Get Perfect Overview and Information about Commodity

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Commodity Markets defined • Commodity: Any tangible item that can be bought and sold.

• SPOT MARKET-Mandis

• FUTURES MARKET-Exchanges



Inflation adjusted returns in the developed markets •

Returns greater than bonds and almost equivalent to stocks

•

Risk is lower than investing in stocks U.S.

U.S.

U.K.


Major International Exchanges Goldman Sachs Commodity Index Fertilizer.Dairy,etc Agricultural: corn, soybean, oats, wheat etc Metals :gold,silver

COMMEX

Gold,Silver

Precious Metals and Energy

Base Metals,Plastics




Indian Scenario • More than 100 years old market • Regional exchanges - Bombay Cottons Exchange - India Pepper and Spice Trade Association - National Board of Trade etc. • Year 2003 - Landmark year - Organized Trading at National Level


Premier Exchanges

• Organized National level exchanges • Professionally managed • Demutualised setup


T h e C o m m o d it ie s P r e c io u s M e ta ls

B a s e M e ta ls

A g r ic u ltu r e

E n e rg y

O ils a n d O il S e e d s

S o fts

G o ld S ilv e r

S te e l C opper N ic k e l T in

C e r e a ls P u ls e s S p ic e s e tc

C r u d e O il

S o y a O il C a s to r S e e d s M u s ta r d O il

C o tto n Sugar

ďƒ˜ More than 70 commodities listed in a short span of 2 years ďƒ˜ Record Volume seen in many commodities


NCDEX

Promoters

Expiry

Actively traded commodities

MCX

Financial Technologies ICICI Bank,LIC, (India) Ltd., SBI, HDFC NABARD,NSE,PNB,CRISIL, Bank, Union Bank of India, B O I, BOB, Canara Bank, Canara Bank,IFFCO Corp. Bank and more. 20th of contract month for most of the commodities or as specified

15th or 5th of the contract month,as specified for the particular commodity

Agro- commodities,Mild Steel ingots

Gold,Silver,Crude Oil


Average volumes of commodities traded Commodity

Exchange

Avg.volume per day

Gold

MCX

5,42,800 kgs

Silver

MCX

10,55,730 kgs

Crude

MCX

5,03,700 bbl

Refined Soya Oil

NCDEX

21,000 MT

Soybean, Guar seed

NCDEX

12,000 MT

Mild Steel Ingots

NCDEX

6,100 MT

Spices(jeera,turmeric,chilly,pepper)

NCDEX

1,800 MT

Chana,Urad,Wheat

NCDEX

30,000 MT

Sugar M

NCDEX

10,500 MT

Guar gum

NCDEX

1,37,000 MT

Medium staple cotton

NCDEX

1,500 bales


R e g u la t io n M in is t r y O f C o n s u m e r A f f a ir s F o r w a r d s M a r k e t C o m m is io n E x c h a n g e s B ro k e rs /T ra d e rs


The Potential-AGRO ECONOMY •

Constitutes 22% of GDP

Provides food to 1Billion people

Sustains 65% of the population : helps alleviate poverty

Produces 51 major Crops

Provides Raw Material to Industries

Contributes to 1/6th of the export earnings.


Participants Participants

Hedgers Hedgers

Producer Producer

User User

Importer Importer

Exporter Exporter

Arbitragers Arbitragers

Investors Investors

Gain from price Gain from price differentials differentials

Individuals Individuals Actively ActivelyManaged ManagedFunds Funds


The Commodity Hedger • Risks faced by Commodity Users and Producers • Price Volatility • Types of Hedges • Corporates currently benefitting from the market


Risks faced by Commodity Users and Producers Commodity enterprises faces two types of Risks • PRICE RISK • QUANTITY RISK(eg from weather) HEDGING REDUCES PRICE RISK


Price Volatility - Prices of commodities volatile due to

850 830

Price / Qtl

- Demand Supply mismatch

Wheat

870

810

12% Rise

13% Fall

790 770 750

- Erratic Monsoon

6/ 7/ 20 04 9/ 7/ 2 07 00 4 /1 3/ 2 07 004 /1 6/ 2 07 004 /2 0/ 2 07 004 /2 3/ 2 07 004 /2 7/ 2 07 004 /3 0/ 20 04 3/ 8/ 20 04 6/ 8/ 20 10 0 4 /8 /2 08 004 /1 3/ 2 08 004 /1 7/ 2 08 004 /2 0/ 2 08 004 /2 4/ 2 08 004 /2 7/ 20 08 04 /3 1/ 20 04 3/ 9/ 20 04 7/ 9/ 20 10 0 4 /9 /2 09 004 /1 4/ 2 09 004 /1 7/ 20 04

730

Date

Sugar M-30 (NCDEX)

- Import – Export restrictions

2000 1950 1900

- Spoilage during storage

Price / Qtl

1850 1800

23.66 % Rise

1750 1700 1650 1600

- Substitute demand etc.

1550 11/01/2004

11/16/2004

11/30/2004

12/14/2004 Date

12/30/2004

01/13/2005

01/28/2005


Types of Hedges Long hedge Hedge against increase in cotton prices(e.g. Textile companies)

Short hedge Hedge against decrease in prices(e.g.Steel ,Rubber,Oil producers)


Commodity – Tool of Hedging Wheat Physical Stock 200 Tons @ 750/qtl

200 tons sold in Futures @ 800/qtl

Price down to 680/qtl

Settlement at 680qtl

Loss of Rs. 70/qtl

Profit of Rs. 120qtl

Profit of Rs 50 qtl


Corporates currently benefitting from the market



Portfolio Diversification Correlation Coefficient in the Indian Markets

• Diversification reduces risk • Downside risk is limited -Residual Value

GOLD SILVER

STOCKS BONDS

GOLD

SILVER

STOCKS

BONDS

1

0.89

0.206

0.741

1

-0.099

0.146

1

0.112 1


Types of Arbitrage • Calendar Spread Arbitrage • Inter exchange Spread Arbitrage • International Spread Arbitrage • Spot Future Arbitrage


Calendar Spread Arbitrage • Exploiting the convergence of price between two contract. • Example Chana 20 Dec05

1900

1901

Chana 20 Jan05 1954 1955 Spread between the two contract months is 53 On expiry Chana 20 Dec05

1910

1911

Chana 20 Jan05

1912

1913

Spread between the two contract months is 2


International Spread Arbitrage • Prices in India are derived from International prices. • Exploiting the mismatch in parity

NYMEX Crude

60.35

INR

46.23

Fair Value (Rs.)

2790

MCX Crude (Rs.)

2820

Difference

30


Spot – Future arbitrage • Steps in Arbitrage Process •1)

Spot Purchase and spontaneous future sale

•2)

Goods warehoused within 4 to 5 days and payment to

Supplier towards spot purchase

•3)

Goods certified in next 5 days

•4)

Goods dematerlization in next 2 days

•5)

Delivery on the expiry of Future Contract

•6)

Release of Client fund along with his profit.


Obligation of Client No taxation obligation (Sales Tax etc.) is being done on part of client. We have our sales tax registration at every state in name of Navratan Comdex Pvt Ltd. So whatever are the taxation formalities, we will complete on behalf of client. Risk Parameter No risk is involved in spot future arbitrage since profit in the arbitrage sauda is locked at its initiation itself. There might be a slight diversion of Annualized Approximate Return due to uncontrolled upward move of commodity prices since we have to call MTM Loss Money for the time prices come down again. But the absolute amount of profit will not be changed anyhow.


Formalities If a client wants to do arbitrage, client has to open a Trading Account and a Demat Account with us. Trading Account is required to initiate futures sauda and Demat Account is necessary to get demat goods in client account. Except this no other obligation is due on client part.

Investment Client has to pay his purchase cost of goods along with all expenses (warehousing charges, spot commission, our commission, we will incur on his behalf. The client will pay further, specified margin for the future sale sauda.


Milestones achieved • NCDEX unveils India's first agriculture index. • NCDEX peak daily turnover of 4271cr. • MCX clocks record volume in Crude Oil contracts. Peak Daily Volume of 9,26,500 Barrels • MCX registered 602kgs of physical deliveries of GOLD february contract


Sample Contract Specification Specifications

GOLD

SUGAR

Trading unit

1 kg

10MT

Quotation/Base Value Market Price

Rs/10gms

Rs/100kg

Rs 7760

Rs 1800

Lot Value

Rs 776000

Rs 180000

Total Margin *

5%

10%

Delivery unit

1 kg

10 MT

* Margin is changed from time to time depending upon volatility ,time to expiry etc.


Client Registration Form (CRF) • Individual / HUF

• Non –Individual --Company/ Firms/ Trust

Documents Required • Photo with signature across. • Name , Address, Tel. No. • Birth Date & Occupation. • Bank A/c details • IT PAN No. or 49A / Form 60 • Introducer’s Name & Signature • Signature of Client • Manager (Person in charge) Signature

Documents Required • Certified true copy of Board Resolution • Certified true copy of Audited Final A/cs for the latest year. • Copy of IT Return, if possible • Certified true copy of MOA/ AOA / Partnership Deed / Trust Deed • Details of 2 key persons * Photo with signature across * Name, Address, Tel. No. * Birth Date & Designation * Copy of any one of the specified documents * Signature of key person.


The Edge • Early movers in the commodities business • Integrated wealth management solutions across global financial markets • Propriety Global economic and investment strategy research • Sophisticated asset allocation and risk modeling processes • Seasoned team of professionals • Local strength –Underpinned by network of national offices • Multiple dealing terminals for better Client servicing



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