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Transcript of Way2Wealth Commodities Pvt. Ltd. making investing simpler, more understandable and profitable...
Way2Wealth Commodities Pvt. Ltd.making investing simpler, more understandable and profitable
Commodity MarketsJuly 2010
Index
Definition
Commodity – As Asset Class
Commodity – Uniqueness
Classification of Commodities
Indian Commodity Market Size
Commodities Offered for Trading
Why Commodities
How to Invest
Commodities @ Way2Wealth
Commodity - Definition
A commodity is any good or service produced by human labour and offered as a product for general sale on the market
- Karl Max
Characteristics• Commodity is anything movable (a good) that has
following characteristics • Fungible, i.e. the same no matter who produces it• Derivatives, i.e. involves further processing into
number of products• Economic cost, i.e. production of it involves some cost
Wheat in your bread
Petrol in your vehicle
Coffee on your table
Sugar in your sweets
Chana in your chhole
Gold in your necklace
……… and so on …….
Commodities are everywhere
Commodities – in Real Life
Index
Definition
Commodity – As Asset Class
Commodity – Uniqueness
Classification of Commodities
Indian Commodity Market Size
Commodities Offered for Trading
Why Commodities
How to Invest
Commodities @ Way2Wealth
Commodity – As Asset Class
In financial parlance, assets are economic resources that is capable of being owned or controlled to produce value
Commodity too has gained importance currently as independent asset class
Commodity, being the natural goods are independent of other asset classes
Assets Classes
Equities : Performer during economic expansion & an out performer over very long term…
Fixed Income : Performs at the later stage of recession…
Real Estate : Performs during early expansion…
Commodities : Performance spread evenly over the economic cycle…
Index
Definition
Commodity – As Asset Class
Commodity – Uniqueness
Classification of Commodities
Indian Commodity Market Size
Commodities Offered for Trading
Why Commodities
How to Invest
Commodities @ Way2Wealth
Commodity – Unique points of diversification
1. Seasonality A major force in the commodities markets
2. Correlation Unlike other asset class,
commodities are positively and negatively correlated within & outside the group which is unique to commodities only
3. Weather No other asset class are so much influenced by weather patterns
4. Hedge Provides natural hedge against war, inflation, other asset
portfolios, recessions etc. example -GOLD
Commodity – Performance
Returns Over Different Asset Classes in 4 Yrs.
69.5173.72 75.95
88.46
31.55
-1.44-10
0
10
20
30
40
50
60
70
80
90
100
SENSEX NIFTY CNX 500 NCDEXAGRI INDEX
INR MCXMETALINDEXSource:Bloomberg,Way2Wealth Research
Commodity – Performance
Various Asset Classes Performance
60
80
100
120
140
160
180
200
220
240
260
Oct-05 May-06 Dec-06 Jul-07 Feb-08 Sep-08 Apr-09 Nov-09
NCDEX Ag Index Nifty USDINR MCX Metal Index
Indian Share in Global Commodity Market
91%
9%
Global India
Contribution in global landscape
Global Vs. India
Global commodity has relatively long history
Size is 9 times larger than India
India
Commodity futures, though active since 19th century was banned later in 1970’s
Commodity volumes shoots up significantly after re-launch in 2003
MCX emerged as world’s Sixth largest exchange
Volumes on Indian exchanges are increasing at CAGR of 73.7 percent
2009 2008Global 14831317 11712611India 1469673 1067984
Source:FMC,Way2Wealth Research
Commodity Trading ( Value in Million USD)
Global growth in Commodities 2004-09
Global Commodity F&O -2009
65%
23%
12%
America Asia Europe+MESource : WEF
Global Commodity F&O -2004
20%
68%
12%
America Asia Europe+MESource : WEF
Share of Asia has jumped more than 5 times
Global growth in Commodities 2008-09
Exchangewise Volume Share Commodity F&O -2009
33%
18%
9%
9%
6%
20%
5%
DCE CME SHFE ZCE ICE MCX LME
Source: WFE
Exchangewise Volume Share Commodity F&O -2008
18%
38%8%
13%
11%
5%7%
DCE CME SHFE ZCE ICE MCX LME
Source: WFE
Chinese exchanges has seen
two fold increase in volume
Index
Definition
Commodity – As Asset Class
Commodity – Uniqueness
Classification of Commodities
Indian Commodity Market Size
Commodities Offered for Trading
Why Commodities
How to Invest
Commodities @ Way2Wealth
Classification of Commodities
AgricultureGrainsPulses
Edible oils/seedsSpices etc
Base MetalsCopper
ZincAluminum
NickelTin
EnergyCrude oil
Heating oilNatural gasFurnace oil
Etc.
BullionGoldSilver
Palladiumetc
Commodities
Index
Definition
Commodity – As Asset Class
Commodity – Uniqueness
Classification of Commodities
Indian Commodity Market Size
Commodities Offered for Trading
Why Commodities
How to Invest
Commodities @ Way2Wealth
Commodity – Indian Structure
20 Other Regional Exchanges
NMCE
Commodity Exchanges
MCX
National Exchanges
Regional Exchanges
FMC – The Regulator
NBOTNCDEX
Leadership position with >90% share
Indian Growth so far
0
100
200
300
400
500
600
700
2004 2005 2006 2007 2008 2009 2010MCX NCDEX TOTAL
Source:FMC,Way2Wealth Research
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10Bullion and other metals 31.5 36.1 57.9 64.6 56.7 40.8Other than bullion metals
- - - -- 23.2
Agriculture 68.2 55.3 35.8 23.1 11.9 15.7Energy 0.3 8.4 6.3 12.3
-20.3
Others 0.0 0.1 0.0 0.0 31.4 0.0Source:FMC,Way2Wealth Research
Segment wise % Share of Commodities
* 2008-09 other segment includes energy& other metals
Significant rise in volume since
launch of exchanges in 2003
MCX Leader in Metals & Energy
NCDEX Leader in Agri
> 65% CAGR Growth
Volume Growth in Indian Exchanges
Indian Growth during 2004-09
Exchange wise commodity Volumes in 2004
38%
62%
MCX NCDEX
Exchange wise commodity Volumes in 2009
88%
12%
MCX NCDEX
Indian Growth during 2004-09
India Commodity Wise Market Share in 2004
17%
15%
1%0%67%
0%
Gold Silver Crdue oil Copper Total agri Others
India Commodity Wise Market Share in 2009
31%
15%20%
13%
12%
9%
Gold Silver Crdue oil Copper Total agri Others
Returns in Indian commoditiesReturns Across Various Commodities in 5 Yrs.
92.8662.54
3.83
-12.36-45.21
9.25
87.12
22.25 4.96 9.6551.16
142.80
94.21
485.86
23.60
-100
0
100
200
300
400
500
600
Gold
Silv
er
Cru
de o
il
Copper
Zin
c
Alu
min
ium
Lead
Guar
Seed
Guar
Gum
Soy O
il
Soybean
Pepper
Jeera
Turm
eric
Menth
a O
il
Source:Bloomberg,Way2Wealth Research
Almost 45 commodities are available for trading in both NCDEX & MCX Though few have been de-listed during high inflation times, re-listing also has happened Bullion, Base metals, energy & Agri are the major contributors in terms of volumes
Index
Definition
Commodity – As Asset Class
Commodity – Uniqueness
Classification of Commodities
Indian Commodity Market Size
Commodities Offered for Trading
Why Commodities
How to Invest
Commodities @ Way2Wealth
Commodity provides true diversification in financial portfolio
Commodity act as hedge against risks involved in business
Rising income will ensure Inflation which in turn will ensure bull market in commodites
Explosion of population and shriking agricultural land would leave commodity scarce
Returns chasing funds & investors (traders, investor &HNI) will make it vibrant
Consumption / Spending in infrastructure / GDP growth will lead to depletion of metals
Secular bull market in commodities is likely to continue
Why Invest in Commodities
Hedgers : Risk Managemento Consumers – Refineries, food processing
companieso Traders, exporters, importerso Producers – farmers, Integrated producers
Speculators: High Volatility Higher Leverageo Retail investors, Commodity spot tradero Institutional, Corporate & proprietary traders
Arbitrageurs : Safe Opportunisto Spot future arbitrageo Spread Strategieso Intra and inter market arbitrage
Investors: Portfolio diversifiero Individuals, Pension & Mutual Fundso Corporate bodies
Who Can Invest
Index
Definition
Commodity – As Asset Class
Commodity – Uniqueness
Classification of Commodities
Indian Commodity Market Size
Commodities Offered for Trading
Why Commodities
How to Invest
Commodities @ Way2Wealth
How to Invest
Procedure for Trading in Commodities
• Open Demat & Trading A/C (Way2Wealth)
Filling KYC (Know Your Customer)
Documents required : Pan Card, Address Proof, Networth, Cancelled cheque (MICR), Photo etc
• To get familiar with this asset class, start reading research reports and monitor advisory and execution
• Acquire full knowledge of risk involved in futures
Mark to Market Daily Pay-in & pay-out Margin requirements Contract expiry & rollover Leverage, profit & loss etc
Index
Definition
Commodity – As Asset Class
Commodity – Uniqueness
Classification of Commodities
Indian Commodity Market Size
Commodities Offered for Trading
Why Commodities
How to Invest
Commodities @ Way2Wealth
Methodology - Analysis
Fundamental• Supply-n-demand, crop survey, climatic changes, policies, logistics,
specifications, delivery stocks, physical market linkages, Cartel move, etc
Technical• Chart patterns, indicators etc
Derivative• Volume and Open Interest Change, Contract duration, rollover, Relative
analysis with other markets etc
Statistical• Arima modelling, Correlation & regression study, Deviation, Time series,
Seasonality, Ratio study etc.
Research @ Way2Wealth
Products
Strategies• Arbitrage / Spreads• Hedging – All commodities• Trading / Investment advisory
Reports• Daily• Weekly• Special• Events• Commodity Profiles
Special Support Need based special coverage of non futures commodities like Coal,
Chemicals, Naptha, Freight, Carbon credits etc. (on cost basis)
Research Products @ Way2Wealth
Trading Products
• Based on Fundamental / Technical / Derivatives & Algorithm
• Plain vanilla Trading• Customised Trading
Investing Products
• Algorithm or statistical based
• Trend chasing, Money management principle, premium brokerage• Strong execution skills
Products @ Way2Wealth
The People @ Way2Wealth
Sunil Ramrakhiani - COO
More than 15 years in industry. Founder member – NCDEX, Member of product committee, Regular speaker in various forum
Vinay Tiwary - Sales Head
More than 8 years in industry. Have worked with prominent exchange as product head for bullions.
Shantanu Bhardwaj - Head Business Analytics & Product Development
More than 8 years in industry. Conceptualise & Launched pulses & Guarseed contracts in NCDEX. Have worked as Regional Manager –west in IL&FS Investsmart.
Brajendra Talesara - Head Dealing & Arbitrage desk
More than 12 years experience in industry. Strong execution skills. Have worked in Anand Rathi, Investsmart etc.
The People @ Way2Wealth
K N Rahaman - Research Head
More than 10 years in Industry. Former Research Head in Agriwatch & Investsmart. Consultancy Projects done for ADB, JBIC, ICICI, OXFAM, DUPONT etc. Member of All India crop forecasting committee (industry) for pulses & oilseeds.
Prasad MSR - Research Analyst
More than 6 years in industry as Research analyst for various commodities. Have worked with IL&FS Investsmart, Transgraph etc
Krishna Reddy - Research Analyst
More than 6 years in industry as Research Analyst for various commodities. Have worked in IL&FS investsmart