“A STUDY ON AWARENESS OF DERIVATIVE

INVESTORS REGARDING COMMODITY MARKET AT

KARVY STOCK BROKING LIMITED, KOLKATA”.
Synopsis submitted in partial fulfillment of the requirements for the award for the degree
of
B.COM(Hons.)
Of
BANGALORE UNIVERSITY

By;
HAFIJUL RAHAMAN GAZI
17YACMD090
Under the guidance of
Prof. Sreevas V T K
(Assistant Professor)
Presidency College

CENTRE FOR MANAGEMENT STUDIES

PRESIDENCY COLLEGE
Bangalore University
2018 – 2019
Chapter 1 introduction
 INDUSTRY PROFILE

SECURITIES MARKET IN INDIA

Introduction:
Capital market is the backbone of any country’s economy. It facilitates conversion of savings to
investments. Capital market can be classified as primary and secondary market. The fresh issue of
securities takes place in primary market and trading among investors takes place in secondary
market. Primary market is also known as new issue market. Equity first enter capital market though
investment in primary market. In India, common investors participating in the equity primary market
is massive. The
number of companies offering equity though primary markets increased continuously in the post-
independence period till the year 1995. After 1995, there is a continuous slump experienced by the
primary market offering equity. The main reason for slump is lack of investors’ confidence in the
primary market. So it is important to understand the causes and measures of revival of investors’
confidence leading to capital mobilizing and investment in right avenues creating, economic growth
in the country.
Globally, there are increased evidences to suggest that investor confidence has assumed an
important role in the economic development of a country. The economist (1998) indicated that a lot
of issues need to address to make capital markets safer. Transparency, strengthening financial
system and managing
crises are the issues, which cannot be quickly fixed. But they add up to a stronger system
“The Securities market is the market for equity, debt and derivatives essentially 3 categories that is
the issuer of securities, the investors in the securities and intermediaries. The issuers are the
borrowers or deficit savers, who issue securities to raise funds. The investors, who are surplus
savers, deploy their savings by subscribing to these securities. The intermediaries were the agents
who match the needs of the users and suppliers of funds for a commission.
These intermediaries pack and unpack securities to help both the users and investors to achieve their
respective goals. There are a large variety and number of intermediaries providing various services
in the Indian Securities market. This process of Mobilizing of resources is carries out under the
supervision and overview of regulators. The regulators develop fair market practices and regulate the
 conduct of issuer’s securities and intermediaries. They are also in charge of protecting the interest of
the
investors. The regulator ensures a high service standard from the intermediaries and supply of equity
securities and non-manipulated demand for them in the market.

EQUITY CULTURE IN THE INDIAN FINANACIAL SYSTEM

The capital market services as a reliable guide to the performance and the financial position of companies
and ties up companies and there by promoter’s efficiency. It values firms accurately and ties up manager
composition to stock value and there by provides incentives to managers to maximize firm value. It thus
helps to align the interests of the managers and there by efficient resources allocation growth.
A near continuous valuation of companies as reflected in share prices and the implied possibility of
mergers and takeovers are conducive to financial discipline and more efficient allocation of capital.
Stock market promoter’s growth through the creation of liquidity. Many profitable investments require
long term capital but investors are often reluctant to control over their savings for long periods. Equity
market makes investment less risky, more profitable and more attractive by making it more
liquid. By facilitating long term and more profitable investment, liquid stock market improves the
allocation of capital and enhances growth. Through these effects, stock market liquidity can lead to more
savings and investment also. Historically, many investors and been made much before they become
innovations. Inventions become innovations and ignited industrial revolution when liquid financial market
made it possible to develop projects that require large capital injections for long periods. The industrial
revolution had wait the financial revolution took place. Since high projects tend to comparatively risky,
stock market that facilitates risk diversification through international integration can encourage a shift to
higher return projects and thereby help to promote growth. Large active and liquid stock markets induce
investors to research and monitor firm and the resulting improved information improves resource
allocation and accelerates growth.
STOCK EXCHANGE IN INDIA
The market for long term securities like bonds. Equity stock and preferred stocks are divided in two
primary and secondary markets. The primary market deals with the new issues of securities. Outstanding
securities are traded in the secondary market which is commonly known as stock market or stock
exchange. In the Secondary market the investors can sell and buy securities. Stock markets predominantly
deal in the equity share. Debt instruments like bonds and debentures are also traded in the stock market.
Well regulated and active stock market promotes capital formation. Growth of the primary market depends
on the stock market. The health of the company reflected by the growth of the stock market.

The origin of the stock exchange in India can be traced back to the later of the 19th century. After the
American civil war (1860-61) due to the share mania of public, the number of brokers dealing in share
increased. The brokers organized an informal association of brokers dealing in share increased. The
brokers association” in 1975. At presently in India there are 23 stock Exchanges are there and situated in
various part of the country. All the stock exchanges in India are controlled by SEBI (Security Exchange
Board of India).
FUNCTIONS OF STOCK MARKET
 Provide quotations of share/ stock for facilitating trading and
marketability.
 Extend liquidity to such stock as they are easily marketable and traded.
 Promotes savings and investment in the economy by attracting funds
for investment incorporate shares securities.
 Ensures safe and fair dealing.
 Maintain active trading.
NATIONAL STOCK EXCHANGE

The National stock Exchange (NSE) is India’s leading stock exchanges covering various cities and towns
across the country. NSE was set up by leading institution to private a modern, fully automated screen –
based trading system speed and efficiency. Safety and market integrity. It has set up facilities that serve as
a model for the securities industry in terms of systems, practices and procedures.
NSE has played a catalytic role in reforming the Indian securities market in terms of microstructure, market
practices and trading volumes. The market today uses state –of- art information technology to provide an
efficient and transparent trading, clearing and settlement mechanism, and has witnessed several innovation
in product and services viz. demutualization and electronic transfer of securities, securities lending and
borrowing, professionalization of trading members, find-tuned risk management system, emergence of
clearing corporations to assume counterparty risk, market of dept and derivative instruments and intensive
use of information technology.
The National stock Exchange of India Ltd as genesis in the report the high powered study group on
establishment of new stock exchange, which recommended promotion of national stock exchange, by
financial institution [Fls] to provide access to investors from all across the country on an equal footing.
Based on the recommendations, NSE was promoted by leading financial institution at the behalf of the
GOVT of India and was incorporated November 1992 as a tax paying company unlike other stock
exchange in the country

The logo of the NSE symbolizes nationwide securities trading facilities equal and fair access to investors,
trading number and issues all over the country. The initials of the Exchange Viz. N, S and E have been
attached on the logo and a distinctly visible. The logo symbolizes connectivity to bring about the change
within the securities industry. The logo symbolizes vibrancy and unleashing of creative energy to
constantly bring about change through innovations.
Promoters
NSE has been promoted by leading financial institutions, Banks, insurance,
companies and other financial intermediaries.
 Industrial Development Bank of India Limited.
 Industrial Finance Corporation of India Limited.
 Life Insurance Corporation of India.
 State Bank of India.
 ICICI Bank Limited.
 IL and FS Trust Company Limited.
 SBI Capital Market Limited.
 Bank of Baroda.
 Canara Bank.
 General Insurance Corporation of India.
 National Insurance Company Limited.
 The Oriental Insurance Company Limited.
 United India Insurance Company Limited.
 Punjab National Bank.
 Oriental Bank of Commerce.
 Indian Bank
 Union Bank of India.
 Infrastructure Development company Limited.

National stock Exchange (NSE) of India became operational in the capital market segment on 3rd
November 1994 in Mumbai. The genesis of the NSE lies in the recommendations of the Pertain Committee
(1991). Apart from NSE, it had recommended for the establishment of National Stock Market the defects
specified.

 Lack of liquidity in most of the markets in term of depth and breadth.

 Lack of ability to develop markets for debt.
 Lack of infrastructure facilities and outdated trading system.
 Lack of transparency in the operations that effect investor’s confidence.
 Outdated settlement system that are inadequate to cater to the growing
volumes, leading to delay.
The Main Objectives of NSE As follows
 To establish a nationwide trading facility for equities, debt instruments
and hybrids.
 To ensure equal access to investors all over the country through
appropriate communication network.
 To provide a fair, efficient and transparent securities market to
investors using an electronic communication network.
 To enable shorter settlement cycle and book entry settlement system.
 To meet current international standards of securities market.
Advantages of NSE
Wider Accessibility

The NSE ensures wider accessibility through satellite linked facility computer terminals and links with
VAST helps the trades to contact their counterparts in other parts of the country quickly .The quick
trading system ensures batter pricing.

Screen Based Trading

Originally, the basic advantage of NSE is computer based trading. The back office loads have been reduced
as everything is stored in the computer. At present BSE and many other stock exchanges have
introduced the computer based trading. The ring based trading is vanishing in the recent days.

Non-Disclosure of the Trading Member’s Identity

While placing the orders there is no need to disclose the identity of the member on the screen. It depends
upon the wish of the trading members. So without any fear of influencing the price. Any member can
place size orders.
Effective Settlement of Corporate Benefits
All monetary benefits lodged dividend interest and redemption amount. Claims on company objections are
debited/ credited directly in the clearing account of the clearing members. This reduces the problems
faced by the members in settlement of corporate benefits.
RECENT TRENDS IN NSE
Expansion
After establishing operation in Mumbai. The NSE had expanded its operation to the other cities; NSE has
installed 2580 VASTS in 317 cities across the country. A break up of VSATs across 317 cities is given
below.
Quality:-
Apart from the consolidation of the market at the national level, the transaction cost along with the bad
deliveries has declined. The affective fun cottoning on National Securities Clearing Corporation Limited is
another reason for it.
More Liquidity:-
With its online system and quick trading facilities the NSE has introduced some liquidity into the capital
marker. In the last quarter of 1997, the NSE was more liquid for the 835 scraps that accounted for 97% of
total trading volume. In number of trades, an indicator of the presence of the retail investor, the NSE was
ahead of the BSE.

Less Brokerage: -
Transparency in NSE allows the breaking up of the costs into brokerage fees, market impact costs and
clearing and settlement. The brokerage fee at the BSE terminals outside Mumbai is 0.5% of the value
transacted. On the NSE, it’s around 0.1% of the value transacted.
Quick Clearing and Settlement
NSE has introduced a full range of clearing house facilities; a pan of securities is processed at the regional
clearing centers (Delhi, Chennai and Calcutta). The inter region clearing facility provided at present,
reduced that risk of the members because of not getting timely delivery of shares or loss of shares in transit.
The facility is also expected to boost delivery based trading
DEFINITION OF DERIVATIVES

Section 2(ac) of Securities Contract Regulation Act (SCRA) 1956 defines Derivative as:  “A security
derived from a debt instrument, share, loan whether secured or unsecured, risk instrument or contract for
differences or any other form of security;  “A contract which derives its value from the prices, or index of
prices, of underlying securities”.

UNDERLYING ASSET IN A DERIVATIVES CONTRACT

As defined above, the value of a derivative instrument depends upon the underlying asset. The underlying
asset can be securities, commodities, bullion, currency, livestock or anything else. In other way the
underlying asset may assume many forms:  Commodities including grain, coffee beans, orange juice; 
Precious metals like gold and silver;  Foreign exchange rates or currencies;  Bonds of different types,
including medium to long term negotiable debt securities issued by governments, companies, etc. 
Shares and share warrants of companies traded on recognized stock exchanges and Stock Index  Short
term securities such as T-bills; and  Over- the Counter (OTC) money market products such as loans or
deposits.

PARTICIPANTS IN DERIVATIVES MARKET

 HEDGERS: They use derivatives markets to reduce or eliminate the risk associated with price of an
asset. Majority of the participants in derivatives market belongs to this category.

 SPECULATORS: They transact futures and options contracts to get extra leverage in betting on future
movements in the price of an asset. They can increase both the potential gains and potential losses by usage
of derivatives in a speculative venture.

 ARBITRAGEURS: Their behavior is guided by the desire to take advantage of a discrepancy between
prices of more or less the same assets or competing assets in different markets. If, for example, they see
the futures price of an asset getting out of line with the cash price, they will take offsetting positions in the
two markets to lock in a profit.

III. CLASSIFICATION OF DERIVATIVES

Derivatives can be classified as basic derivatives and complex derivatives

FORWARD CONTRACT

A forward contract is a customized contract between the buyer and the seller where settlement takes place
on a specific date in future at a price agreed today. In case of a forward contract the price which is paid /
received by the parties is decided at the time of entering into contract. It is simplest form of derivative
contract mostly entered by individual in day to day life. It is contract for delivering the goods. These
transactions are spot transactions. It is also known as “specific delivery contract”.

FUTURE CONTRACTS

A futures contract is an agreement between two parties to buy or sell a specified quantity of an asset at a
specified price and at a specified time and place. Future contracts are normally traded on an exchange
which sets the certain standardized norms for trading in futures contracts.
OPTION CONTRACTS

Options are derivative contract that give the right, but not the obligation to either buy or sell a specific
underlying security for a specified price on or before a specific date. Options are of two types
 Call option  Put option
CALL OPTION: Call option gives the holder the right but not the obligation to buy an asset by a certain
date for a certain price.

PUT OPTION: Put option gives the holder the right but not the obligation to sell an asset by a certain date
for a certain price. Derivatives can also be classified based upon the underlying asset

In case of commodity derivatives, underlying asset can be commodities like wheat, gold, silver etc.,
whereas in case of financial derivatives underlying assets are stocks, currencies, bonds and other interest
rates bearing securities etc.

Exchange traded versus OTC derivatives

Derivatives have probably been around for as long as people have been trading with one another. Forward
contracting dates back at least to the 12th century, and may well have been around before then. These
contracts were typically OTC kind of contracts. Over the counter (OTC) derivatives are privately
negotiated contracts. Merchants entered into contracts with one another for future delivery of specified
amount of commodities at specified price. A primary motivation for pre- arranging a buyer or seller for a
stock of commodities in early forward contracts was to lessen the possibility those large swings would
inhibit marketing the commodity after a harvest Later many of these contracts were standardized in terms
of quantity and delivery dates and began to trade on an exchange.

The OTC derivatives markets have the following features compared to exchange-traded derivatives:

1. The management of counter-party (credit) risk is decentralized and located within individual Institutions.
2. There are no formal centralized limits on individual positions, leverage, or margining.
3. There are no formal rules for risk and burden sharing.
4. There are no formal rules or mechanisms for ensuring market stability and integrity, and for
Safeguarding the collective interests of market participants.
5. The OTC contracts are generally not regulated by a regulatory authority and the exchange's self-
regulatory organization, although they are affected indirectly by national legal systems, banking
supervision and market surveillance.

The OTC derivatives markets have witnessed rather sharp growth over the last few years, which has
accompanied the modernization of commercial and investment banking and globalization of financial
activities. The recent developments in information technology have contributed to a great extent to these
developments. While both exchange-traded and OTC derivative Contracts offer many benefits, the former
have rigid structures compared to the latter. The largest OTC derivative market is the interbank foreign
exchange market. Commodity derivatives the world over are typically exchange traded and not OTC in
nature.

Exchange traded versus OTC derivatives

Derivatives have probably been around for as long as people have been trading with one another. Forward
contracting dates back at least to the 12th century, and may well have been around before then. These
contracts were typically OTC kind of contracts. Over the counter (OTC) derivatives are privately
negotiated contracts. Merchants entered into contracts with one another for future delivery of specified
amount of commodities at specified price. A primary motivation for pre- arranging a buyer or seller for a
stock of commodities in early forward contracts was to lessen the possibility those large swings would
inhibit marketing the commodity after a harvest Later many of these contracts were standardized in terms
of quantity and delivery dates and began to trade on an exchange.

The OTC derivatives markets have the following features compared to exchange-traded derivatives:

1. The management of counter-party (credit) risk is decentralized and located within individual Institutions.
2. There are no formal centralized limits on individual positions, leverage, or margining.
3. There are no formal rules for risk and burden sharing.
4. There are no formal rules or mechanisms for ensuring market stability and integrity, and for
Safeguarding the collective interests of market participants.
5. The OTC contracts are generally not regulated by a regulatory authority and the exchange's self-
regulatory organization, although they are affected indirectly by national legal systems, banking
supervision and market surveillance.
The OTC derivatives markets have witnessed rather sharp growth over the last few years, which has
accompanied the modernization of commercial and investment banking and globalization of financial
activities. The recent developments in information technology have contributed to a great extent to these
developments. While both exchange-traded and OTC derivative Contracts offer many benefits, the former
have rigid structures compared to the latter. The largest OTC derivative market is the interbank foreign
exchange market. Commodity derivatives the world over are typically exchange traded and not OTC in
nature.
Commodities trading
Over the modern age of investing, commodity trading has emerged as an important player in the way that
people invest in and speculate. It was developed as a reaction to the way that business is conducted, and it
continues today in the form of commodities trading online. Many different people turn their business know
how into a profitable venture, and it is commodities and futures trading that helps them get there. Simply
put, commodities are items like, wheat, corn, gold and silver, and cattle and pork bellies, and crude oil.
When farmers take their crop to "market", they are selling commodities. Trading commodities is the
world's one perfect business. The upside potential is unlimited and you can control the downside. You can
trade commodities on a part time basis or a full-time basis. You can spend as little as an and earn a full
time income
Commodities exchanges usually trade futures contracts on commodities, such as trading contracts to
receive something, say corn, in a certain month. A farmer raising corn can sell a future contract on his corn,
which will not be harvested for several months, and guarantee the price he will be paid when he delivers; a
breakfast cereal producer buys the contract now and guarantees the price will not go up when it is
delivered. This protects the farmer from price drops and the buyer from price rises.
Speculators and investors also buy and sell the futures contracts to make a profit and provide liquidity to
the system
People have started with a small account and in a short period of time built their account up to the point
that they have been able to quit their jobs and trade commodities full-time
providing themselves with a very comfortable living.
Commodities are raw materials used to create the products consumers buy, from food to furniture to
gasoline. Commodities include agricultural products such as wheat and cattle, energy products such as oil
and gasoline, and metals such as gold, silver and aluminum. There are also soft commodities, or those that
cannot be stored for long periods of time. Soft commodities are sugar, cotton, cocoa and coffee.

The commodity market has evolved significantly from the days when farmers hauled bushels of wheat and
corn to the local market. In the 1800’s, demand for standardized contracts for trading agricultural products
led to the development of commodity futures exchanges. Today, futures and options contracts on a huge
array of agricultural products, metals, energy products and soft commodities can be traded on exchanges all
over the world.

Commodities have also evolved as an asset class with the development of commodity futures indexes and,
more recently, the introduction of investment vehicles that track commodity indexes.

Commodity prices have been driven higher by a number of factors, including increased demand from
China, India and other emerging countries that need oil, steel and other commodities to support
manufacturing and infrastructure development. The commodity supply chain has also suffered from a lack
of investment, creating bottlenecks and adding an insurance premium and/or a convenience yield to the
returns of many commodity futures. Over the long term, these economic factors are likely to support
continued gains in commodity index returns.

The potential for attractive returns is probably the most obvious reason for increased investor interest in
commodities, but it isn't the only factor. Commodities may offer investors other significant benefits,
including portfolio diversification and a hedge against inflation and risk.

Commodities are real assets, unlike stocks and bonds, which are financial assets. Commodities, therefore,
tend to react to changing economic conditions in different ways than traditional financial assets. For
example, commodities are one of the few asset classes that tend to benefit from rising inflation. As demand
for goods and services increases, the price of those goods and services usually goes up as well, as do the
prices of the
commodities used to produce those goods and services. Because commodity prices usually rise when
inflation is accelerating, investing in commodities may provide portfolios with a hedge against inflation.

Why invest in commodities?

Leverage is very important to the commodities markets. Unlike the stock market, where you might have to
invest 10,000 dollars to leverage 10,000 dollars. A commodities trader can leverage tens of thousands of
dollars’ worth of a commodity for pennies on the dollar. Also unlike stocks, commodities have intrinsic
value and will not go bankrupt.
The futures markets are so crucial to the wellbeing of our nation, that the government established the
Commodity Futures Trading Commission (CFTC) to oversee the industry. There is also a self-regulatory
body, the National Futures Association (NFA), who monitor the activities of all futures market
professionals to ensure the integrity of the futures markets.

Commodities also give the investor the ability to participate in virtually all sectors of the world economy
and have the potential to produce returns that tend to be independent of other markets. In fact portfolios
that add commodity investments can actually lower the overall portfolio risk by diversification.

What is the difference between hedging and speculating?

Just about every product that you consume would likely cost dramatically more without the commodities
futures markets. Because of the intrinsic risks associated to being in business, lacking the ability to shift
risk, a manufacturer/producer of goods or services would be forced to charge higher prices, and the
consumer would have to pay those higher prices. This shifting of risk to someone willing to accept it is
called hedging. Manufacturers could effectively lock in a sales price by going short an equivalent amount
of goods with futures contracts. If a mining company knew that they were going to sell 1000 ounces of
gold in several months, they could protect themselves for a future price decline by going short 10 gold
futures contracts today. If the price of gold fell by $30 in the following months, they would receive that
much less in the cash marketplace for their gold, but earn that much back when they offset their short gold
futures position. The futures price will eventually become the cash price. A user or buyer of goods can use
the futures market in the same manner. They would need to protect themselves from a future price increase,
and therefore go long futures contracts.
The person willingly accepting a risk does so because of the opportunity to profit from price movements,
this is known as speculating. The cotton in your shirt, the orange juice, cereal and coffee you had for
breakfast, the lumber, copper and mortgage for your home, the gas or ethanol that you put in your car all
would be priced many times higher without the participation of speculators in the futures markets. Through
supply and demand market forces, equilibrium prices are reached in an orderly and equitable manner
within the exchanges, and world economies, and you, benefit tremendously from futures trading.
What commodity futures markets do?
A well-developed and effective commodity futures market, unlike physical market, facilitates offsetting
the transactions without impacting on physical goods until the expiry of a contract. Futures market
attracts
hedgers who minimize their risks, and encourages competition from other traders who possess market
information and price judgment. While hedgers have long-term perspective of the market, the traders, or
arbitragers as they are often called, hold an immediate view of the market. A large number of different
market players participate in buying and selling activities in the market based on diverse domestic and
global information, such as price, demand and supply, climatic conditions and other market related
information. All these factors put together result in efficient price discovery as a result of large number of
buyers and sellers Transacting in the futures market. Futures market, as observed from the cross-country
experience of active commodity futures markets, helps in efficient price discovery of the respective
commodities and does not impair the long-run equilibrium Price of commodities. At times, however,
price behavior of a commodity in the futures market might show Some aberrations reacting to the
element of speculation and ‘bandwagon effect’ inherent in any market, but
it quickly reverts to long-run equilibrium price, as information flows in, reflecting fundamentals of
the respective commodity.
In futures market, speculators play a role in providing liquidity to the markets and may sometimes
benefit from price movements, but do not have a systematic causal influence on prices. An effective
architecture for regulation of trading and for ensuring transparency as well as timely flow of information
to the market participants would enhance the utility of commodity exchanges in efficient price discovery
and minimize price shocks triggered by unanticipated supply demand mismatches.

Speculators have certain advantages over other investments they are as follows:
If the trader’s judgment is good, he can make more money in the futures market faster because prices
tend, on average, to change more quickly than real estate or stock prices.
Futures are highly leveraged investments. The trader puts up a small fraction of the value of the
underlying contract as margin, yet he can ride on the full value of the contract as it moves up and down.
The money he puts up is not a down payment on the underlying contract, but a performance bond. The
actual value of the contract is only exchanged on those rare occasions when delivery takes place.

Arbitrageurs: Arbitrageurs work at making profits by taking advantaged of existence of difference in

prices of the same product across different markets (MCX and NCDEX).

Investors: Investors are participants having a a longer term view as compared to speculators when they
enter into trade in the commodes market. E.g. Farmers, Producers, consumers, etc.

Major Commodity Exchanges:

The Government of India permitted establishment of National-level Multi- Commodity exchanges in
the year 2002 and accordingly three exchanges have come into picture.
  Multi-Commodity Exchange of India Ltd, Mumbai.(MCX).
 National Commodity and Derivative Exchange of India, Mumbai (NCDEX).
 National Multi Commodity Exchange, Ahemdabad (NMCE).

However there is regional commodity exchanges functioning all over the country. Karvy
commodities Broking Pvt.Ltd has got membership of both the premier commodity exchanges i.e.
MCX and NCDEX.

The two exchanges (NCEDX&MCX) have seen tremendous growth in less than two years . the daily
average on these two exchanges put together has now grown to a healthy Rs.7800 Crores. It has
been believed by experts that the volumes on these exchanges would the stock market in the days to
come. Commodity exchanges are regulated by Forwards Market mission (FMC); Forwards Market
Commission works under the purview of the ministry of Food ,Agriculture and Public Distribution.

At NCDEX the contracts expire on 20 th day of each month .if 20 th happens to be a holiday the expiry
day will be the previous working day.
At MCE the expiry day is 15 th of every month .if 15th happens to be a holiday the expiry day will be
the previous day. The expiry day differs for different commodities in both the exchanges.
Generally commodity futures require an initial margin between 5-10% of the contract value. The
exchanges levy higher additional margin in case of excess volatility. The margin amount varies
between exchanges and commodities. Therefore they provide great benefits of leverage in
comparison to the stock and index futures trade on the stock exchanges. The exchange also requires
the daily profits and losses to be paid in/out on open positions (mark to Market or MTM) so that the
buyers and sellers do not carry a risk of not more than one day.

Functions of an Exchange

 Product Conceptualization and Design

 Price Discovery & Dissemination
 Robust Trading & Settlement systems
  Management of Counter party Credit Risk
 Self Regulation to ensure
 Overview of Trading and Surveillance
 Audit and review of Members
 Enforcement of Exchange rules

Commodities selected in Phase I

Bullion
 Gold
 Silver

Agri commodities
 Soya bean
 Soya oil
 Rapeseed/Mustard
 Seed Rapeseed/
 Mustard Seed Oil
 Crude Palm oil
 RBD Palmolein

40 Commodities introduced in Phase II

 Rubber
 Jute
 Pepper
 Chana (Gram)
 Guar
 Wheat

Commodities exchanges across the world

Main commodity exchanges worldwide:
Americas
 Abbreviatio
Exchange Location Product Types
n

Brazilian Mercantile and Agricultural, Biofuels, Precious

BMF Brazil
Futures Exchange Metals

Agricultural, Biofuels, Precious

CME Group CME Chicago
Metals

Chicago Climate Exchange CCX Chicago Emissions

HedgeStreet Exchange California Energy, industrial Metals

Intercontinental Exchange ICE Energy, Emissions

Kansas City Board of Trade KCBT Kansas City Agricultural

Memphis Cotton Exchange Memphis Agricultural

Mercado a Termino de Buenos

MATba Argentina Agricultural
Aires

Minneapolis Grain Exchange MGEX Minneapolis Agricultural

New York Board of Trade NYBOT New York Agricultural, Biofuels

New York Mercantile Energy, Agricultural, Industrial

NYMEX New York
Exchange Metals, Precious Metals

U.S. Futures Exchange USFE Chicago Energy

Winnipeg Commodity
WCE Winnipeg Agricultural
Exchange

Asia

Exchange Abbreviation Location Product Types

Bursa Malaysia MDEX Malaysia Biofuels

Central Japan Commodity

Nagoya Energy, Industrial Metals, Rubber
Exchange

Dalian Commodity Exchange DCE China Agricultural, Plastics

Dubai Mercantile Exchange DME Dubai Energy

Dubai Gold & Commodities

DGCX Dubai Precious Metals
Exchange

Kansai Commodities Exchange KANEX Osaka Agricultural

Energy, Precious Metals, Metals,

Multi Commodity Exchange MCX India
Agricultural

National Commodity Exchange

Karachi Precious Metals, Agricultural
Limited

National Commodity and

NCDEX Mumbai All
Derivatives Exchange
 Singapore Commodity Exchange SICOM Singapore Agricultural, Rubber

Energy, Precious Metals, Industrial

Tokyo Commodity Exchange TOCOM Tokyo
Metals, Agricultural

Tokyo Grain Exchange TGE Tokyo Agricultural

Zhen Zhou Commodity Exchange CZCE China Agricultural

Europe

Exchange Abbreviation Location Product Types

Climex CLIMEX Amsterdam Emissions

NYSE Euro next Europe Agricultural

European Climate Exchange ECX Europe Emissions

London Metal Exchange LME London Industrial Metals, Plastics

Risk Management Exchange RMX Hanover Agricultural

Oceania

Exchange Abbreviation Location Product Types

Australian Securities
ASX Sydney Agricultural
Exchange

Indian Commodities Market

In India commodity markets have been in existence for decades. However in 1975 the Government
banned forward contracts on commodities. Later in 2003 the Government of India again allowed
forward contracts in commodities. There have been over 20 exchanges existing for commodities all over
the country. However these exchanges are commodity specific and have a strong regional focus. The
Government, in order to make the commodities market more transparent and efficient, accorded
approval for setting up of national level multi commodity exchanges. Accordingly three exchanges are
there which deal in a wide variety of commodities and which allow nation-wide trading. They are
 Multi Commodity Exchange (MCX)
 National Commodities Derivatives Exchange (NCDEX)
 National Multi Commodity Exchange (NMCE)

The MCX is Mumbai-based and is promoted by Financial Technologies Pvt Ltd. MCX allows trading
on a host of commodities ranging from bullion to grains. Please check the ‘Commodities traded’ menu’.
MCX has become the first exchange in the world to launch futures on steel. Recently on 11th August
2004, MCX crossed a peak daily turnover of Rs.950 Crores.

NCDEX is promoted by an elite group of financial institutions including NSE, LIC, SBI, UBI etc.,
NCDEX also allows trading of futures on a host of commodities. National Commodities and Derivatives
Exchange, NCDEX At Karvy Commodities, we are focused on taking commodities trading to new
dimensions of reliability and profitability. We have made commodities trading, an essentially age-old
practice, into a sophisticated and scientific investment option.

Here we enable trade in all goods and products of agricultural and mineral origin that include lucrative
commodities like gold and silver and popular items like oil, pulses and cotton through a well-
systematized trading platform.

Our technological and infrastructure strengths and especially our street-smart skills make us an ideal
broker. Our service matrix is holistic with a gamut of advantages, the first and foremost being our legacy
of human resources, technology and infrastructure that comes from being part of the Karvy Group.
Our wide national network, spanning the length and breadth of India, further supports these advantages.
Regular trading workshops and seminars are conducted to hone trading strategies to perfection. Every
move made is a calculated one, based on reliable research that is converted into valuable information
through daily, weekly and monthly newsletters, calls and intraday alerts. Further, personalized service is
provided here by a dedicated team committed to giving hassle-free service while the brokerage rates
offered are extremely competitive.

Our commitment to excel in this sector stems from the immense importance that commodities broking
has to a cross-section of investors farmers, exporters, importers, manufacturers and the Government of
India itself.

Commodities market essentially represents another kind of organized market just like the stock market
and the debt market. However, commodities market, because of its unique nature lends to the benefits of
a wide spectrum of people like investors, importers, exporters, producers, corporate etc.

COMMODITY MARKET IN INDIAN PERSPECTIVE.

India, a commodity based economy where 75% of the one billion populations depend on agriculture,
surprisingly has an underdeveloped commodity market. The history of commodity markets in India is
more than a century old. The institution of formal commodity market in India is almost as old as the UK
and the US.

The first organized commodity market in India was established in the late 19th century, Bombay Cotton
Association Ltd. was set up in 1875 by the Bombay Cotton Exchange ltd. In 1893, due to widespread
discontent amongst leading cotton mill owners and merchants over functioning of Bombay Cotton Trade
Association.

Commodities markets offer immense potential to become a separate asset class for market savvy
investors, arbitrageurs and speculators. Commodities markets are easy to understand as far as the
demand and supply fundamentals are concerned as these are two things that guide these markets. The
investors will have to understand the risks and the advantages before jumping the band wagon.
Commodities futures are less volatile as compared to equity and bonds. Some of the other advantages
linked to commodity futures are better risk adjusted, good hedge against downfall in equities or bonds as
there is no or very less correlation and also a very effective hedge against inflation.
The futures market in commodities offers both cash and delivery-based settlement. Investors can choose
between the two. If the buyer chooses to take delivery of the commodity, a transferable receipt from the
warehouse where goods are stored is issued in favor of the buyer. On producing this receipt, the buyer
can claim the commodity from the warehouse. All open contracts not intended for delivery are cash-
settled. While speculators and arbitrageurs generally prefer cash settlement, commodity stock lists and
wholesalers go for delivery. Trading in any contract month will open on the twenty first day of the
month, three months prior to the contract month. For example, the December 2005 contracts open on 21
September 2005 and the due date is the 20-day of the delivery month.
All contracts settling in cash will be settled on the following day after the contract expiry date.
Commodity trading follows a T + 1 settlement system, where the settlement date is the next working day
after expiry. However, in case of delivery-based traders, settlement takes place five to seven days after
expiry
Commodities like chana, urad, soya bean oil, guar gum, sugar, pepper, wheat, jeera, gold, silver and
crude oil have found fancy with Indian Investors. Expecting the turnover on the three online commodity
exchanges to spurt to more than Rs.15000 crores per day, banks are keen to tap the commodity trade-
financing front. Commercial banks are chasing the commodity industry with attractive lending rates
between 8% and 8.5% as against the normal lending rate between 11% and 14%.
Commodity exchanges in India will contribute significantly towards the development of Indian
economy as a whole. Commodity market is undergoing some breakthrough changes like demat, trading
of commodities like crude oil and plastics, also GOI is contemplating of implenting Options trading.
Today commodity market has provided investors with an opportunity to invest in an asset class which
yields high returns with low risk. In next 5 years time will be seeing resurgence of the century old
commodity market
The commodity market in India comprises of all palpable markets that we come across in our daily
lives. Such markets are social institutions that facilitate exchange of goods for money. The cost of
goods is estimated in terms of domestic currency . India Commodity Market can be subdivided into
the following two categories:
 Wholesale Market
 Retail Market
Let us now take a look at what the present scenario of each of the above markets is like.
The traditional wholesale market in India dealt with whole sellers who bought goods from the farmers
and manufacturers and then sold them to the retailers after making a profit in the process. It was the
retailers who finally sold the goods to the consumers. With the passage of time the importance of whole
sellers began to fade out for the following reasons:
 The whole sellers in most situations, acted as mere parasites who did not add any value to the
product but raised its price which was eventually faced by the consumers.
 The improvement in transport facilities made the retailers directly interact with the producers
and hence the need for whole sellers was not felt.
In recent years, the extent of the retail market (both organized and unorganized) has evolved in leaps
and bounds. In fact, the success stories of the commodity market of India in recent years has mainly
centered around the growth generated by the Retail Sector. Almost every commodity under the sun
both agricultural and industrial is now being provided at well distributed retail outlets throughout the
country.
Moreover, the retail outlets belong to both the organized as well as the unorganized sector. The
unorganized retail outlets of the yesteryears consist of small shop owners who are price takers
where consumers face a highly competitive price structure. The organized sector on the other hand is
owned by various business houses like Pantaloons, Reliance, Tata and others. Such markets are
usually sell a wide range of articles both agricultural and manufactured, edible and inedible,
perishable and durable. Modern marketing strategies and other techniques of sales promotion enable
such markets to draw customers from every section of the society. However the growth of such
markets has still centered on the urban areas primarily due to infrastructural limitations.
Considering the present growth rate, the total valuation of the Indian Retail Market is estimated to
cross Rs. 10,000 billion by the year 2010. Demand for commodities is likely to become four times by
2010 than what it presently is.
What can commodity market offer?

If you are an investor, commodities futures represent a good form of investment because of the
following reasons..
 High Leverage – The margins in the commodity futures market are less than the F&O section of the
equity market.
 Less Manipulations - Commodities markets, as they are governed by international price movements
are less prone to rigging or price manipulations.
 Diversification – The returns from commodities market are free from the direct influence of the
equity and debt market, which means that they are capable of being used as effective hedging
instruments providing better diversification.
If you are an importer or an exporter, commodities futures can help you in the following ways…
 Hedge against price fluctuations – Wide fluctuations in the prices of import or export products can
directly affect your bottom-line as the price at which you import/export is fixed before-hand.
Commodity futures help you to procure or sell the commodities at a price decided months before the
actual transaction, thereby ironing out any change in prices that happen subsequently.
If you are a producer of a commodity, futures can help you as follows:
 Lock-in the price for your produce – If you are a farmer, there is every chance that the price of
your produce may come down drastically at the time of harvest. By taking positions in commodity
futures you can effectively lock-in the price at which you wish to sell your produce
 Assured demand – Any glut in the market can make you wait unendingly for a buyer. Selling
commodity futures contract can give you assured demand at the time of harvest.
If you are a large scale consumer of a product, here is how this market can help you:
 Control your cost – If you are an industrialist, the raw material cost dictates the final price of your
output. Any sudden rise in the price of raw materials can compel you to pass on the hike to your
customers and make your products unattractive in the market. By buying commodity futures, you can fix
the price of your raw material.

 Ensure continuous supply – Any shortfall in the supply of raw materials can stall your production
and make you default on your sale obligations. You can avoid this risk by buying a commodity futures
contract by which you are assured of supply of a fixed quantity of materials at a pre-decided price at the
appointed time.
The effective mechanism of settlement and delivery procedures adopted and employed by MCX has
once again undergone rigorous tests and have come out extremely successful. This is signified with the
surging trading volume in bullion contracts and high open interest entering the settlement period
resulting in healthy quantities getting physically delivered. This whole process underscores the efficacy
& transparency of the complete trading, settlement and delivery process employed by MCX.
The complete delivery procedure right from getting the possession of the precious metal from the sellers,
necessary quality certifications, consignment movement, handing over the precious metal to the buyers,
etc was completed in flat 5 days period. The complete process has been worked out at a very optimal
cost and on an average each participant involved in the delivery process had incurred only Rs. 350/- per
transaction.

When the MCX Gold Contract entered into settlement period the Open Interest in
Gold was 670 Kgs after reducing from over 4000 Kgs few days ago. This open interest resulted in 152
Kgs of gold getting delivered and the balance gold, which entered into the delivery period, was squared
up. The total volume in MCX Gold December futures contract was 230233 Kgs valuing around Rs.
14577 crores.
On the same pattern Open Interest in Silver was 16,740 Kgs after reducing from over 1,60,000 Kgs few
days back. However, the actual delivery in Silver was 12,698 kgs and the balance Silver that entered into
the delivery period was squared up. The total volume in MCX Silver December futures contract was
22950 M. Tons valuing around Rs. 25024 crores.
In all the previous settlements also MCX platform has always seen appropriate percentage of open
interest position resulting in physical delivery. Gold has seen a cumulative physical delivery of 245 Kgs
and Silver 2190 Kgs across all the settlements completed before the current settlement.
Gold & silver futures contracts are getting recognized as the most reliable & dependable investment
options that are today available to traders and investors who are looking to widen their portfolio beyond
equity instruments. This is because of the credibility that these commodities have enjoyed globally and
the technical & fundamental analysis that has gone in arriving at various trading strategies.
India is the largest importer for Gold in the world, around 800 tons per year, realizing this potential of
Gold, Government of India has set up a committee to examine the regulatory structure of the gold
industry to make India a gold trading hub. This committee is constituted under the Chairmanship of
Secretary, Department of Commerce, and Ministry of Commerce & Industry. MCX is a member of the
committee and looks forward to contributing suggestions on the role that Futures market can play in
making India a global gold trading hub.
The first meeting for the Gold Committee is being held under the Chairmanship of Commerce Secretary
on 10th December 2004.

Fundamental factors affecting the commodity Market

Commodity trading is trading in commodity derivatives that include a range of commodities from
Petals, Precious metals, Energy and Agricultural commodities.
 Risk & Return
 Trading, Clearing and Settlement
 Demand & supply
 Demand Curve
 Global and domestic economy
 Economic growth
 Inflation
 Geo-political concerns
 Extra-ordinary events
 Speculation
Risk & Return
High return is followed by high risk. Based on an investor’s appetite to take risk and his expectation of
return he can prepare his portfolio. Commodity trading is not like trading shares at spot prices. It is
futures trading process. The uncertainty and risk involved are part and parcel of the commodity market.
Though futures’ trading of commodity market is same as the futures trading in equity market the only
differences is that supply demand estimates in commodity market may not be as tough.

Trading, Clearing and Settlement

Trading is when two or more parties negotiate to exchange goods with cash at a specific date and price.
There may be two types of investors in the commodity market. One are the delivery based investors and
other the cash (non-delivery) based investors. Exchanges clear the trade in sense that both the
negotiating parties are capable of respecting the contract and the settlement agency take care of the
settlement of goods against cash. Except for these basic fundamentals of trading there are various other
fundamentals that drive the commodity markets. These fundamentals may be different for different
commodities based on its characteristics. There are certain important fundamentals that apply to all
commodities either directly or indirectly.
Demand & supply

Demand and supply are basic factors that affect the movement of any commodity prices. The law of
demand and supply is same for equity as well as commodity markets. However demand and supply of
all commodities vary during different time periods depending upon seasons, domestic and global
conditions and various other major factors influencing its characteristics.

Demand Curve

It is refined form of demand analysis. Demand curve in a laymen’s term is a graphical representation of
demand over a period of time. Price is represented on y-axis and demand on the x-axis. The graph is a
line graph representing demand at particular prices over a period of time. It gives a clear understanding
of the demand situation over a period of time at various price levels.

Global and domestic economy

Economic scenario significantly affects the prices of a commodity. Demand and supply of any
commodity has a direct relationship with economic condition in the state. Depending upon the nature of
the commodity, global and domestic economic scenarios affect the commodity prices. For e.g.; Steel
prices highly depend on global economic factors as this is a globally and massively used commodity.
However as far as a commodity like Kapas (cotton beans) is concerned global factors affect less when
compared to domestic factors.

Economic growth

Economic growth of the world as well as the domestic economy is an important fundamental that will
affect the demand and supply positions in a country. If the country is growing at a fast rate the
consumption level will also be at a higher rate. This will increase the demand on one hand but supply
may not increase at the same rate as it takes time to set up new industries and increase production. This
drives the commodity prices of all major commodities.
Inflation

Commodities are considered as hedge against inflation because unlike equity, commodity prices move in
direction of inflation. With increase in inflation the prices of major commodities tend to increase and it
is true the other way as well.

Geo-political concerns

Political factors have a direct as well as indirect effect on commodity prices. For example if we take the
case of Potato when one year back it was barred from trading on the exchanges. However at time
political factors can have positive effects as well.

Extra-ordinary events

There may be certain extra-ordinary factors that do not occur very frequent. Wars, natural calamities,
depression etc. are such events that affect the commodity prices in a dramatic way.

Speculation

Speculators bring information into system at times fake or over hyped in-order to trigger the price
movement in a particular direction. Speculators are though a part of technical analysis but it is important
in the matter of fact that speculation may be of some fundamental factors. However they are an
important part of the market’s price discovery mechanism.

Why are Commodity Derivatives Required?

India is among the top-5 producers of most of the commodities, in addition to being a major
consumer of bullion and energy products. Agriculture contributes about 22% to the GDP of the Indian
economy. It employees around 57% of the labor force on a total of 163 million hectares of land.
Agriculture sector is an important factor in achieving a GDP growth of 8-10%. All this indicates that
India can be promoted as a major center for trading of commodity derivatives.

It is unfortunate that the policies of FMC during the most of 1950s to 1980s suppressed the
very markets it was supposed to encourage and nurture to grow with times. It was a mistake other
emerging economies of the world would want to avoid. However, it is not in India alone that derivatives
were suspected of creating too much speculation that would be to the detriment of the healthy growth of
the markets and the farmers. Such suspicions might normally arise due to a misunderstanding of the
characteristics and role of derivative product.

It is important to understand why commodity derivatives are required and the role they can play in
risk management. It is common knowledge that prices of commodities, metals, shares and currencies
fluctuate over time. The possibility of adverse price changes in future creates risk for businesses.
Derivatives are used to reduce or eliminate price risk arising from unforeseen price changes. A derivative
is a financial contract whose price depends on, or is derived from, the price of another asset.

Two important derivatives are futures and options.

(i) Commodity Futures Contracts:

A futures contract is an agreement for buying or selling a Commodity for a predetermined delivery
price at a specific future time. Futures are standardizing contracts that are traded on organized futures
exchanges that ensure performance of the contracts and thus remove the default risk. The commodity
futures have existed since the Chicago Board of Trade (CBOT, www.cbot.com) was established in 1848
to bring farmers and merchants together. The major function of futures markets is to transfer price risk
from hedgers to speculators. For example, suppose a farmer is expecting his crop of wheat to be ready in
two months’ time, but is worried that the price of wheat may decline in this period. In order to minimize
his risk, he can enter into a futures contract to sell his crop in two months’ time at a price determined
now. This way he is able to hedge his risk arising from a possible adverse change in the price of his
commodity.

(ii) Commodity Options contracts:

Like futures, options are also financial instruments used for hedging and speculation. The
commodity option holder has the right, but not the obligation, to buy (or sell) a specific quantity of a
commodity at a specified price on or before a specified date. Option contracts involve two parties – the
seller of the option writes the option in favour of the buyer (holder) who pays a certain premium to the
seller as a price for the option. There are two types of commodity options: a ‘call’ option gives the holder
a right to buy a commodity at an agreed price, while a ‘put’ option gives the holder a right to sell a
commodity at an agreed price on or before a specified date (called expiry date).

The option holder will exercise the option only if it is beneficial to him; otherwise he will let
the option lapse. For example, suppose a farmer buys a put option to sell 100 Quintals of wheat at a price
of $25 per quintal and pays a ‘premium’ of $0.5 per quintal (or a total of $50). If the price of wheat
declines to say $20 before expiry, the farmer will exercise his option and sell his wheat at the agreed
price of $25 per quintal. However, if the market price of wheat increases to say $30 per quintal, it would
be advantageous for the farmer to sell it directly in the open market at the spot price, rather than exercise
his option to sell at $25 per quintal

Modern Commodity Exchanges

To make up for the loss of growth and development during the four decades of restrictive government
policies, FMC and the Government encouraged setting up of the commodity exchanges using the most
modern systems and practices in the world. Some of the main regulatory measures imposed by the FMC
include daily mark to market system of margins, creation of trade guarantee fund, back-office
computerization for the existing single commodity Exchanges, online trading for the new Exchanges,
demutualization for the new Exchanges, and one-third representation of independent Directors on the
Boards of existing Exchanges etc.
Unresolved Issues and Future Prospects
Even though the commodity derivatives market has made good progress in the last few years, the real
issues facing the future of the market have not been resolved. Agreed, the number of commodities
allowed for derivative trading have increased, the volume and the value of business has zoomed, but the
objectives of setting up commodity derivative exchanges may not be achieved and the growth rates
witnessed may not be sustainable unless these real issues are sorted out as soon as possible. Some of the
main unresolved issues are discussed below.

a. Commodity Options:
Trading in commodity options contracts has been banned since 1952. The market for commodity
derivatives cannot be called complete without the presence of this important derivative. Both futures and
options are necessary for the healthy growth of the market. While futures contracts help a participant
(say a farmer) to hedge against downside price movements, it does not allow him to reap the benefits of
an increase in prices. No doubt there is an immediate need to bring about the necessary legal and
regulatory changes to introduce commodity options trading in the country. The matter is said to be under
the active consideration of the Government and the options trading may be introduced in the near future.

b. The Warehousing and Standardization:

For commodity derivatives market to work efficiently, it is necessary to have a sophisticated, cost-
effective, reliable and convenient warehousing system in the country. The Habibullah (2003) task force
admitted, “A sophisticated warehousing industry has yet to come about”. Further, independent labs or
quality testing centers should be set up in each region to certify the quality, grade and quantity of
commodities so that they are appropriately standardized and there are no shocks waiting for the ultimate
buyer who takes the physical delivery. Warehouses also need to be conveniently located. Central
Warehousing Corporation of India (CWC: www.fieo.com) is operating 500 Warehouses across the
country with a storage capacity of 10.4 million tonnes. This is obviously not adequate for a vast country.
To resolve the problem, a Gramin Bhandaran Yojana (Rural Warehousing Plan) has been introduced to
construct new and expand the existing rural godowns. Large scale privatization of state warehouses is
also being examined.

c. Cash versus Physical Settlement:

It is probably due to the inefficiencies in the present warehousing system that only about 1% to 5% of
the total commodity derivatives trade in the country are settled in physical delivery. Therefore the
warehousing problem obviously has to be handled on a war footing, as a good delivery system is the
backbone of any commodity trade. A International Research Journal of Finance and Economics - Issue
2 (2006) 161 particularly difficult problem in cash settlement of commodity derivative contracts is that
at present, under the Forward Contracts (Regulation) Act 1952, cash settlement of outstanding contracts
at maturity is not allowed. In other words, all outstanding contracts at maturity should be settled in
physical delivery. To avoid this, participants square off their positions before maturity. So, in practice,
most contracts are settled in cash but before maturity. There is a need to modify the law to bring it closer
to the widespread practice and save the participants from unnecessary hassles.
d. The Regulator:
As the market activity pick-up and the volumes rise, the market will definitely need a strong and
independent regular, similar to the Securities and Exchange Board of India (SEBI) that regulates the
securities markets. Unlike SEBI which is an independent body, the Forwards Markets Commission
(FMC) is under the Department of Consumer Affairs (Ministry of Consumer Affairs, Food and Public
Distribution) and depends on it for funds. It is imperative that the Government should grant more
powers to the FMC to ensure an orderly development of the commodity markets. The SEBI and FMC
also need to work closely with each other due to the inter-relationship between the two markets.

e. Lack of Economy of Scale:

There are too many (3 national level and 21 regional) commodity exchanges. Though over 80
commodities are allowed for derivatives trading, in practice derivatives are popular for only a few
commodities. Again, most of the trade takes place only on a few exchanges. All this splits volumes and
makes some exchanges unviable. This problem can possibly be addressed by consolidating some
exchanges. Also, the question of convergence of securities and commodities derivatives markets has
been debated for a long time now. The Government of India has announced its intention to integrate the
two markets. It is felt that convergence of these derivative markets would bring in economies of scale
and scope without having to duplicate the efforts, thereby giving a boost to the growth of commodity
derivatives market. It would also help in resolving some of the issues concerning regulation of the
derivative markets. However, this would necessitate complete coordination among various regulating
authorities such as Reserve Bank of India, Forward Markets commission, the Securities and Exchange
Board of India, and the Department of Company affairs etc.

f. Tax and Legal bottlenecks:

There are at present restrictions on the movement of certain goods from one state to another. These need
to be removed so that a truly national market could develop for commodities and derivatives. Also,
regulatory changes are required to bring about uniformity in octroi and sales taxes etc. VAT has been
introduced in the country in 2005, but has not yet been uniformly implemented by all states.
To study the Trading mechanism of Commodity Future market and Wholesale/ Local market
Second objective is completed by Collecting Primary as well as secondary data. Primary data is
collected through personal interview and discussion with the Wholesale merchants in APMC yard
Belgaum and secondary data is collected through Web sites. The following Chart Shows the Present
Trading System of Local /Wholesale market.

Chart showing Trading System of Local Markets

Consumer

Super Markets Local Retail Ration/Fair

Stores Price Shops

Large retailers Sub Wholesaler Food Corporation of

India

Wholesaler

Market Yard Operated be either Govt

Mandis or Private Players

Village level
Consolidation
Small & Marginal
Farmers

The emergence of organized sector retail chain stores and a rise in competition is likely to be a catalyst
for bringing about much needed reform in the agriculture-related supply chain. The large players in the
retail sector and fast moving consumer goods are also influencing the government to liberalize the
regulations, which hitherto have constricted the operational environment. In addition, political pressure
is rising, invoking a response from the government to change the regulations so as to enable farmers to
operate more productively.
 First, instead of using the current chain, which results in large mark-ups due to a multiple
number of intermediaries, the farmers are beginning to transact directly with the large corporate,
reducing inefficiencies.
 Second, some of the large retail players will start contract manufacturing with farmers,
providing them with the right quality inputs (fertilizers and seeds), capital support and signals on the
mix of output they need to produce to earn maximum returns.
 Third, an increase in direct sourcing by large players will also encourage the private sector to
invest in the logistics and infrastructure needed to improve the productivity and efficiency of the supply
chain.

Trading System of NCDEX

The trading system on the NCDEX provides a fully automated screen based trading for futures on
commodities on a nationwide basis as well as an online monitoring and surveillance mechanism. It
supports an order driven market and provides complete transparency of trading operations. The trade
timings of the NCDEX are 10.00 a.m. to 4.00 p.m. After hours trading has also been proposed for
implementation at a later stage.

The NCDEX system supports an order driven market, where orders match automatically. Order
matching is essentially on the basis of commodity, its price, time and quantity. All quantity Fields are
in units and price in rupees. The exchange specifies the unit of trading and the delivery unit for futures
contracts on various commodities. The exchange notifies the regular lot size and tick size for each of
the contracts traded from time to time. When any order enters the trading system, it is an active order. It
tries to find a match on the other side of the book. If it finds a match, a trade is generated. If it does not
find a match, the order becomes passive and gets queued in the respective outstanding order book in the
system. Time stamping is done for each trade and provides the possibility for a complete audit trail if
required.

NCDEX trades commodity futures contracts having one month, two month and three Month expiry
cycles. All contracts expire on the 20th of the expiry month. Thus a January expiration contract would
expire on the 20th of January and a February expiry contract would cease trading on the 20th of
February. If the 20th of the expiry month is a trading holiday, the contracts shall expire on the previous
trading day. New contracts will be introduced on the trading day following the expiry of the near month
contract.

Contract cycle

The following figure shows the contract cycle for futures contracts on NCDEX. As can be seen, at any
given point of time, three contracts are available for trading ñ a near-month, a middle-month and a far-
month. As the January contract expires on the 20th of the month, a new three month contract starts
trading from the following day, once more making available three index futures contracts for trading.

NEED OF THE STUDY

This study will help to know whether the derivative investors are aware of the commodity market or
not. And also to find out the problem they are facing their by satisfy the need of the investors. To get
the suggestions from the investors for the further development in providing awareness program for the
growth of the organization.
 Chapter 2

REVIEW OF LITERATURE AND RESEARCH DESIGN

LITERATURE REVIEW

Jena, Pratap Kumar, and Phanindra Goyari (2016) examine the relationship between stock, bond and
commodity prices in India using the Dynamic Conditional Correlation (DCC) model. This study uses
secondary data on daily returns for three alternative asset classes from June 10, 2005 to June 30, 2011.
Therefore, the specific variables are S&P CNX Nifty index collected from National Stock Exchange
(NSE) of India, corporate bond yield collected from Bloomberg, and commodity futures index (Comdex)
from the Multi Commodity Exchange (MCX) of India. The sample period is 1,463 days for all the
composition. The results show that both commodity and stock prices are positively correlated but
commodity and bond prices are negatively correlated. There is higher return with less volatility in
commodity price, which implies that it is more efficient in asset allocation compared to a traditional asset
like bond. When there is an increase in the market risk with stock market volatility, the conditional
relation between commodity and stock price declines. It is good news for the investor to make asset
allocation to commodity market and vice versa.

Kapil, Sheeba, and Kanwal Nayan Kapil (2010) offer arguments and insights as to why the Indian
commodity market needs the participation of the commodity trading advisors. To discuss the various
issues related to CTAs applicability in India. To outline the need for allowing CTAs activity in Indian
commodity market and discuss the key operational and policy considerations in developing the
commodity market for CTAs in India. The recent expansion of Indian commodity market has not been
very structured. The market has expanded with the expansion in demand for commodities both in spot
and derivative market. There have been constraints through policy restrictions and at the same time there
has been an effort for liberalization of the commodity market to bring them at par with international
commodity market. Originality/value – This is the first paper that initiates thoughts on allowing CTAs to
participate in the Indian commodity market. The paper builds on the concept that CTAs would add the
desired price discovery, volume, and depth to the Indian commodity market.

Ftiti, Z., Kablan, S., & Guesmi, K. (2016) analyzes the relationship between commodity prices and credit
to the private sector in commodity-exporting developing countries, particularly three nations in Sub-
Saharan Africa. It extends the findings of non-empirical studies dealing with this issue for the case of
African countries and complement the literature on the methodological side by investigating this
relationship using wavelet analysis. This frequency approach is appropriate, as it takes into account
investor heterogeneity and the time-variant characteristic of the studied relationship. Further, it explains
the lead–lag relationship between the studied series. Second, for medium and short timescales, the
interaction is high and significant only during periods of turmoil. In terms of the lead–lag relationship,
our results also show that the commodity market causes fluctuations in the credit market.

Han, L., & et al. (2017) utilizes the search volume for key terms on Google as a direct and timely proxy
for investor attention in order to examine how attention impacts commodity futures prices. To examine
the impact of investor attention on market efficiency. 13 commodity futures and the interaction between
attention and returns, even after controlling for important macroeconomic variables. Results show that
rising attention, on one hand, increases information efficiency and attenuates arbitrage opportunities,
whereas, on the other hand, decreases market efficiency by facilitating herd behavior.

Rombouts, A. (2017) contribute to restoring that confidence, the community of regulators has drawn up a
body of rules, all of which are aimed at providing greater protection to savers and investors by acting on
the quality of both demand and supply of investment products. To find out the logic, the necessary
complementarities and potential developments from a regulatory point of view. It concludes that the
measures taken are still far from having reached maturity and thus their objective, and that the only way
forward is to reinforce peer pressure among Member States in order to achieve greater upward
convergence and to enhance the effectiveness of the measures adopted.

Erb, C. B., & Harvey, C. R. (2016) find out the Misperceptions about Commodity Futures Investing. The
poor performance is largely the result of poor "income returns," a return building block similar to a
stock's dividend yield or a bond's yield. Three misperceptions have contributed to this disappointment:
(1) Commodities are a play on commodity prices, (2) commodity prices provide an inflation hedge, and
(3) commodity markets.

Monga et al (2016) conduct the study with the basic concern to understand investment alternatives
available, factors associated with it, positive and negative aspect of different forms of investment and
thereby help to create general awareness among investors. Data is collected from conveniently selected
300 respondents through interviews using a selfdeveloped questionnaire. Findings revealed that
investment in jewellery was the most preferred form of investment. However, gold coins, bullion bars,
ETF etc., are also gaining ground slowly. Respondents tend to look for options which assure them greater
returns and are free from unnecessary hustle and bustle.

Periyasamy, S (2016) study examines the impact of Investor Awareness Program and its impact on
prospective investors in India. The study is analytical in nature. The data required for the study is primary
in nature. Primary data was collected through a well-structured questionnaire by adopting random
sampling method. This study examines the change in attitude of the participants of the program towards
investment in stock markets.

Chen, Y. L., & Chang, Y. K. (2015) investigates the impact of the trading positions of hedgers (i.e.,
producers, merchants, processors, or users of a commodity), speculators (i.e., commodity pool operators,
trading advisors, or hedge funds), and swap dealers on the price formation process in the agricultural,
metal, and energy futures markets. Hedgers are less likely to be information motivated, so their trading
delays the price formation process. However, speculators' positions have positive impacts on price
efficiency because speculators correct pricing errors. This study also offers evidence that the role of swap
dealers, similar to speculators in futures markets, is to provide liquidity and cross-market arbitrage. The
findings highlight the role of producers, hedge funds, and swap dealers in price formation processes in
commodity futures-information that is beneficial to academics, practitioners, and regulators.

Mellios et al (2016) objective is to address, in an a continuous-time framework, the issue of using

storable commodity futures as vehicles for hedging purposes when, in particular, the convenience yield
as well as the market prices of risk evolve randomly over time. We suggest various decompositions
allowing an investor to assess the sensitivity of the optimal demands to the state variables and to specify
the role played by each risky asset. Empirical evidence shows that the convenience yield has a strong
impact on the speculation and hedging positions and the interaction among time-varying risk premia
determines the magnitude and the sign of these positions.

Iqbal et al. (2013) identify the relationship and link between investor behavior and financial market
anomalies.To explain the behaviour of individual and institutional investors in financial capital markets.
The paper also explains that either mentioned investor behaviors have a direct or indirect impact of stock
market change or the change compels the investor to behave in specific ways. The paper explains that an
individual investor performs poorly as compared to institutional investors because of having less
information and sophistication. The most compelling factors behind stock market anomalies are investor
overconfidence, overreaction, overestimation, investor biased behavior and investors less sophistication
level. Therefore, it may be inferred that investor behavior forms stork market anomalies.

STATEMENT OF THE PROBLEM

The derivative investor’s decision to invest in the commodity market will determine the level of funds
available and the efficient functioning of the market. Therefore, investment decisions need to undergo a
thorough analysis of the situations prevailing based on a number of factors, however regardless of the
varied information available that justifies rationality and irrationality, investors are keen to avoid
uncertainties associated with the ultimate decisions they engage in. Hence, investors have to consider
many factors like Economic environment, Political stability, Industrial growth etc., before they invest. To
encourage, enhance and safeguard investor, a number of reforms have been initiated by the Security
Exchange Board of India (SEBI).
In this background, the study has raised the following research questions:

i) What are the factors that affect the derivative investor’s behavior especially in commodity market?
ii) To what extent investors awareness towards commodity markets?

These questions help to define the focus, significance, and objectives of the study

SCOPE OF THE STUDY

This study is limited to only derivative investors of Kolkata; the study is carried out to know the
awareness level of derivative investors towards Commodity Futures market. This study also helps to
know about the perception of derivative investors towards commodity future market & the factors
influencing the investment in commodity.

OBJECTIVES OF THE STUDY

1. To understand the perception of derivative investors towards commodity future market.
2. To identify the awareness level of commodity market among derivative investors in Kolkata.
3. To find the factors influencing the investment in commodity.
4. To analysis the preference of derivative investors in investment of a commodity.
5. To determine the potential customer for commodity market.

The project was undertaken at KARVY Stock Limited at Kolkata the first part of the study is done by
collecting information through net, journals, textbooks. And second part of the study is conducted
through survey of the derivative investors.

Sample Size

The sample size is consisting of traders in derivative market of kolkata.100 random sample was taken to
identify the awareness level of the derivative investors towards Commodity Future Market

Sample Type : Simple random sampling was adopted to select respondents.

Sample Area : Kolkata

THE SOURCES OF THE DATA COLLECTION ARE AS FOLLOWS

The study relies to a great extent on primary data and to some extent on secondary data:

Primary Data:
Questionnaire
Observation and interview technique

Secondary Data:
Information is collected through internet
From various text books Journals and magazines
TOOLS USED FOR ANALYSIS:

Graphical Representation of Analysis through:

Pie charts

DATA COLLECTION APPROACH:

Primary data has been used to carry out the research successfully. The secondary data has been collected
from NCDEX and MCX. For the purpose of gathering primary data a structure and questionnaire was
designed to collect data from the derivative investors.

METHOD OF COMMUNICATION:

In order to minimize the bias in data collection, the method of personal interview was adopted.

LIMITATION OF THE STUDY:

 Since the study is based on the convenient sampling it may not depict the accurate outcome

 Level of accuracy of results of research is restricted to the accuracy level with which the customers
have given answers and the accuracy level of the answer cannot be predicted

 The findings are based solely on the information provided by the respondents and there is a
possibility of biased results

 The study of project is limited to only KOLKATA

CHAPTER 3: PROFILE OF THE SELECTED
ORGANIZATION AND RESPONDENTS
 COMPANY PROFILE

INTRODUCTON TO KARVY

OVERVIEW

KARVY, is a premier integrated financial services provider, and ranked among the top five in the
country in all its business segments, services over 16 million individual investors in various
capacities, and provides investor services to over 300 corporates, comprising the who is who of
Corporate India. KARVY covers the entire spectrum of financial services such as Stock broking,
Depository Participants, Distribution of financial products - mutual funds, bonds, fixed deposit,
equities, Insurance Broking, Commodities Broking, Personal Finance Advisory Services, Merchant
Banking & Corporate Finance, placement of equity, IPO’s, among others. Karvy has a professional
management team and ranks among the best in technology, operations and research of various
industrial segments.

EARLY DAYS

The birth of Karvy was on a modest scale in 1981. It began with the vision and enterprise of a small
group of practicing Chartered Accountants who founded the flagship company, Karvy Consultants
Limited. They started with consulting and financial accounting automation, and carved inroads into
the field of registry and share accounting by 1985. Since then, they have utilized their experience and
superlative expertise to go from strength to strength to better their services, to provide new ones, to
innovate, diversify and in the process, evolved Karvy as one of India’s premier integrated financial
service enterprise.

Thus over the last 20 years Karvy has traveled the success route, towards building a reputation as an
integrated financial services provider, offering a wide spectrum of services. And they have made this
journey by taking the route of quality service, path breaking innovations in service, versatility in
service and finally, totality in service.
Their highly qualified manpower, cutting-edge technology, comprehensive infrastructure and total
customer-focus has secured for them the position of an emerging financial services giant enjoying the
confidence and support of an enviable clientele across diverse fields in the financial world.

Their values and vision of attaining total competence in their servicing has served as the building
block for creating a great financial enterprise, which stands solid on their fortresses of financial
strength - their various companies.

With the experience of years of holistic financial servicing behind them and years of complete
expertise in the industry to look forward to, they have now emerged as a premier integrated financial
services provider.

And today, they can look with pride at the fruits of our mastery and experience – comprehensive
financial services that are competently segregated to service and manage a diverse range of customer
requirements.

KARVY ACHIEVEMENTS

Among the top 5 stock brokers in India (4% of NSE volumes)

India's No. 1 Registrar & Securities Transfer Agents

Among the to top 3 Depository Participants

Largest Network of Branches & Business Associates

ISO 9002 certified operations by DNV

Among top 10 Investment bankers

Largest Distributor of Financial Products

Adjudged as one of the top 50 IT uses in India by MIS Asia

Full Fledged IT driven operations

KARVY QUALITY POLICY

To achieve and retain leadership, Karvy shall aim for complete customer satisfaction, by combining
its human and technological resources, to provide superior quality financial services. In the process,
Karvy will strive to exceed Customer's expectations.

QUALITY OBJECTIVES

As per the Quality Policy, Karvy will:

Build in-house processes that will ensure transparent and harmonious relationships with its clients
and investors to provide high quality of services.

Establish a partner relationship with its investor service agents and vendors that will help in keeping
up its commitments to the customers.

Provide high quality of work life for all its employees and equip them with adequate knowledge &
skills so as to respond to customer's needs
Continue to uphold the values of honesty & integrity and strive to establish unparalleled standards in
business ethics.

Use state-of-the art information technology in developing new and innovative financial products and
services to meet the changing needs of investors and clients.

Strive to be a reliable source of value-added financial products and services and constantly guide the
individuals and institutions in making a judicious choice of it.

Strive to keep all stake-holders (shareholders, clients, investors, employees, suppliers and regulatory
authorities) proud and satisfied.

About KARVY Group

Karvy has traveled the success route, towards building a reputation as an integrated financial services
provider, offering a wide spectrum of services for over 20 years.

Karvy, a name long committed to service at its best. A fame acquired through the range of corporate
and retail services including mutual funds, fixed income, equity investments, insurance ……… to
name a few. Our values and vision of attaining total competence in our servicing has served as a
building block for creating a great financial enterprise.

The birth of Karvy was on a modest scale in the year 1982. It began with the vision and enterprise of
a small group of practicing Chartered Accountants based in Hyderabad, who founded Karvy. We
started with consulting and financial accounting automation, and then carved inroads into the field of
Registry and Share Transfers.
Since then, we have utilized our quality experience and superlative expertise to go from strength to
strength to provide better and new services to the investors. And today, we can look with pride at the
fruits of our experience into comprehensive financial services provider in the Country.

KARVY Group companies are:

Karvy Consultants Limited he first securities registry to receive ISO 9002 certification in India.
Registered with SEBI as Category I Registrar, is Number 1 Registrar in the Country. The award of
being ‘Most Admired’ Registrar is one among many of the acknowledgements we received for our
customer friendly and competent services.

Karvy Stock Broking Limited

The company, Member of National Stock Exchange (NSE), offers a comprehensive range of services
in the stock market through the benefits of in-depth research on crucial market dynamics, done by
qualified team of experts. Apart from stock broking activities, the company also provides Depository
Participant Services to its corporate and retail customers.

Karvy Investor Services Limited

Registered with SEBI as a Category I Merchant Banker and ranked among the top 10 merchant
bankers in the country, the company has built a reputation as a professional advisor in structuring
IPO’s take over assignments and buy back exercises.
Karvy Computer share Private Limited

Karvy Global Services Limited

Karvy Global Services is the global services arm of the Karvy Group of Companies engaged in the
business of offshore business process outsourcing in the areas of human resource outsourcing, finance
and accounting operations outsourcing, research and analytics and back office processing operations.

The company provides investment, advisory and brokerage services in Indian Commodities Markets.
And most importantly, we offer a wide reach through our branch network of over 225 branches
located across 180 cities.
The company is into distribution of Financial Products. It distributes a wide range of financial
products and services from insurance to credit cards and loans. The company provides sound advisory
services to suit the different investment needs of customers.
Karvy Commodities Broking Pvt Limited

At Karvy Commodities, we are focused on taking commodities trading to new dimensions of

reliability and profitability. We have made commodities trading, an essentially age-old practice, into a
sophisticated and scientific investment option.

Here we enable trade in all goods and products of agricultural and mineral origin that include
lucrative commodities like gold and silver and popular items like oil, pulses and cotton through a
well-systematized trading platform.

Our technological and infrastructural strengths and especially our street-smart skills make us
an ideal broker. Our service matrix is holistic with a gamut of advantages, the first and foremost being
our legacy of human resources, technology and infrastructure that comes from being part of the Karvy
Group.

Our wide national network, spanning the length and breadth of India, further supports these
advantages. Regular trading workshops and seminars are conducted to hone trading strategies to
perfection. Every move made is a calculated one, based on reliable research that is converted into
valuable information through daily, weekly and monthly newsletters, calls and intraday alerts. A
dedicated team committed to giving hassle-free service while the brokerage rates offered are
extremely competitive provides further, personalized service here.
Our commitment to excel in this sector stems from the immense importance those commodities
broking has to a cross-section of investors – farmers, exporters, importers, manufacturers and the
Government of India itself.

About Karvy Commodities Broking Private Limited

Commodities market, contrary to the beliefs of many people, has been in existence in India through
the ages. However the recent attempt by the Government to permit Multi-commodity National levels
exchanges has indeed given it, a shot in the arm. As a result two exchanges Multi Commodity
Exchange (MCX) and National Commodity and derivatives Exchange (NCDEX) have come into
being. These exchanges, by virtue of their high profile promoters and stakeholders, bundle in
themselves, online trading facilities, robust surveillance measures and a hassle-free settlement system.
The futures contracts available on a wide spectrum of commodities like Gold, Silver, Cotton, Steel,
Soya oil, Soya beans, Wheat, Sugar, Channa etc., provide excellent opportunities for hedging the risks
of the farmers, importers, exporters, traders and large scale consumers. They also make open an
avenue for quality investments in precious metals. The commodities market, as the movements of the
stock market or debt market do not affect it provides tremendous opportunities for better
diversification of risk. Realizing this fact, even mutual funds are contemplating of entering into this
market.

Karvy Commodities Broking Private Limited is another venture of the prestigious

Karvy group. With our well established presence in the multifarious facets of the modern Financial
services industry from stock broking to registry services, it is indeed a pleasure for us to make foray
into the commodities derivatives market which opens yet another door for us to deliver our service to
our beloved customers and the investor public at large.

With the high quality infrastructure already in place and a committed Government providing
continuous impetus, it is the responsibility of us, the intermediaries to deliver these benefits at the
doorsteps of our esteemed customers. With our expertise in financial services, existence across the
lengths and breadths of the country and an enviable technological edge, we are all set to bring to you,
the pleasure of investing in this burgeoning market,

Which can touch upon the lives of a vast majority of the population from the farmer to the corporate
alike? We are confident that the commodity futures can be good.

The Company provides investment, advisory and brokerage services in Indian Commodities Markets.
And most importantly, we offer a wide reach through our branch network of over 225 branches
located across 180 cities.

THE KARVY CREDO.

Our Clients, Our Focus.

Clients are the reason for our being.

Personalized service, professional care; pro-activeness are the values that help us nurture enduring
relationships with our clients

Respect for the individual.

Each and every individual is an essential building block of our organization.

We are the kilns that hone individuals to perfection. Be they our employees, shareholders or investors.
We do so by upholding their dignity & pride, inculcating trust and achieving a sensitive balance of
their professional and personal lives.

Teamwork.

None of us is more important than all of us.

Each team member is the face of Karvy. Together we offer diverse services with speed, accuracy and
quality to deliver only one product: excellence. Transparency, co-operation, invaluable individual
contributions for a collective goal, and respecting individual uniqueness within a corporate whole, are
how we deliver again and again.

Responsible Citizenship.

A social balance sheet is as rewarding as a business one.

As a responsible corporate citizen, our duty is to foster a better environment in the society where we
live and work. Abiding by its norms, and behaving responsibly towards the environment, is some of
our growing initiatives towards realizing it.
Integrity.

Everything else is secondary.

Professional and personal ethics are our bedrock. We take pride in an environment that encourages
honesty and the opportunity to learn from failures than camouflage them. We insist on consistency
between works and actions.
 ORGANISATION CHART

Managing Director

Chief Managing Director

Vice-President Vice-President Vice-President Vice-President

Karvy Karvy Karvy Karvy

Securities Ltd. Stock Broking Ltd Consultants Ltd Investors Services

Ltd.

.
Deputy Deputy Deputy
Deputy
General General General
General
Manager Manager Manager
Manager

Senior Manager Senior Manager Senior Manager

SenoirManager

Branch Manager

Number of Team Leaders

 Number of Executives

CHAPTER 4: DATA ANALYSIS AND INTERRETATION

Table 1: What is the occupation?
OCCUPATION RESPONDS
Business 24
Profession 13
Govt.service 37
Private service 25
Others 1
Total 100

Figure: 1

Occupation

24
25

13

37

business proffession govt service private service others

Interpretation: the above graph depicts that 37% of the respondents are government
employees ,25% are from private service,1% are from others like agriculturist, 24% are businessmen
& 13% are private service
Inference: most of the respondents are were from government service & business men

Table 2: What is your annual income?

 ANNUAL INCOME RESPONDS
Below- 50000 6
5000-100000 37
100001-200000 38
200001-400000 14
More than 400001 5
Total 100

Figure: 2

Annual income

40

35

30

25

20

15

10

0
Below- 50000 5000-100000 100001-200000 200001-400000 More than 400001

Interpretation: above graph depicts that most of the investors income lies between 100001-200000
followed by 38%,37% investors income lies between 50000-100000,14% of the investors lies
between 20001-400000,6% of the investors lies below 50000 & 5% of the investors lies more than
400000
Table 3: Investment criteria they which you prefer to invest?

INVESTMENT RESPONDS
Bank deposit 10
Real estate 4
stocks 32
Commodity future market 7
Mutual fund 5
Life insurance 8
Derivative market 32
bonds 2
total 100

Figure 3:

INVESTMENT
4
2 10
32

32

7
8 5

Bank deposit Real estate stocks Commodity future market

Mutual fund Life insurance Derivative market bonds

Interpretation: From this chart it is known that 32% of the respondents prefer to invest in derivative
and stocks, 10% of the respondents in bank deposit, 8% & 7% in life insurance & commodity
market ,5% in mutual fund ,4% in real estate & 2% in bonds
TABLE 4: Awareness of derivative market?

AWARNESS OF DERIVATIVE MARKET RESPONDS

YES 100
Total 100

Figure :4

Awarneess of derivative market

100

Awareness of derivative market Frequency

Interpretation: as my targeted customer is derivative investors the above diagram depicts about the
awareness level of the derivative investors is 100%
TABLE 5: Have you invested in futures $ options?

INVESTMENT RESPONDS
yes 100
Total 100

Figure :5

Investment

100

Frequency

Interpretation: as my targeted customer is derivative investors the above diagram depicts about the
investment level of the derivative investors is 100% that is respondents are purely from derivative
market
TABLE 6: Factors considered while investing in derivative market?

Factors RESPONDS
Price 9
Risk 39
Return 45
Supply & demand 7
Total 100

Figure :6

Investing in dervitive market

45
40
35
30
25
20
15
10
5
0
Price Risk Return Supply & demand
FACTORS

Interpretation: Most of the investors consider 45% of return,39% of risk,9% price& 7% demand
and supply. While investing in derivatives mainly they considered returns & risk
TABLE 7: Level of awareness of commodity market?

AWARENESS OF COMMODITY MARKET RESPONDS

Yes 64
NO 36

Total 100

Figure:7

awareness of commodity market

70

60

50

40

30

20

10

0
Yes NO

Interpretation: The above pie chart depicts that 64% of the trader aware about the Commodity
Future market and 36% of them are not aware about Commodity Future Market. So there is a need to
create awareness about the commodity future market and its benefits. There is a lot of potential is
there to create customer and influence them to invest in Commodity Future market

TABLE 8: Have you invested in commodity market?

 INVESTMENT IN COMMODITY MARKET RESPONDS
yes 39
no 61
Total 100

Figure:8

Investment in commodity market

39

61

yes no

Interpretation: From the above diagram we can say that out of 100 traders only 39% have invested
in commodity market 61% have not invested in commodity market so even though the most of the
traders are aware about Commodity Future market they are not trading in Future market traders feel
there is a high risk involved in the future market.
TABLE 9: How do you came to know about commodity market?

HOW YOU CAME TO KNOW RESPONDS

Not attempted 61
Frds/colleagues 12
Bill boards/advt/broachers 9
Agents 18
Total 100

Figure:9

Kowing about commodity market

18

61
12

Not attempted Frds/colleagues

Bill boards/advt/broachers Agents

Interpretation: most of the investors came to know about the commodity by agents the respondents
who have invested in commodity market from them 18% of the people came to know by agents ,9%
from the bill boards /advertisement/brochure &12% people came to know by their friends and
colleagues. Here not attempted indicates the people who have not invested in commodity market
have not attempted this question.
TABLE 10: Commodity that you preferred for trading?

COMMODITY THAT PREFERRED RESPONDS

Not attempted 64
Agro products 10
Base metal 5
Energy products 5
Precious metals 16
Total 100

Figure:10

commodity prefered for trading

70

60

50

40

30

20

10

0
Not attempted Agro products Base metal Energy products Precious metals

Interpretation: among the persons who have invested in commodity in them 10% prefer to trade in
agro products, 5% in base metals, 16% in precious metals & 5 % in energy products. here not
attempted indicates the people who have not invested in commodity market have not attempted this
question

TABLE 11: Factors considered while trading in commodity market?

 FACTORS RESPONDS
Not attempted 65
Price 3
Season 8
Risk 13
Return 11
Total 100

Figure:11

Factors considered while trading commodity

11
13

65
3

Not attempted Price Season Risk Return

Interpretation: Most of the investors consider 11% of return,13% of risk,3% price& 8% of season.
While investing in commodities mainly they considered returns & risk while investing in commodity
market they mainly consider returns & risk. here not attempted indicates the people who have not
invested in commodity market have not attempted this question.
TABLE 12: Did commodity future market provides benefits to you ?

FUTURE MARKET BENEFITS RESPONDS

Not attempted 62
Strongly agree 9
Agree 10
Neutral 18
Disagree 1
Total 100

Figure:12

Did commodity market provide benefits

1
18

10

62
9

Not attempted Strongly agree Agree Neutral Disagree

Interpretation: most of the investors say it is in neutral position & some who are benefited lot they
will go for factors like agree & strongly agree & percentage of disagree is very less among invested
people

TABLE 13: Reasons why they are not invested in commodity market?
 WHY THEY ARE NOT INVESTED IN RESPONDS
COMMODITY MARKET
Already invested 39
Not interested 5
Info non availability 10
High investment 7
Complex understanding 33
High risk 6
Total 100

Figure:13

Reason why they are not invested in commodity market

6

39

33

10
7 5

Already invested Not interested Info non availability

High investment Complex understanding High risk

Interpretation: The above pie chart shows that most of the traders are not interested to invest in
Commodity Future Market due to complex understanding involved in it around 33% of the traders are
given this reason and 5% of them are not interested in investing in this market, 6 & 7% think that it
involves high risk and high investment So there is great need to create awareness about Commodity
Future market by telling its advantages.

TABLE 14: Planning for trading in commodity market in future

 PLANNING FOR TRADING RESPONDS
yes 67
no 36
Total 100

Figure:14 : :

Planning for trading

70

60

50

40

30

20

10

0
yes no

Interpretation: From the above graph we conclude that most of the traders are interested to invest in
Commodity Future Market if proper awareness is created among them and other 33% are not
interested to invest. These 67% of traders are the potential customers for the company.

TABLE 15: How would you prefer when trading in commodities?

 Options RESPONDS
Trading 0
Mid-term(1-3) 20
Short- term(1 month) 35
Long term (3-12) 45
Total 100

Figure:15

How would you prefere when trading in a commodity

20

45

35

Trading Mid-term(1-3) Short- term(1 month) Long term (3-12)

Interpretation: A commodity is some good for which their demand is, but which is supplied without
qualitative differentiation across a market. It is a product that is the same no matter who produces it,
such as petroleum, notebook paper, or milk. In other words, copper is copper. The price of copper is
universal, and fluctuates daily based on global supply and demand.
TABLE 16: You prefer to invest in commodities (futures) that have?

Options RESPONDS
High risk, high return 15
Medium risk, medium returns 60
Low risk, low returns 25
Total 100

Figure:16

invest in commodity with have

70

60

50

40

30

20

10

0
High risk, high return Medium risk, medium returns Low risk, low returns

Interpretation: People always want to invest in commodities where they have more than 50%
chance of getting a profit. Keeping the future in mind customers tend to invest in commodities
which have medium risk and medium return, rather than investing in high risk ones as it is a
huge gamble. It might pay off once in a while but it might result in ending all your saving as
well.

TABLE 17: Do you know investment in commodities can be classed as an Asset?

options RESPONDS
yes 60
no 40
Total 100

Figure:17

investment in a commodity can be classed as assest

40

60

yes no

Interpretation: Commodities speculation is about the riskiest place to deploy your savings: it's really
in a different category than investing. Commodities exchanges arc really supercharged belting parlors
made up of a series of hyperactive markets where you can bet on the price movements of a variety of
products. The list includes precious metals, raw materials, grains and meal, gas — even financial
products like Treasury bills.

Though they carry big risks for individual investors, commodities markets were originally set up lo
help spread the risk of price changes among a large pool of players. Using futures contracts, for
example, a Tanner can sell a crop before it’s planted, even though he might get a better price in the
future (which is where the name comes from.) If a boom in demand drives up prices by harvest time,
the buyer of the futures contract wins. But if a bumper crop floods the market and prices plunge, our
speculator could lose everything. No matter what happens, the farmer has enough money in the bank
to buy the for next year's crop, hence commodities can be classified us an asset.
TABLE 18: If you trade in commodities, how do you rate it when compared to Equities on a scale
of 5?
Option RESPONDS

1 19

2 1

3 60

4 0

5 20

Total1 100

Figure:18

How do you rate the commodity in equity

2
5 1

1 2 3 4 5

Interpretation: More than half of the sample trusts both commodities and equities for putting their
money in it. Though commodities have started decades after which equity trading started, its growth
is tremendous with its turn over almost equal or more than equity tune over in today scenario.

Others have their own opinion of their investments and prefer more of equities or more of
commodities according to their past experience, performance, liking, comfort zone.
TABLE 19: Have you attended any awareness programs?

Option RESPONDS
yes 86
no 14
Total 100

Figure:19

Awarness programs
14

86

yes no

Interpretation: It is clearly shows that 86 of the respondent have attended the awareness program
and about 14 of the respondent have not attended the awareness program. Hence, majority of the
respondent have attended the awareness program
TABLE 20: The factors which you considered while choosing an investment option?

Options RESPONDS
How quickly I able to increase wealth 59
The opportunity for steady growth 19
The amount of monthly income will an 14
investment generate
The safety of investment principal 9
Total 100

Figure:20

factors consider for choosing Investment

14 9

59

19

How quickly I able to increase wealth

The opportunity for steady growth
The amount of monthly income will an investment generate
The safety of investment principal

Interpretation: It is clearly shows that 59% of the respondent say, How quickly they are able to
increase wealth is the factor, 19% of the respondent say the opportunity for steady growth is the
factor , 14% of the respondent say the amount of monthly income, the investment will generate is the
factor and about 9% of the respondent say the safety of investment principal is the factor. Hence,
majority of the respondent say that the safety investment principal is the factor.
TABLE 21: The ways in which Commodity Market Helps you

Option RESPONDS
Protects from Abnormal Cost 76
Increase
Ensures Continuous Supply 24
Total 100

Figure:21

Ways in which commodity market help you

24

76

Protects from Abnormal Cost Increase Ensures Continuous Supply

Interpretation: It is clearly shows that 76% of the respondent says that commodity market helps
the investors to protect from abnormal cost increase and about 24% of the respondent say that
commodity market helps to ensure continuous supply. Hence, majority of the respondent say that
commodity market helps the investors to protect from abnormal cost increase.
TABLE 22: What is the opinion about the risk in the commodity market?

Risk in commodity market Responds

Variation in return 40
Possibity of suffering losses 30
Factors involved in uncertainties 30
Total 100

Figure:22

Risk in commodity market

30

40

30

Variation in return Possibity of suffering losses Factors involved in uncertainties

Interpretation: It is clearly shows that 40%of the respondent says that risk involved in commodity
market is based on variation in return and 30% of the respondent says apart from variation of return
they suffers from losses, as balances 30% says risk involved because of uncertainties.

TABLE 23: How do you rate your risk taking attitude?

 Risk taking attitude Responds

Risk seeker 20

Risk averse 30

Moderate 50

No answer 0

Total 100

Figure: 23

Risk taking attitude

20

50

30

Risk seeker Risk averse Moderate No answer

Interpretation: Majority of the people in this world would think twice before investing their savings.
Every individual wants to increase his savings and have a lavish lifestyle. As the chart show there are
very few guys who take big time risks related to their savings and investments. Most of them are risk
averse and about 50% of them come into the moderate category. The moderate ones do a detailed
investigation before investing and trading their savings.
 TABLE 24: What would you use commodities for?

Use of commodities Responds

Trading 40
Responsible return 20
Investing 40
Total 100

Figure: 24

Use of commodities

40 40

20

Trading Responsible return Investing

Interpretation: Trading is a direct exchange of goods and services. Trading can also refer to the action
performed by traders and other market agents in the financial markets. Commodities are most often
used in trading and in investment of products.

Investing is the active redirection of resources: from being consumed today, to creating benefits in the
future; the use of assets to earn income or profits. The use of commodities in trading and investment
can result in huge profits in the long term.

TABLE 25 :Percentage of your income you invest?

 Percentage of income RESPONDS
None 0
Under 5% 50
5% to 10% 28
10%15 10
Above 15% 12
Total 100

Figure:25

income you invest

12
10

50

28

None Under 5% 5% to 10% 10%15 Above 15%

Interpretation: From the sample who took the questionnaire, a large chunk of individuals tends to
invest less than 10%of their income which is understandable in a growing country like India where
so many people are below the poverty line and struggle to make ends meet. The chart highlights the
fact that only 12% of the people invest 50 of their income in various commodities or policies. May
be if more of the investors or higher income group were in the sample, the charts would give a
different picture.
 CHAPTER 5
SUMMARY OF FINDINGS, CONCLUSION AND
SUGGESTIONS
 Findings

• More than 50% of the Traders in are aware about the commodity future
Market

• Hardly 30% traders are invested in the commodity future market

• Most of the investors are not ready to invest in commodity future market they feel it involve high
risk.

• Returns and the Risk of the commodity are the most critical factors, which consider while
investing in any commodity

• Most of the investors are ready to invest in commodity future market if proper information is
provided

• As commodity future market is new and emerging, many investors and farmers are not fully
aware of this market .as the market helps to trade transparently without middlemen and agents

• While finding the reasons why most of the people are not trading in commodity market I found
that many respondents are not interested at all in this trade this is because of unawareness &
mythical perception about commodity market.

• Most of the respondents are were from government service & business men
 CONCLUSION
Commodity futures markets are new and emerging market. The awareness of the market is very less
among the investors who can use this trade to sell their products without the middlemen or agents it
also helps the actual buyers too. Here trader also can transfer his risk to some other who can handle it
or can appetite the risk through hedging techniques
Compared to capital market commodity market is less risky in volatility
context here the prices do not change within a fraction of second. significantly, minimum margin
ready physical possession, no manipulation & fraud, maximum profitability is available over here
since the commodity market helps all such as farmers, industries and individual’s investors it is
growing at a faster rate in global outlook.
 Suggestion

• There is need to create awareness about commodity Future Market. Awareness program has to be
conducted by Karvy consultants, because since this was new to the market .so it can be done
through by giving advertisements in local channels, Newspapers, by sending E-mail to present
customers etc

• From survey it is found that most of the potential customers are concerned about the Brokerage
charges so Karvy can look upon this. If it can charge moderate brokerage it will help to attract
more and more customers.

• More agents and marketing executives should be appointed to educate the customers because the
customers having many myths in their mind

• And also create the awareness of electronic commodity trading

• Firm should approach people who are already into the business of commodities. special
campaigns / investors meets should be conducted for these people since they are aware of rate
fluctuation, market trends etc . They have got market idea that benefits them in price prediction.
They will be in high spirits when price risk of them will be managed.

BIBLOGRAPHY
News Papers;

 Business Line
 Economic times
 Times of India

Web site
 www.moneycontrol.com
 www.google.com
 www.MCX.com
 www.NCDEX.com

Text books

Futures & Options second addition by Vohra & Bagri