who requires a

commodity at a future date protects himself from the risk of a possible price rise, by agreeing to

buy the same commodity at a pre-determined price. Alternatively, a seller who plans to sell a

commodity at a future date but fears a potential price fall can agree to sell the same commodity

at a pre-determined price. Thus, hedging can be done by buying or selling a futures contract of

the commodities listed on the MCX or NCDEX.

But still confused about what hedging is? And how it can be used to minimize the risk?

We as a team with Share Khan can provide you with solutions to your all possible queries.

Looking forward for an appointment with you,

Our team and Share Khan.

P a g e | 87

ANNEXURE -6

Investor Education Campaign

The leading broking firm with a wide range of network having 810 share shops in more than 280 locations

across India.

is here

to advise and clarify your doubts about your investments.

on

April 5 & 6, 2008

Venue

Club House,

P a g e | 88

Opp to My Home Navadweepa

Hitech city, Hyderabad

Month

Nickel - Average Price

Steel Price -Average Price Dolla

r

Crude oil prices

Unemployment rate

Fed Rate

US Inflation

April -05 719.8 23805.56 43.64 2364 5.2 2.79 3.51 May -05 714.8571 23744.00 43.4 2222 5.1 3 2.8 June -05 695.5 23941.76 43.52 2453 5 3.04 2.53 July - 05 641.8125 18650.00 43.43 2569 5 3.26 3.17 August -05 630.54 19348.00 43.55 2821 4.9 3.5 3.64 September -05 645.77 20685.71 43.84 2887 5.1 3.62 4.69 October -05 563.25 19087.50 44.73 2783 5 3.78 4.35 November -05 529 19780.00 45.63 2710 5 4 3.46 December -05 638.58 19329.50 45.54 2767 4.9 4.16 3.42 January 06 648.95 18069.57 44.23 2923 4.7 4.29 3.99 February 06 679.94 19722.38 44.22 2850 4.8 4.49 3.6 March -06 660.56 20521.20 44.33 2876 4.7 4.59 3.36 April -06 897.05 20725.00 44.82 3238 4.7 4.79 3.55 May -06 896.27 20181.67 45.22 3343 4.6 4.94 4.17 June -06 954.84 18987.78 45.88 3335 4.6 4.99 4.32 July - 06 1169.465 18963.33 46.36 3546 4.8 5.24 4.15 August -06 1463.55 19104.67 46.44 3510 4.7 5.25 3.82 September -06 1411.189 20908.57 46.02 3072 4.6 5.25 2.06 October -06 1446.313 21427.65 45.35 2827 4.4 5.25 1.31 November -06 1387.727 21350.00 44.72 2800 4.5 5.25 1.97 December -06 1524.31 21300.00 44.47 2877 4.5 5.24 2.54 January 07 1608.912 22183.33 44.21 2521 4.6 5.25 2.08 February 07 1748.913 22565.00 44.02 2681 4.5 5.26 2.42 March -07 2000.364 23256.00 43.73 2782 4.4 5.26 2.78 April -07 2106.875 24560.00 42.01 2839 4.5 5.25 2.57 May -07 2097.104 23784.00 40.55 2714 4.5 5.25 2.69 June -07 1684.756 23586.00 40.59 2813 4.5 5.25 2.69 July - 07 1376.935 23153.33 40.28 2977 4.6 5.26 2.36 August -07 1176.788 23073.08 40.67 2937 4.6 5.02 1.97 September -07 1228.484 24525.42 40.17 3101 4.7 4.94 2.76 October -07 1278.777 25462.31 39.36 3211 4.7 4.76 3.54 November -07 1239.74 25529.60 39.31 3653 4.7 4.49 4.31 December -07 1077.98 25510.40 39.37 3592 5 4.24 4.08 January 08 1129.519 27196.54 39.27 3641 4.9 3.94 4.28 February 08 1141.44 31182.40 39.67 3706 4.8 2.98 4.03

ANNEXURE

P a g e | 89

March -08 1283.542 33370.42 40.14 4081 5.1 2.61 3.98 April -08 1186.81 35111.82 39.96 4387 2.28 4.03