FINANCIAL PERFORMANCE OF RASTRIYA

BANIJYA BANK

Project report submitted to ACHARYA BANGALORE B-SCHOOL in partial

fulfillment of the requirements for the award of the degree

Bachelor of Business Management

Submitted By,
SHRISTY BHANDARI
Register No: 12YUC24059

Under the guidance of

Dr.Kavitha
Professor
ACHARYA BANGALORE B -SCHOOL

ACHARYA BANGALORE B-SCHOOL (Affiliated to

Bangalore University)

Andrahalli Main Road, Off Magadi Road, Bangalore560091

DECLARATION

I, SHRISTI BHANARI, hereby declare that this research project

entitled Financial performance of Rastriya Banijya Bank submitted to
Acharya Bangalore B-school in partial fulfillment of the requirements
for the award of BBM, is a record of independent research work carried
out by me under the supervision and guidance of Dr Kavitha, Professor,
ABBS. This work has not formed the basis for the award of any Degree
and has not been submitted previously to any other College/University.

Bangalore
January, 2015

Dr. Kavitha
Professor
ABBS

From:
SHRISTI BHANDARI

ACKNOWLEDGEMENT
Firstly I would like to express our immense gratitude towards our
institution ACHARYA BANGLORE B-SCHOOL, which created a great
platform to attain profound technical skills in the field of BBM, thereby
fulfilling our most cherished goal. I would thank all the Finance
department of RASTRIYA BANIJYA BANK and the employees in the
finance department for guiding me and helping me in successful
completion of the project.
I am very much thankful to the professor Dr. KAVITHA (Internal guide)
for extending her corporation in doing this project
I convey my thanks to beloved parents and my faculty who helped me
directly or indirectly in bringing this project successfully

Table

Title of the table

No.
4.1

Shares and holdings of IIFL

4.2

Value of Gold Traded in MCX from 2003 to 2013

4.3

Calculation of Standard Deviation of the value of gold

traded in MCX from 2003 to 2013

4.4

Volume of Gold traded in MCX from 2003 to 2013

4.5

Calculation of Standard Deviation of the Volume of gold

Traded in MCX from 2003 to 2013

4.6

Value and volume proportion of gold traded in MCX from

2003 to 2013

4.7

Calculation of coefficient of correlation between value and

volume of gold traded in MCX exchange from 2003 to 2013.

4.8

Summary statistics of daily gold futures contracts

4.9

Correlation and integration test

Page No.

Graph

Title of the graphs

No.
4.1

Value of gold traded in MCX from 2003 to 2013

4.2

Volume of Gold traded in MCX from 2003 to 2013

4.3

Coefficient of correlation between value and volume of gold

traded in MCX from 2003 to 2013

4.4

India The largest importer of Gold in 2002

4.5

Historical Gold prices since 1950-2001 in U.S.($) currency

4.6

Gold Reserves of Top 10 Countries

Contents

Page No.

Chapter I

Introduction
o
o
o

Introduction
History of futures exchanges
Gold
Importance of Gold
Gold as an Independent Asset
What makes Gold Special
Pons and cons of gold
Is it good for investment

Chapter III

Research Methodology

2.1
2.2
2.3
2.4

Objectives of the Problem

Statement of Problem
Scope of the Study
Methodology of the study
2.4.1 Sources of data collection
2.4.2 Methods of Data Collection
2.4.3 Data Analysis and Interpretations

2.5
2.5

Plans of Analysis used

Limitations

Chapter II

Company Profile

3.1
Background and inception of IIFL
3.2
Nature of the business
3.3
Products and services
3.4
Vision Statement
3.5
Mission Statement
3.6
Ownership pattern
3.7
Work flow model
Chapter IV
Data Analysis
4.1 Data Analysis and Interpretations
Chapter V

5.1
5.2
5.3
5.4
5.5
5.6
5.7

7 31

Summary of Findings
5.1 Major Findings
Fifteen Fundamental Reasons for bullish run of Gold
Conclusions and refrences
Balance sheet
Profit and loss account
Caital structure
Bibliography

32 37

38 58

59 78

79 96

Chapter I
Introduction

1.1 Introduction
A futures exchange or futures market is a central financial exchange
where people can trade standardized futures contracts; that is, a contract
to buy specific quantities of a commodity or financial instrument at a
specified price with delivery set at a specified time in the future. These
types of contracts fall into the category of derivatives. Such instruments
are priced according to the movement of the underlying asset (stock,
physical commodity, index, etc.). The aforementioned category is named
"derivatives" because the value of these instruments is derived from
another asset class.
Futures markets "provide partial income risk insurance to producers
whose output is risky, but very effective insurance to commodity
stockholders at remarkably low cost. Speculators absorb some of the risk
but hedging appears to drive most commodity markets. The equilibrium
futures price can be either below or above the (rationally) expected
future price. The various effects futures markets can have on market and
income stability are discussed. Rollover hedges can extend insurance
from short-horizon contracts over longer periods."

1.2 History of futures exchanges

One of the earliest written records of futures trading is in Aristotle's
Politics. He tells the story of Thales, a poor philosopher from Miletus
who developed a "financial device, which involves a principle of
universal application". Thales used his skill in forecasting and predicted
that the olive harvest would be exceptionally good the next autumn.
Confident in his prediction, he made agreements with local olive-press
owners to deposit his money with them to guarantee him exclusive use
of their olive presses when the harvest was ready. Thales successfully
negotiated low prices because the harvest was in the future and no one
knew whether the harvest would be plentiful or pathetic and because the
olive-press owners were willing to hedge against the possibility of a
poor yield. When the harvest-time came, and a sharp increase in demand
for the use of the olive presses outstripped supply, he sold his future use
contracts of the olive presses at a rate of his choosing, and made a large
quantity of money. It should be noted, however, that this is a very loose
example of futures trading and, in fact, more closely resembles an option
contract, given that Thales was not obliged to use the olive presses if the
yield was poor.
The first modern organized futures exchange began in 1710 at the
Dogma Rice Exchange in Osaka, Japan.

The United States followed in the early 19th century. Chicago has the
largest future exchange in the world, the Chicago Mercantile Exchange.
Chicago is located at the base of the Great Lakes, close to the farmlands
and cattle country of the Midwest, making it a natural center for
transportation, distribution, and trading of agricultural produce. Gluts
and shortages of these products caused chaotic fluctuations in price, and
this led to the development of a market enabling grain merchants,
processors, and agriculture companies to trade in "to arrive" or "cash
forward" contracts to insulate them from the risk of adverse price change
and enable them to hedge. In March 2008 the Chicago Mercantile
Exchange announced its acquisition of NYMEX Holdings, Inc., the parent
company of the New York Mercantile Exchange and Commodity
Exchange. CME's acquisition of NYMEX was completed in August
2008.
For most exchanges, forward contracts were standard at the time.
However, most forward contracts were not honored by both the buyer
and the seller. For instance, if the buyer of a corn forward contract made
an agreement to buy corn, and at the time of delivery the price of corn
differed dramatically from the original contract price, either the buyer or
the seller would back out. Additionally, the forward contracts market
was very illiquid and an exchange was needed that would bring together
a market to find potential buyers and sellers of a commodity instead of
making people bear the burden of finding a buyer or seller.

In 1848 the Chicago Board of Trade (CBOT) was formed. Trading was
originally in forward contracts; the first contract (on corn) was written
on March 13, 1851. In 1865 standardized futures contracts were
introduced.
The Chicago Produce Exchange was established in 1874, renamed the
Chicago Butter and Egg Board in 1898 and then reorganized into the
Chicago Mercantile Exchange (CME) in 1919. Following the end of the
postwar international gold standard, in 1972 the CME formed a division
called the International Monetary Market (IMM) to offer futures
contracts in foreign currencies: British pound, Canadian dollar, German
mark, Japanese yen, Mexican peso, and Swiss franc.
In 1881 a regional market was founded in Minneapolis, Minnesota, and
in 1883 introduced futures for the first time. Trading continuously since
then, today the Minneapolis Grain Exchange (MGEX) is the only
exchange for hard red spring wheat futures and options.
The 1970s saw the development of the financial futures contracts, which
allowed trading in the future value of interest rates. These (in particular
the 90-day Eurodollar contract introduced in 1981) had an enormous
impact on the development of the interest rate swap market.
Today, the futures markets have far outgrown their agricultural origins.
With the addition of the New York Mercantile Exchange (NYMEX) the
trading and hedging of financial products using futures dwarfs the

traditional commodity markets, and plays a major role in the global

financial system, trading over $1.5 trillion per day in 2005.
The recent history of these exchanges (Aug 2006) finds the Chicago
Mercantile Exchange trading more than 70% of its Futures contracts on
its "Globes" trading platform and this trend is rising daily. It counts for
over $45.5 billion of nominal trade (over 1 million contracts) every
single day in "electronic trading" as opposed to open outcry trading of
futures, options and derivatives.
In June 2001 Intercontinental Exchange (ICE) acquired the International
Petroleum Exchange (IPE), now ICE Futures, which operated Europes
leading open-outcry energy futures exchange. Since 2003 ICE has
partnered with the Chicago Climate Exchange (CCX) to host its
electronic marketplace. In April 2005 the entire ICE portfolio of energy
futures became fully electronic.
In 2006 the New York Stock Exchange teamed up with the AmsterdamBrussels-Lisbon-Paris Exchanges "Euro next" electronic exchange to
form the first transcontinental futures and options exchange. These two
developments as well as the sharp growth of internet futures trading
platforms developed by a number of trading companies clearly points to
a race to total internet trading of futures and options in the coming years.

In terms of trading volume, the National Stock Exchange of India in

Mumbai is the largest stock futures trading exchange in the world,
followed by JSE Limited in Sand ton, Gauteng, South Africa.
1.3 Gold
Gold is a precious metal which is also classed as a commodity and a
monetary asset. It has acted as a multifaceted metal down through the
centuries, possessing similar characteristics to money in that it acts as a
store of wealth, medium of exchange and a unit of value. Gold has also
played an important role as a precious metal with significant portfolio
diversification. Gold is used in industrial components, jewelry, as an
investment asset and reserve asset. Gold is a unique asset in that much of
the gold ever mined still exists today. Approximately 2500 tonnes of
gold is mined per annum. Above-ground stocks account for 135,000
tonnes. Governments and investors account for approximately 60,000
tonnes, jewelry accounts for 63,000 tonnes and 15,000 tonnes is held in
other forms such as electronics, etc. Gold is a highly liquid metal; it can
be readily bought or sold 24 hours a day, in large denominations and at
narrow spreads. This is highlighted by Draper et al. (2006) who note that
total annual production of gold is cleared by the London Bullion Market
Association every 2.5 days.

While gold is an industrial metal, its uses are fewer compared to other
metals, with only approximately 10% of gold demand derived from
industry. Of perhaps more interest is gold's use as an investible metal.
Central banks hold a large proportion of the above-ground stocks of
gold. Central banks and international financial institutions maintain
32,000 tons of gold in their reserve. Gold is held in central banks
reserves for a number of reasons: diversification, economic security
gold maintains its purchasing power, physical securitygold is a liquid
asset, confidencecushion in a crisis, maintains value, incomegold
leasing, insuranceagainst market crises. Much research also points to
the benefits of inclusion of gold holdings as leading to a more balanced
portfolio.
Gold futures are hedging tools for commercial producers and users of
gold. They also provide global gold price discovery and opportunities
for portfolio diversification.
In addition, they:
Offer ongoing trading opportunities, since gold prices respond
quickly to political and economic events
Serve as an alternative to investing in gold bullion, coins, and
mining stocks

Financial performance of gold in future market rates:-is the title of

my research project which I have undertaken during my project at India
Info line Limited
Of all the precious metals, gold is the most popular as an investment.
Investors generally buy gold as a hedge or harbor against economic,
political, or social fiat currency crises (including investment market
declines, burgeoning national debt, currency failure, inflation, war and
social unrest). The gold market is subject to speculation as are other
markets, especially through the use of futures contracts and derivatives.
Gold price has shown a long term correlation with the price of crude oil.
This suggests a reason why gold is sold off during economic weakness.
It is a technical analysis which implies use of various statistical tools to
see the trend which Gold has made in the future market and how its ups
and downs impacts the economy of a country in comparison to the
various metals such as Aluminum, copper, Lead, Nickel, Platinum,
silver, Steel, Tin, Zinc which are traded in commodity market.
As with stocks, gold investors may base their investment decision partly
on, or solely on, technical analysis. Typically, this involves analyzing
chart patterns, moving averages, market trends and/or the economic
cycle in order to speculate on the future price.

1.3.1 Importance of Gold futures

Gold is a precious metal which is also classed as a commodity and a
monetary asset. It has acted as a multifaceted metal down through the
centuries, possessing similar characteristics to money in that it acts as a
store of wealth, medium of exchange and a unit of value. Gold has also
played an important role as a precious metal with significant portfolio
diversification properties Gold is used in industrial components, jewelry,
as an investment asset and reserve asset. Gold is a unique asset in that
much of the gold ever mined still exists today. Approximately 2500 tons
of gold is mined per annum. Above-ground stocks account for 135,000
tones. Governments and investors account for approximately 60,000
tones, jewelry accounts for 63,000 tones and 15,000 tones is held in
other forms such as electronics, etc. Gold is a highly liquid metal; it can
be readily bought or sold 24 h a day, in large denominations and at
narrow spreads. The total annual production of gold is cleared by the
London Bullion Market Association every 2.5 days.
While gold is an industrial metal, its uses are fewer compared to other
metals, with only approximately 10% of gold demand derived from
industry. Of perhaps more interest is gold's use as an investible metal.
Central banks hold a large proportion of the above-ground stocks.
Central banks and international financial institutions maintain 32,000
tons of gold in their reserve. Gold is held in central banks reserves for a

number of reasons: diversification, economic securitygold maintains

its purchasing power, physical securitygold is a liquid asset,
confidencecushion in a crisis, maintains value, incomegold leasing,
insuranceagainst market crises. Much research also points to the
benefits of inclusion of gold holdings as leading to a more balanced
portfolio.
There are a number of assets, traced from the literature in this area, that
have an influence on the gold market. In the 2004 period as the dollar
weakened, gold reached a 16-year high (compounded also by uncertain
economic conditions, geopolitical tensions and producer de-hedging).
Further dollar depreciation and a growing risk of dollar devaluation are
likely to strengthen investor demand for gold. Gold reflects the relative
strength of the currency in which it is quoted. For example, the dollar
price of gold may increase more in percentage terms than the sterling
price of gold; the price change merely reflects the dollar weakness
against sterling, rather than an intrinsic change in gold market
fundamentals (World Gold Council, 2002). The depreciation in the
dollar may fuel increased interest in gold due to the dilution in the
dollars worth. Gold appears to be the anti-dollar. Financial analysts have
attributed the rise in gold's price in recent months to the US dollar's
decline; gold is reflecting the US dollars value on international markets.
A lower US dollar makes it less expensive for Europeans (and others) to

buy dollar denominated gold. The weak dollar increases gold's attraction
as a stable place to invest money.

1.3.2 Gold as an Independent Asset

Its not difficult to understand why the gold price moves independently
from the economic cycle when one considers the diversity of its demand
and supply base, the ultimate determinants of price movements.
There are three sources of gold supply: mine production, official sector
sales and scrap or recycled gold. Mine production is by far the largest
element, accounting for 70% of total supply last year. Changes in annual
mine supply bear no relation to changes in US or even global GDP
growth. The upward trend in mine production that was underway in the
late 1980s was not arrested by 1990 recession (the US economy suffered
an outright contraction, while world GDP growth slowed to 1.6% from
2.9% the previous year). Nor was the downtrend in mining output that
began in 2001 reversed by the sharp acceleration in world growth.
Mine production is influenced by very specific factors, such as the level
of exploration spending, the success or otherwise in discovering new
gold deposits and the cost of extraction (some new discoveries may not
be economically viable). Lead times in gold mining are often very long.

It can take years to re-open a closed mine, let alone find and mine new
reserves.
The decision to build a mine shaft (and often an entire infrastructure) is a
long term one that will often see business cycles comes and goes.
Central bank decisions to buy or sell gold (they remain net sellers) are
also usually strategic in nature, rather than reactive to the economic
cycle. The decision to buy or sell gold is often made years in advance
and then carried out over a period of years. In Switzerland, for example,
the proposition to sell gold (the first gold sales programmed) was first
recommended by a group of experts in 1997. However, the actual sales
programmed did not commence until May 2000, with the sales then
taking place over a period of five years.
Scrap supply is influenced by many factors, perhaps the most important
being price and price volatility, but recessions and periods of economic
distress have also had an impact. The most dramatic example is when
Korea was pushed into recession during the 1998 Asian currency crisis;
its scrap supply increased by almost 200 tones as the government bought
gold from the local populace in exchange for one-denominated bonds. It
then sold the gold on the international market in order to raise the dollars
necessary to avoid defaulting on its external debt.

Similarly, in Indonesia the 1998 recession saw scrap supply increase by

72 tons in the first quarter of the year, in this instance purely for
independent reasons rather than at the behest of the government.

The pros and cons of investing in gold

Highlights
Gold is often bought as a hedge against the risk of investment
losses.
Gold prices are more volatile than many individual investors
expect.
Day trading by central banks and speculators can affect the price of
gold.
Up, up and up. That appears to be the direction of U.S. gold futures,
which hit a record high of $1,910 per ounce in mid-August on the New
York Commodity Exchange, or COMEX.
The opportunity to buy might tempt investors looking for fatter returns
than they've earned on certificates of deposit, bank accounts, stocks or
bonds. Yet, gold is far from foolproof.
Indeed, gold shouldn't be considered an investment, says Chris Hazy,
chief investment officer at U.S. Trust, the private wealth management
arm of Bank of America in New York. Rather, the precious metal acts as
a hedge, or a way to try to protect wealth against the risk of loss in such
asset classes as real estate, equities and bonds, he says.

Traditionally, investing in gold has been used as a hedge against

inflation. That thinking still holds, though worries over inflation might
be better understood as a fear of the loss of purchasing power or that
"the money we currently have today will decline in value," Hazy says.

24-karat rabbits
The "love" aspect has to do with the rising demand for gold jewelry and
ornaments in China, India and other emerging-market countries where
gold is an important cultural symbol, Holmes says.
"Fifty percent of the world's population believes in gold for love,
romances, birthdays," he says. "This is the Year of the Rabbit, so if
you're in Asia, you can see 24-karat gold rabbits that are given as a gift."
India and China together accounted for more than half of the total
worldwide demand for gold bars, coins and jewelry in the second quarter
of 2011, according to the World Gold Council, an industry market
development organization based in London.
These demand pressures might be expected to attract new supply,
bringing gold prices down to earth. But Holmes says the low-hanging
fruit of gold mining already has been harvested, and environmental
regulations have raised the cost of exploration, extraction and shipping.
"It's much more difficult to get that asset out of the ground," he says..

Should I Buy Gold?

So far this year, gold has lost some of its luster, with its value falling by
over 24%. If there is no rally during the rest of the year, gold will
actually have its worst performance since 1981 certainly ominous
since that was the start of a 20-year bear market.
Yet its important to note that gold has posted a gain for every year from
2000 to 2014. In other words, it is more than reasonable that there
should be some type of major pullback.
But is it a good time to buy now? Or should investors will be cautious?
To see, heres a look at the pros and cons:

Pros on Gold
Safe Haven: When it comes to owning gold, this is the common reason.
It is considered by many to be an alternative to a currency that is, a
store of value, especially during times of distress. This has proved to be
the case during such recent periods like 9/11 and the financial crisis in
2008 (during this time, it was only a small number of assets that
increased in value). Whenever there is a drop in the value, the buzz is
often that gold has suddenly lost its safe haven status. But again, the
precious metal has been a popular store of value for hundreds of
years. Besides, there are no signs that the world has entered a phase of
bliss. Just some of the possible issues include budget battles in DC,
potential bubbles in real estate, foreign policy hotspots like Iran and
North Korea and instability in emerging markets.

Gold Supply. As with many other commodities, it has become harder to

find deposits. And even when there is a new discovery, the costs of
extraction are generally high. As a result, the overall production rates
have been tepid from miners like Barrack Gold (ABX), Newmont

Mining (NEM) and Goldcorp (GG). And with the recent plunge in the
price of gold, it is likely that there will be even less production.

Stock Market: The stock market has been an easy place to make money
lately, but there seems to be a disconnect. After all, corporate revenues
and earnings are still fairly moderate as the economic recovery has been
a let-down. Yet investors have been aggressive with stock buying and
IPOs, which is a traditional sigh of frothiness. If there is a big pullback,
then investors will scramble for alternatives and gold may be an
attractive option.

Cons on Gold
Central Banks: Since 2010, they have been strong buyers of gold. A
key source of demand came from emerging markets, where many
countries were piling up budget surpluses. By purchasing gold, it was a
way to help diversify the bulging currency holdings. However, this year
the demand has flagged as central banks have devoted more firepower to
support domestic currencies. Volatility has been high because of recent
indications from the Federal Reserve that there would be tapering, which
could pull in more capital because higher interest rates. Consider that the
consensus forecast is that gold buying will drop about 34% this year.

Inflation Hedge: This is one of the advantages of holding gold. With the
surge in easy money across the world, many investors believed that
inflation would spiral, which would drive the price of gold. But so far,
there are few indications of inflation. The fact is that the world economy
has remained sluggish, which has meant moderate increases in wages

and consumer spending. In a recent report, the Labor Department said

that prices rose only 1.2% in the year ended September.

Dead Money: Gold may be shiny but there are few commercial
applications for it. Oh and of course, it does not produce any dividends.
If anything, there is an ongoing cost for storage and insurance. This is
why gold is known as a negative-yield investment. Given all this, there
are some well-known investors who shun gold. One is actually famed
billionaire Warren Buffett, who once said: Gold gets dug out of the
ground in Africa, or someplace. Then we melt it down, dig another hole,
bury it again and pay people to stand around guarding it. It has no utility.
Anyone watching from Mars would be scratching their head.

Verdict
The negative sentiment is widespread for gold. As indicated from a
recent article in Bloomberg, hedge funds have been dumping their
holdings.
But again, gold is still likely to be a safe haven. And this is why it can be
a type of insurance policy for a portfolio. For example, legendary
investor Byron Wien who is the Vice Chairman at theBlackstone
Group (BX) recommends about a 5% stake.
Plus, its fairly easy to get exposure to gold, such as with exchangetraded funds like the SPDR

Turning to demand

Conventional wisdom argues that recessions are bad for commodity

prices. The reasoning goes that as consumer and business confidence
falls, demand for goods and services is cut back and hence the materials
used in the production of those goods or in the provision of services
(many of which are commodities) declines, thereby depressing their
price.
The argument is logical. However, a few points are worth bearing in
mind with respect to gold. Demand for gold as an intermediate good is
relatively small in comparison to many other commodities. Last year,
just 14% of gold demand came from the industrial sector (mainly
electronics). This is in stark contrast to base metals and even other
precious metals, where the vast majority of demand comes from
industry. As a result, gold is much less vulnerable to the vagaries of the
economic cycle. That said, demand for gold in electronics is likely to fall
if the economy falls into recession as consumer spending on nonessential electronics goods declines. A US recession would undoubtedly
have negative implications for gold jewelry demand in America, as
consumer spending slows. However, this negative implication could be
at least partially offset by the higher share of gold jewelry in the retail
market that gold jewelry has enjoyed in recent years. Moreover, gold is
much less vulnerable than other jewelry materials, such as diamonds or
platinum, to a US recession as far more demand for gold comes from

outside of the US 70% of diamond jewelry demand comes from the

US market, compared with just 10% for gold.
India is in fact the single largest consumer of gold jewellery in the world
in tonnage terms. Last year, Indian households bought 558 tons of gold
jewelry, more than double their US counterparts (Chart 7). Chinese
consumers rank second, having bought 331 tones. US consumers are
third in tonnage terms; although US demand remains highest in retail
value terms due to its higher trade margins. The extent to which
worldwide gold jewelry demand suffers from a US recession will
depend partly on the spill-over effects to other countries. If proponents
of decoupling prove to be correct (they argue that emerging market
economies are now strong enough domestically to withstand a US
slowdown) then worldwide jewelry demand need not fare badly.
The final source of demand comes from investors. Investors buy gold for
many reasons. Chief among these are golds inflation and dollar-hedging
properties, both of which have been proven over long periods of time.
How a recession affects investment demand would depend, in part, on
how inflation and the dollar react.
The brewing recession has so far been positive for gold on both fronts.
The dollar has continued its downward trajectory, while inflation has
(unusually) headed higher. US consumer prices increased at an annual
rate of 4.0% in February this year, up from 2.4% just a year earlier. If

these trends continue, investment demand for gold as an inflation and

dollar hedge is likely to remain strong. And if the recession deepens
concerns over the health of the US banking sector, demand for gold as a
safe haven asset is also likely to remain robust.
In summary, statistical analysis suggests there is no relationship between
changes in US GDP growth and changes in the gold price. This reflects
golds unique and diverse demand and supply base, which as for any
freely-traded good ultimately determine the price. Consequently, a US
recession does not have negative implications for the gold price. The
only element of demand likely to be affected by a recession is
investment demand, but that in turn will depend on the type of
recession. So far, the brewing recession has been positive for gold, as it
has been accompanied by a rise in inflation and a falling dollar, which
has boosted demand for gold as a dollar and inflation hedge.
Gold Belts:
1. The famous Witwatersrand (South Africa)
2. The Tina Shan Gold Belt (The Tina Shan range on the border
between China and Kyrgyzstan)
3. Grasberg Mine (Indonesia)
Largest Gold Producing Country in the World

South Africa
Australia
United States
Indonesia

Important world market:

London is the biggest and the oldest gold market in the world.
Mumbai is Indias liberalized gold regime.
New York is the home of gold future trading.
Istanbul, Dubai, Singapore and Hong Kong are doorways to
important consuming regions.

1.3.3 What makes Gold Special?

Timeless and Very Timely Investment:
For thousands of years, gold has been prized for its rarity, its beauty, and
above all, for its unique characteristics as a store of value. Nations may
rise and fall, currencies come and go, but gold endures. In todays
uncertain climate, many investors turn to gold because it is an important
and secure asset that can be tapped at any time, under virtually any
circumstances. But there is another side to gold that is equally important,
and that is its day-to-day performance as a stabilizing influence for
investment portfolios. These advantages are currently attracting
considerable attention from financial professionals and sophisticated
investors worldwide.

 Gold is an effective diversifier:

Diversification helps protect your portfolio against fluctuations in the
value of any one-asset class. Gold is an ideal diversifier, because the
economic forces that determine the price of gold are different from, and
in many cases opposed to, the forces that influence most financial assets.
Gold is the ideal gift:
In many cultures, gold serves as a family treasure or a wealth transfer
vehicle that is passed on from generation to generation. Gold bullion
coins make excellent gifts for birthdays, graduations, weddings, holidays
and other occasions. They are appreciated as much for their intrinsic
value as for their mystical appeal and beauty. And because gold is
available in a wide range of sizes and denominations, you dont need to
be wealthy to give the gift of gold.
Gold is highly liquid:
Gold can be readily bought or sold 24 hours a day, in large
denominations and at narrow spreads. This cannot be said of most other
investments, including stocks of the worlds largest corporations. Gold is
also more liquid than many alternative assets such as venture capital,
real estate, and timberland. Gold proved to be the most effective means
of raising cash during the 1987 stock market crash, and again during the
1997/98 Asian debt crisis. So holding a portion of your portfolio in gold

can be invaluable in moments when cash is essential, whether for margin

calls or other needs.
Gold responds when you need it most:
Recent independent studies have revealed that traditional diversifiers
often fall during times of market stress or instability. On these occasions,
most asset classes (including traditional diversifiers such as bonds and
alternative assets) all move together in the same direction. There is no
cushioning effect of a diversified portfolio leaving investors
disappointed. However, a small allocation of gold has been proven to
significantly improve the consistency of portfolio performance, during
both stable and unstable financial periods. Greater consistency of
performance leads to a desirable outcome an investor whose
expectations are met.
What makes Gold different from other commodities?
The flow demand of commodities is driven primarily by exogenous
variables that are subject to the business cycle, such as GDP or
absorption. Consequently, one would expect that a sudden unanticipated
increase in the demand for a given commodity that is not met by an
immediate increase in supply should, all else being equal, drive the price
of the commodity upwards. However, it is our contention that, in the
case of gold, buffer stocks can be supplied with perfect elasticity. If this

argument holds true, no such upward price pressure will be observed in

the gold market in the presence of a positive demand shock.
The existence of a sophisticated liquid market in gold has, over the past
15 years, provided a mechanism for gold held by central banks and other
major institutions to come back to the market. Although the demand for
gold as an industrial input or as a final product (jewelry) differs across
regions, it is argued that the core driver of the real price of gold is stock
equilibrium rather than flow equilibrium. This is not to say that
exogenous shifts in flow demand will have no influence at all on the
price of gold, but rather that the large supply of inventory is likely to
dampen any resultant spikes in price. The extent of this to dampening
effect depends on the gestation lag within which liquid inventories can
be converted in industrial inputs. In the gold industry such time lags are
typically very short.
Gold has three crucial attributes that, combined, set it apart from other
commodities: firstly, assayed gold is homogeneous; secondly, gold is
indestructible and fungible; and thirdly, the inventory of aboveground
stocks is astronomically large relative to changes in flow demand. One
consequence of these attributes is a dramatic reduction in gestation lags,
given low search costs and the well-developed leasing market. One
would expect that the time required convert bullion into producer
inventory is short, relative to other commodities which may be less

liquid and less homogenous than gold and may require longer time
scales to extract and be converted into usable producer inventory,
making them more vulnerable to cyclical price volatility. Of course,
because of the variability of demand, the price responsiveness of each
commodity will depend in part on precautionary inventory holding.

CHAPTER-2
RESEARCH METHODOLOGY

3.1 Objectives of the Problem

To study the trend of gold in futures market
To study the futures prices of both standard and mini contracts lead
spot price.
To study the VaR of gold futures.
3.2 Statement of Problem
To understand how gold acts as a hedge during financial crisis to
an economy

 To examines the price discovery process of the gold futures

contracts in the Multi Commodity Exchange of India (MCX) over
the period 2004 to 2014.
3.3

Scope of the Study

The study will give an overview of the metals traded in futures

commodity market with special reference to Gold, its trend in coming
year, the way it will raise to the soar or fall down to the pitch , looking
back at the trend and doing a technical analysis of the same. Derivatives,
such as gold forwards, futures and options, currently trade on various
exchanges around the world and over-the-counter (OTC) directly in the
private market. In the U.S., gold futures are primarily traded on the New
York Commodities Exchange (COMEX) and Euro next. Life. In India,
gold futures are traded on the National Commodity and Derivatives
Exchange (NCDEX) and Multi Commodity Exchange (MCX).As of
2009 holders of COMEX gold futures have experienced problems taking
delivery of their metal. Along with chronic delivery delays, some
investors have received delivery of bars not matching their contract in
serial number and weight. The delays cannot be easily explained by slow
warehouse movements, as the daily reports of these movements show
little activity. Because of these problems, there are concerns that
COMEX may not have the gold inventory to back its existing warehouse
receipts

3.4 Methodology of the study

The following are methodology of the study
3.4.1 Sources of data collection
Secondary data-Information collected from different websites likes Gold
World, MCX etc. From various text books, journals, magazines, news
papers and booklets from company.
.3.4.2 Methods of Data Collection
Secondary data were obtained as excerpts from the above mentioned
sources of secondary data.
3.4.3 Data Analysis and Interpretations
After the analysis inference were drawn and explained theoretically with
the help of Graphs and Tables
3.5 Plans of Analysis used
The market risk of a portfolio refers to the possibility of financial loss
due to the joint movement of systematic economic variables such as
interest and exchange rates. Quantifying market risk is important to
regulators in assessing solvency and to risk managers in allocating
scarce capital. Moreover, market risk is often the central risk faced by
financial institutions. The standard method for measuring market risk

places a conservative, one-sided confidence interval on portfolio losses

for short forecast horizons. This bound on losses is often called capitalat-risk or value-at-risk (VAR), for obvious reasons.
Calculating the VAR or any similar risk metric requires a probability
distribution of changes in portfolio value. In most risk management
models, this distribution is derived by placing assumptions on
(1)
(2)

How the portfolio function is approximated, and

How the state variables are modeled.

Using this framework, we first review four methods for measuring

market risk. We then develop and illustrate two new market risk
measurement models that use a second-order approximation to the
portfolio function and a multivariate GARCH model for the state
variables. We show that when changes in the state variables are modeled
as conditional or unconditional multivariate normal, first-order
approximations to the portfolio function yield a uni-variate normal for
the change in portfolio value while second-order approximations yield a
quadratic normal. Using equity return data and a hypothetical portfolio
of options, we then evaluate the performance of all six models by
examining how accurately each calculates the VAR on an out-of-sample
basis. We find that our most general model is superior to all others in
predicting the VAR. In additional empirical tests focusing on the error
contribution of each of the two model components, we find that the
superior performance of our most general model is largely attributable to

the use of the second-order approximation, and that the first-order

approximations favored by practitioners perform quite poorly. Empirical
evidence on the modeling of the state variables is mixed but supports
usage of a model which reflects non-linarite in state variable return
distributions.
Mathematical Expression for the calculation of VAR (Value at Risk)
Value at Risk (VAR) = [SD* n * (Normalized value)]
1. Graphical Representation of Analysis:
2. Correlation coefficient: It measures the intensity or the magnitude of
linear relationship

between two variables.

3.6 Limitations

LIMITATION OF THE STUDY:

Commodity market is very difficult to predict. Commodity prices
depend upon region, monsoon, transportation cost, demand-supply
theory, import/ export policies & Global market trends.So
commodity market experience volatility that cannot be predicted
easily.

 Without knowing the spot market for commodities it is very

difficult to play with Future market. In capital market it depends
upon Companies performance, decisions, long run plans, mergers,
etc. there are definite regions to move up & down in the market,
but in the case of Commodity market there are so many regions for
the market movement, it is like a game of luck to the investor

CHAPTER-III

COMPANY PROFILE

2.1 Background and inception of IIFL:

India Info line Limited (IIFL), incorporated in 18th October of the year
1995 as Probity Research & Services Private Limited at Mumbai. The
India Info line is a one-stop shop for information, advice as well as
transaction execution of financial services. IIFL along with its
subsidiaries caters to entire gamut of financial services including
equities and commodities broking, portfolio management, distribution of
mutual funds, life insurance products, home loans, personal loans, etc.
Broking services are offered under the 5paisa brand (offers broking

services in the cash and derivatives segments of the NSE as well as the
Cash segment of the BSE).
The company has proven research capabilities and was rated by the
Forbes as the best of web and must read for investors'. A network of
758 business locations spread over 346 cities across India, facilitates the
smooth acquisition and servicing of a large customer base. India Info
line's research is available not just over the internet but also on
international wire services like Bloomberg (Code: IIFL: IN), Thomson
First Call and Internet Securities where it is amongst the most read
Indian brokers. The Company identified the potential of the internet to
cater to a mass retail segment and transformed its business model from
providing information services to institutional customers to retail
customers. Hence IIFL launched its internet portal, www.indiaInfo
line.com in May of the year 1999 and started providing news and market
information, independent research, interviews with business leaders and
other specialized features.
IIFL was converted into a Public Limited Company in 28th April of the
year 2000 and the name of the company was changed from Probity
Research & Services Limited to India Info line.com Limited in 23rd
May of the year 2000. During 23rd March of the year 2001, again the
name was changed as India Info line Limited. IIFL acquired 100%
shares of Agri Marketing Services Limited during March of the year

2000. In the year 2000, IIFL leveraged its position as a provider of

financial information and analysis by diversifying into transactional
services, primarily for online trading in shares and securities and online
as well as offline distribution of personal financial products, like mutual
funds and RBI Bonds. These activities are carried on through the wholly
owned subsidiaries. The broking service was launched under the brand
name of 5paisa through our subsidiary, India Info line Securities Private
Limited and www.5paisa.com, the e-broking portal, was launched for
online trading in June of the year 2000. It combined competitive
brokerage rates and research, supported by internet technology.
Besides investment advice from an experienced team of research
analysts, also offer real time stock quotes, market news and price charts
with multiple tools for technical analysis. In December of the year 2000,
India Info line Insurance Services Limited (subsidiary) became a
corporate agent for ICICI Prudential Life Insurance Company Limited.
In the year 2004, the company launched commodities broking through
its subsidiary India Info line Commodities Private Limited. Also
received a license for Portfolio Management Services from SEBI for
broking subsidiary. During the year 2006, the company received the
requisite prior approval from The Securities and Exchange Board of
India for its proposed merger of India Info line Securities Private
Limited (IISPL), a wholly owned subsidiary with itself.

In January of the year 2007, the company entered into an alliance with
Bank of Baroda for providing Brokerage Platform, besides research and
analysis services to the bank's customers. India Info line was awarded
the Best Broker in India' by Finance Asia. This was a result of Finance
Asia's annual look at the best financial services firms in each country
around Asia for the period from June 2007 to May 2008. During March
of the year 2008, India Info line's institutional broking arm IIFL,
partnered with Auerbach Grayson Company Inc, a New York based
brokerage firm to offer US investors premium access to investing in
India's capital markets. Auerbach Grayson specializes in providing
global trade execution and exclusive research to U.S. institutional
investors. As of July 2008, the company received the in principle
approval for the insurance broking licence from IRDA

COMPANY SNAPSHOT
Date of establishment

Revenue
Market Cap

18-10-1995
14.7685(USD IN MILLIONS)
52201.34778855(Rs in millions)

Corporate Address

I I F L House, Sun InfoTech Park, Road No. 16, Plot No. B - 23,

C, Thane Industrial Area,Wagle EstateThane-400604, Maharas

www.indiaInfo line.com

Management Details

Chairperson - Nirmal Jain

MD - R Venkataraman
Directors - A K Purwar, AK Purwar, Chandran Ratnaswami,
Chandran Ratnaswamy, Falguni Sanghvi, Kranti Sinha, Nilesh

Vikamsey, Nirmal Jain, R Venkataraman, S Narayan, Sat Pal K

Sunil Kaul, Sunil Lotke, V K Chopra, VK Chopra

Business operation
background

India Info line (IIL) is engaged in business of equities broking, w

advisory services and portfolio management services. The com

was incorporated in October 1995 as Probity Research & Servi

and later in April 2000 the name was changed to India Info line.

Then in March 2001 the company again changed its name to In

Info line.

Financials

Total Income - Rs. 886.673873 Million ( year ending Mar 2014

Net Profit - Rs. 977.679647 Million ( year ending Mar 2014)

Bankers

Andhra Bank, Bank of Maharashtra, Canara Bank , Central Ban

India, Corporation Bank, Credit Suisse, Dena Bank, Federal Ba

HSBC Bank, Indian Overseas Bank, Indusind Bank, ING Vysya

Jammu & Kashmir Bank, Karur Vysya Bank, Mashreq Bank, Or

Bank of Commerce, Punjab & Sind Bank, Ratnakar Bank, Sara

Co-Op Bank, Small Industries Development Bank of India, Sou

Indian Bank, Standard Chartered Bank, State Bank of Mauritius

Syndicate Bank, UCO Bank, Union Bank of India, Vijaya Bank

POWER HEADS
Sl.no
1
2

Name
Nirmal Jain
R Venkataraman

Designation
Chairman
Managing
Director

3
4
5
6
7

Sunil Lotke

Company
Secretary
Sunil kaul
Non executive
director
Chandran Ratnaswami Non executive
director
AK Purwar
Independent
director
S Naryan
Independent
director

2.2 Nature of the business:

The IIFL (India Info line) group, comprising the holding company, India
Info line Ltd (NSE: INDIAINFO, BSE: 532636) and its subsidiaries, is
one of Indias premier providers of financial services. IIFL offers advice

and execution platform for the entire range of financial services covering
products ranging from equities and derivatives, commodities, wealth
management, asset management, insurance, fixed deposits, loans,
investment banking, gold bonds and other small savings instruments.
IIFL has a presence in:
Equities, IIFLs core offering gives them a leading market share in both
retails and institutional segments. Over a million retail customers rely on
IIFLs research, as do leading FIIs and MFs that invest billions.
Private Wealth Management services cater to over 2500 families who
have trusted IIFL with close to Rs 25,000 crores ($ 5bn) of assets for
advice.
Investment Banking services are for corporates looking to raise capital.
IIFLs forte is Equity Capital Markets, where it has executed several
marquee transactions.
Credit & Finance focuses on secured mortgages and consumer loans.
IIFLs high quality loan book of over Rs. 6,200 crores ($ 1.2bn) is
backed by strong capital adequacy of approximately 20%.
IIFL Mutual Fund made an impressive beginning in FY12, with lowest
charge Nifty ETF. Other products include Fixed Maturity Plans.

Life Insurance, Pension and other Financial Products, on open

architecture complete IIFLs product suite to help customers build a
balanced portfolio.

2.3 Products and services:

Equities: India Info line leveraged technology to bring the

convenience of trading to the investors location of preference
(residence or office) through computerized access. India Info line
made it possible for clients to view transaction costs and ledger
updates in real time. The company is among the few financial
intermediaries in India to offer a complement of online and offline
broking. The companys network of branches also allows
customers to place orders on phone or visit the branches for
trading.
Commodities: India Info lines extension into commodities
trading reconciles its strategic intent to emerge as a one stop
solutions financial intermediary. Its experience in securities
broking has empowered it with requisite skills and technologies.
The companys commodities business provides a contra cyclical
alternative to equities broking. The company was among the first

to offer the facility of commodities trading in Indias young

commodities market.
Insurance: An entry into this segment helped complete the client's
product basket. Concurrently, it graduated the company into a one
stop retail financial solutions provider. To ensure maximum reach
to customers across India, it has employed a multi-pronged
approach and reaches out to customers via network, direct and
affiliate channels. IIFL was the first corporate in India to get the
agency license in early 2001.
Invest Online: India Info line has made investing in mutual funds
and primary market so effortless. India Info line offers a host of
mutual fund choices under one roof, backed by in-depth research
and advice from research house and tools configured as investor
friendly.
Wealth Management: The key to achieving a successful
investment portfolio is to have a carefully planned financial
strategy based on a thorough understanding of the client's
investment needs and risk appetite. The IIFL Private Wealth
Management Team of financial experts will recommend an
appropriate financial strategy to effectively meet customers
investment requirements.

 Asset Management: India Info line is a leading pan-India mutual

fund distribution house associated with leading asset management
companies. It operates primarily in the retail segment leveraging
its existing distribution network to reach prospective clients. It has
received the in-principle approval to set up a mutual fund.
Portfolio Management: IIFL Portfolio Management Service is a
product wherein an equity investment portfolio is created to suit
the investment objectives of a client. India Info line invests the
clients resources into stocks from different sectors, depending on
clients risk-return profile. This service is particularly advisable for
investors who cannot afford to give time or don't have that
expertise.
News letters: As a subscriber to the Daily Market Strategy,
clients get research reports of India Info line research team on a
priority basis. The India Info line Weekly Newsletter is the
flashback for the week gone by. Leaders Speak and features is
delivered in the clients inbox every Friday evening.

2.4 Vision statement:

IIFLs vision is to be the most respected company in the financial

services space.
The India Info line group, comprising the holding company, India Info
line limited and its wholly-owned subsidiaries, straddle the entire
financial services space with offerings ranging from equity research,
equities and derivatives trading, commodities trading, portfolio
management services, mutual funds, life insurance, fixed deposits, bonds
and other small savings instruments to loan products and investment
banking.

2.5 Mission statement:

Customer satisfaction.
Research and technology that delights the customers service.
Respect for highest standard of integrity and compliance.
Highest standard of corporate government and transparency.
Pace of growth that beats the industry and compliance.

Quality policy:

Wide multiple networks servicing as one stock shop to customers.

Drive customer stickiness through quality advice.
Excellence is all about the quality of work.
Strive for delivery for that is 100% error free.

Area of operation:

India Info line operates in India and in foreign country also. It has 1361
branches in 428 cities and towns in the country and some of the foreign
country also. The operations of the company are divided into four
regions in India (i.e. North, South, East and West). The head office is
located in Mumbai. It also provides the services to the customers who
are in foreign countries. IIFL has presence in:

Singapore
Dubai
UK
USA
Hong Kong
Geneva and
Mauritius
2.6 Ownership pattern:

Table no 1:- Shares and holdings of IIFL

Particulars

Shares (In Millions)

% Holdings

Total Promoter Holdings

92.36

31.2

Total Government Holdings

0.00

0.0

Total Domestic Institutions

2.19

0.7

160.42

54.2

Total Non-Promoter Corporate Holdings

5.14

1.7

Total Public & Others

36.09

12.2

Total

296.2

100.0

Total Foreign Holdings

Competitors information:
A share broker, who is also called as stockbroker is a regulated
professional broker, who purchases and sells shares and other securities
through agency or market markers. A share broking firm is engaged in
the same work of an individual stockbroker with the help of experts in
the field of stock broking as their staff members.
A stock broking firm offers three stock broking services namely
discretionary dealing, advisory dealing and execution. The names of top
companies in the stock broking industry in India are given below:
Anagram Securities Limited

 Kotak Securities
Karvy
Indiabulls
ShareKhan
Motilal Oswal Securities Limited
Religare Securities
Geojit BNP Paribas
ICICI Direct
Some of the details regarding these top players in the share broking
industry in India are given below:
Anagram securities: Anagram Securities Limited is one among the
leading retail broking firm in India, which is engaged in offering
comprehensive personal finance solutions right from their inception in
the year 1994. They offer wide services like real time trading, online
account access and discerning equity investor through their group
companies like Anagram Comtrade Limited and Anagram Capital
Limited.

Kotak securities: Kotak Securities Limited is a subsidiary of the

popular Kotak Mahindra Bank and they are one of the largest and largest
stock brokers in India. They offer portfolio management services,
mutual funds, investment in IPO, etc. Some of the services offered
Kotak Portfolio management, easy insurance, easy mutual fund, easy
IPO, easy derivatives and easy equity.
Karvy: Karvy Limited Stock Broking Limited is one of the cornerstones
of the Karvy Edifice and they offer the best service in the industry of
stock broking. They offer research-based advisory services to their
customers in such way that they can get a wide range of safe investment
vistas. The company is a member of the Mumbai stock exchange and the
National Stock Exchange.
India bulls: India bulls Securities Limited is a leading stock broking
company in India with large network branches all over the country. They
have a customer base of more than seven lakhs satisfied customers with
online stock trading platform. Some of their products and services are
depository services, integrated trading terminal, mobile power India
bulls, India bulls equity analysis, tradelite, currency derivatives, etc.
Share Khan: Share Khan stock broking company offers equity related
services like trade execution on online trading, depository services,
commodities, derivatives, NSE, BSE and they also offer investment
advice. They have around 510 officers in 170 cities all over India.

Motilal Oswald Securities: This Company came into existence in the

year 1987 as a small sub-broking unit with just two people. Now, they
have grown into a team of 2000 members mainly because of their
customer-first-attitude, implementation of cutting-edge technology,
respect for professionalism and transparent and ethical business
practices. They are dealing with equities, derivatives, wealth
management, investment banking, private equity, asset management, etc.
Religare: Religare has made its presence in different continents like
America, Europe, Middle East, Africa and Asia. They offer a wide array
of services and products including wealth management, investment
banking, lending solutions, asset management, insurance and broking.

Infrastructure facilities: India Info line outlets are designed to be

places where retail investors can come in touch with investment
opportunities in an atmosphere of convince and comfort. The look and
feel of the office across India projects a consistent branch image for the
company .The features that enable a unique facility for retailing financial
service include among others

Achievements:

1. Sold book-running lead manager for Cox & Kings (Rs. 6.1 bn.) and
Talwalkars (Rs.744.4 mn.) Scaled up Wealth management business with
assets under advice have crossed Rs.50 bn.
2. Financing book grew to Rs. 16.3 bn. Received an in-principle
approval for securities trading and clearing membership from the
Singapore Exchange for IIFL Securities Pte Ltd, our Singapore-based
subsidiary.
3. Conducted our first Global Investors Conference Enterprising India
in Mumbai, drawing the participation of more than 450 fund managers,
more than 70 corporate as well as world renowned economists and
thought leaders.

Awards:
1. Awarded Best broker- India by Finance Asia as a part of its survey
of financial services firms across Asia for 2008
2. Awarded Most improved brokerage in India by Asia Money as a
part of its survey of brokerage in countries across Asia for 2008
3. Awarded Fastest growing equity broking house - large firms in India
by for the year 2008 by Dun & Bradstreet.

4. Awarded The best wealth management house in India by Asset

Asian Awards 2011.
5. Forbes rates www.indiaInfo line.com best of the web and must
read for investors

Milestones:
2011: Launched IIFL Mutual Fund.
2010: Received in-principle approval for membership of the Singapore
Stock Exchange. Received membership of the Colombo Stock Exchange
2009: Acquired registration for Housing Finance, SEBI in-principle
approval for mutual fund. Obtained Venture Capital license
2008: Launched IIFL Wealth. Transitioned to insurance broking model
2007: Commenced institutional equities business under IIFL. Formed
Singapore subsidiary, IIFL (Asia) Pte Ltd
2006: Acquired membership of DGCX. Commenced the lending
business
2005: Maiden IPO and listed on NSE, BSE
2004: Acquired commodities broking license. Launched Portfolio
Management Service

2003: Launched proprietary trading platform Trader Terminal for retail

customers
2000: Launched online trading through www.5paisa.com Started
distribution of life insurance and mutual fund
1999: Launched www.indiaInfo line.com
1997: Launched research products of leading Indian companies, key
sectors and the economy Client includes leading FIIs, banks and
companies.
1995: Commenced operations as an Equity Research firm.

2.7 Work flow model:

Dealers/Salesmen obtain contact

information of the prospective customers

Walk in of prospective clients

Relationship Manager attends the clients

Obtain clients details and financial

requirements (short and long term)
Contact clients and explain the details of
proposed plans

Work flow model here consists of the process by which a prospective

client is contacted and served.

CHAPTER-IV

ANALYSIS AND INTEPRETATION

The chapter includes the analysis of Secondary data collected from

MCX Websites Historical Data.

Table 4.1: Table showing Value of Gold Traded in MCX from 2005 to
2015
Commodity
Year
2005
2006
2007
2008
2009
2010

Contract
GOLD
GOLD
GOLD
GOLD
GOLD
GOLD

2011
2012
2013
2014
2015

GOLD
GOLD
GOLD
GOLD
GOLD

Value (Rs. In Lakhs)

12268.75
3940704.99
17551330.18
89636572.52
71977660.21
171474192
184997191.4
219874783.8
314713353.7
305672442.6
240012639.5

Source: Multi Commodity Exchange of India (MCX)s website

Inference: There is a constant growing investment in gold futures from

year 2005 to 2015 in MCX exchange.

Graph 4.1: Graph showing the value of gold traded in MCX from the
year 2005 to 2015

350000000
300000000
250000000
200000000
150000000

Column2

100000000
50000000
0

Graph 4.2: Graph showing volume of Gold traded in MCX from 2005
to 2015

Quantity(In 000's) gm
16000000
14000000
12000000

Quantity(In 000's) gm x

10000000
8000000
6000000
4000000
2000000
0

Table 4.2: Table showing the Calculation of Standard Deviation of the

value of gold traded in MCX from 2005 to 2015

Year

Commodity

Value (Rs. In

Contract

Lakhs) x

(x-)
-

(x- )^2
21681978410839100

2005 GOLD

12268.75

147248016.7
.00
20540502132286000

2006 GOLD

3940704.99

143319580.4
.00
16824413067329800

2007 GOLD

17551330.18

129708955.2
.00
3320492287438690.

2008 GOLD
2009 GOLD

89636572.52
71977660.21

57623712.89
00
-75282625.2 5667473657277430.

00
586313270324083.0
2010 GOLD

171474192

24213906.55

0
1424074074315610.

2011 GOLD

184997191.4

37736906

00
5272865371810390.

2012 GOLD

219874783.8

72614498.36

00
28040530082475500

2013 GOLD

314713353.7

167453068.3

.00
25094411532340300

2014 GOLD

305672442.6

158412157.1

.00
8602999183334320.

2015 GOLD

240012639.5

92752354.06

00
13705605306977100

Sum

1619863140

Sum

Mean

147260285.4

Sum/N-1

0.00
13705605306977100

SD
Calculation:
Mean= Sum/N

= 147260285.4

Standard Deviation

= 117070941.34

.00
117070941.34

Inference: The above calculation that the standard deviation in the value
of gold traded from 2005 to 2015 is that gold futures market is very
volatile.
Calculation: VAR
Normalized value = 1.96 confidence level = 95%
VAR = SD * n * (normalized value)
= 117070941.34 * 11 *1.96
= 117070941.34 * 3.315 * 1.96
= 760886193.308
Inference: The above calculation that the value at risk (VAR) of the
value of gold invested in MCX from 2005 to 2015 is 760886193.308,
with which we can infer that market risk places a conservative, onesided confidence interval on portfolio losses for short forecast horizons.
Table 4.3: Table showing volume of Gold traded in MCX from 2005 to
2015
Commodity
Year
2005
2006
2007

Contract
GOLD
GOLD
GOLD

Quantity(In 000's) gm
2013
632843
2600407

2008
GOLD
9957351
2009
GOLD
7604891
2010
GOLD
14024217
2011
GOLD
12144967
2012
GOLD
12052225
2013
GOLD
12655760
2014
GOLD
10287609
2015
GOLD
8385363
Inference: There is a constant growth in terms of the quantity of gold
traded in futures market MCX from 2005 to 2015.
Table 4.4: Table showing calculation of Standard Deviation of the
Volume of gold traded in MCX from 2005 to 2015

Commodity

Quantity(In

Contract

000's) gm x

(x-)
8211409.3

(x-mean)^2
67427243737214.9

2005 GOLD

2013

6
7580579.3

0
57465183488389.5

2006 GOLD

632843

6
5613015.3

0
31505941472417.9

2007 GOLD

2600407

6
1743928.6

2008 GOLD

9957351

4
-

3041287088729.13

2009 GOLD

7604891

608531.36
5810794.6

370310420529.13
33765334305992.4

2010 GOLD

14024217

Year

3931544.6

15457043227719.7

2011 GOLD

12144967

4
3838802.6

0
14736405680952.4

2012 GOLD

12052225

4
4442337.6

0
19734363675452.9

2013 GOLD

12655760

4
2074186.6

2014 GOLD
2015 GOLD

10287609
8385363

4
171940.64

4302250202469.50
29563582433.13
247834926882301.

Sum

90347646

Mean

8213422.364

Calculation: Standard Deviation

Sum

00
24783492688230.1

Sum/N-1

SD

4978302.189

= 4978302.18

Table 4.5: Table showing value and volume Proportion of gold traded in
MCX from 2005 to 2015

Year
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

Commodity

Value (Rs. In

Quantity(In

Contract
GOLD
GOLD
GOLD
GOLD
GOLD
GOLD
GOLD
GOLD
GOLD
GOLD
GOLD

Lakhs) x
12268.75
3940704.99
17551330.18
89636572.52
71977660.21
171474192
184997191.4
219874783.8
314713353.7
305672442.6
240012639.5

000's) gm y
2013
632843
2600407
9957351
7604891
14024217
12144967
12052225
12655760
10287609
8385363

Source: Multi Commodity Exchange of India (MCX)s website

Inference: The above calculation of coefficient of correlation between

the value and quantity of gold which is traded in MCX from 2005 to
2015 means there is a positive correlation between value and quantity of
gold futures market.

Graph 4.3: Graph showing Coefficient of correlation between value and

volume of gold traded in MCX from 2005 to 2015
350000000

16000000

300000000

14000000

250000000
200000000

12000000
10000000
8000000

150000000
100000000
50000000
0

Quantity(In 000's) gm y
Value (Rs. In Lakhs) x

6000000
4000000
2000000
0

Graph 4.4 :- Graph Showing India The largest importer of Gold in 2002

Gold in Indian Scenario:

Gold is valued in India as a savings and investment vehicle and is the
second preferred investment behind bank deposits. India is the worlds
largest consumer of gold in jewelry (much of which is purchased as
investment). The hoarding tendency is well ingrained in Indian society,
not least because inheritance laws in the middle of the twentieth century
lent a great desirability to anonymity. Indian people are renowned for
saving for the future and the financial savings ratio is strong, with a ratio
of financial assets-to-GDP of 93%.

Golds circulates within the system and roughly 30% of gold jewelry
fabrication is from recycled pieces. India is typically also the largest
purchaser of coins and bars for investment (>80tpa), although last year it
had to concede first place to Japan in the wake of the heavy buying in
the first quarter due to fears for the stability of the Japanese banking
system. In 1998-2001 inclusive, annual Indian demand for gold in
jewelry exceeded 600 tons; in 2002, however, due to rising and volatile
prices and a poor monsoon season, this dropped back to 490 tons, and
coin and bar demand dropped to 67 tons. Indian jewelry off take is
sensitive to price increases and even more so to volatility, although this
decline in tonnage since 1998 is also due in part to increasing
competition from white and brown goods and alternative investment
vehicles, but is also a reflection of the increase in price. The Indian
brides Streedhan, the wealth she takes with her when she marries and
which remains hers, is still gold, however (thus giving gold an important
role in the empowerment of women in India).

The distinction between gold and commodities is important. Gold has

maintained its value in after-inflation terms over the long run, while
commodities have declined.
Some analysts like to think of gold as a currency without a country. It
is an internationally recognized asset that is not dependent upon any

governments promise to pay. This is an important feature when

comparing gold to conventional diversifiers like T-bills or bonds, which
unlike gold, do have counter-party risk.
World Markets
Today's gold market is a round-the-world, round-the-clock business,
played out largely on dealers' trading screens. The core of the business,
however, remains in the key markets of London, as the great clearing
house, New York as the home of futures trading, Zurich as physical
turntable, Istanbul, Dubai, Singapore and Hong Kong as doorways to
important consuming regions and Tokyo where the Commodity
Exchange (TOCOM) sets the mood of Japan. Even Paris still has a small
market, a reminder of the days when the French were great hoarders,
while Mumbai has increasing importance under India's liberalized gold
regime that permits official imports through local markets.
Table 4.6: Table showing calculation of coefficient of correlation
between value and volume of gold traded in MCX exchange from 2003
to 2013.

Yea

Commodity

r
200

Contract

Value (Rs. In Quantity(In

Lakhs) x

000's) gm y

5
200

GOLD

12268.75

2013

6
200

GOLD

3940704.99

632843

7
200

GOLD

17551330.18

2600407

8
200

GOLD

89636572.52

9957351

9
201

GOLD

71977660.21

7604891

0
201

GOLD

171474192

14024217

1
201

GOLD

184997191.4

12144967

2
201

GOLD

219874783.8

12052225

3
201

GOLD

314713353.7

12655760

4
201

GOLD

305672442.6

10287609

GOLD

240012639.5

8385363

Sum

1619863140
147260285.4

90347646

Mean
Standard

8213422.36

Deviation

117070941.3

4978302.189

Coefficient of
correlation

0.79359110
1

Calculation of Coefficient of correlation:

= 0.79
Inference: The above calculation of coefficient of correlation between
the value and quantity of gold which is traded in MCX from 2005 to
2015 is 0.79, which concluded that there is a positive coefficient of
correlation between value and quantity of gold futures market. And the
volume of gold which is traded is dependent on the value invested in
gold.

Table 4.7: Table showing Summary statistics of daily gold futures

contracts

Fut
ure
s
Pri
ce

Standard
Contracts
Mini Contracts
Spot
Fut Vol Val Fut Fu Vol Val Pri R
ure um ue ur tu um ue ce et
s
e
es re e
ur
Ret
Pri s
n
urn
ce Re
tu

rn
(Mi
llio
n
(IN
(K IN
R) (%) G) R)
15, 13,
7,7 0.0 56 73
Mean 06
5
7
6
Medi 7,7 0.0 6,8 4,5
an
04
6
31 63
93, 88,
Maxi 10, 3.9 85 43
mum 653
5
7
8
Mini 5,6 6.5
1.1
mum 46
2
2
6
Stand
ard
16, 15,
Devia 1,5 0.8 62 65
tion
45
5
6
3
No Of 1,2
Obs
27

(Mi
llio
n
(
(IN (% (K IN (IN %
R)
)
G) R) R) )
26 23
7,7 0.0 0.2 9.0 7,6 0.
09 5
1
1
95 05
7,8 0.0 51. 38. 7,7 0.
41 6 85 03 25 02
10,
69 4.1 2,2 2,3 10, 3.
8
1 05 32 710 8
5,6 6.4
0.0 5,6 4.
63 1 0.1 6
00 81
35 34
1,5 0.8 8.5 3.1 1,5 0.
32 5
1
3
17 87
1,2
1,2
20
27

Inference: From the above table this table reports the summary statistics
of standard and mini old futures contracts traded on the Multi
Commodity Exchange of India Ltd (MCX) during November 2003
December 2007. Futures price are closing price of futures contract in
INR. Futures returns are calculated from daily log price changes, ln
(Ft/Ft-1), expressed in percentages. Spot returns are calculated as daily

log price changes, ln (St/ St-1), expressed in percentages. The standard

contract series includes 1,227 observations, 25 contracts from 10
November 2003 - 31 December 2007. The mini contract series includes
1,220 observations, 40 contracts from 20 November 2003 - 31
December 2007
Table 4.8: Table showing Correlation and integration test
Panel A: Pearson Correlation
Coefficients
Varia VO VOL S
M
ble
LS M
Ft Ft St
1.0 0.78 0.0 0.0 0.0
VOLS
00
3
18 25
12
VOL
1.00 0.0 0.0 0.0
M
0
33 41
21
1.0 0.9 0.3
S Ft
00 48
27
M
1.0 0.3
Ft
00
51
0.3
St
51
Panel B: Johansen trace test for co-integration
Log Price
Hypoth
Trace
0.05 Critical
Series
esis
statistic
value
Standard
and spot
r=0
47.55
15.495
Standard
r <=1
0.208
3.842

and spot
Mini and
spot
Mini and
spot
Standard
and mini
Standard
and mini

r=0

45.509

15.495

r <=1

0.163

3.842

r=0

44.444

15.495

r <=1

1.061

3.842

Inference: Panel A of this table provides the Pearson correlation

coefficients among return and volume variables. VOLS is the natural log
of volume of standard gold futures contracts. VOLM is the natural log of
volume of mini gold futures contracts. S Ft, M Ft, and St are the
returns of standard contracts, mini contracts and spot gold, respectively.
Panel B of this table reports the results of Johansen Trace test statistics
for co-integration of futures and spot natural log prices. Let r denote the
number of co-integrating vectors. The co-integration test includes five
lags length.

Graph 4.5:- Graph showing Historical Gold prices since 1950-2001 in

U.S.($) currency

Graph 4.6:- 1Graph showing Gold Reserves of Top 10 Countries

CHAPTER-IV

SUMMARY OF FINDINGS

5.1 Major Findings

 There is positive correlation between value and volume of gold

traded in MCX from 2005 to 2015.
Mini contracts contribute to over 30% of price discovery in gold
futures trade even though they account for only 2% of trading
value on the MCX.
Investors can easily predict the future prices of the commodities

and hedge their positions.

Investors are aware about commodity future market.
Dollar depreciation / appreciation
World distress
Increase in money supply
Inflation

5.2 Fifteen Fundamental Reasons for bullish run of Gold

1. Global Currency Debasement:
The US dollar is fundamentally & technically very weak and should fall
dramatically. However, other countries are very reluctant to see their
currencies appreciate and are resisting the fall of the US dollar. Thus, we
are in the early stages of a massive global currency debasement, which
will see tangibles, and most particularly gold, rise significantly in price.
2. Investment Demand for Gold is Accelerating:
When the crowd recognizes what is unfolding, they will seek an
alternative to paper currencies and financial assets and this will create an

enormous investment demand for gold. To facilitate this demand, a

number of new vehicles like Central Gold Trust and gold Exchange
Traded Funds (Elf's) are being created.

3. Alarming Financial Deterioration in the US:

In the space of two years, the federal government budget surplus has
been transformed into a yawning deficit,which will persist as far as the
eye can see. At the same time, the current account deficit has reached
levels which have portended currency collapse in virtually every other
instance in history.

4. Negative Real Interest Rates in Reserve Currency (US dollar):

To combat the deteriorating financial conditions in the US, interest rates
have been dropped to rock bottom levels, real interest rates are now
negative and, according to statements from the Fed spokesmen, are
expected to remain so for some time. There has been a very strong
historical relationship between negative real interest rates and stronger
gold prices.

5. Dramatic Increases in Money Supply in the US and Other

Nations:
US authorities are terrified about the prospects for deflation given the
unprecedented debt burden at all levels of society in the US. Fed
Governor Ben Bernanke is on record as saying the Fed has a printing
press and will use it to combat deflation if necessary. Other nations are
following in the US's footsteps and global money supply is accelerating.
This is very gold friendly.

6. Existence of a Huge and Growing Gap between Mine Supply and

Traditional Demand:
Gold mine supply is roughly 2500 tons per annum and traditional
demand (jewellery, industrial users, etc.) has exceeded this by a
considerable margin for a number of years. Some of this gap has been
filled by recycled scrap but central bank gold has been the primary
source of above-ground supply.
7. Mine Supply is anticipated to Decline in the next Three to Four
Years:
Even if traditional demand continues to erode due to ongoing worldwide
economic weakness, the supply demand imbalance is expected to persist

due to a decline in mine supply. Mine supply will contract in the next
several years, irrespective of gold prices, due to a dearth of exploration
in the post Bre-X era, a shift away from high grading which was
necessary for survival in the sub-economic gold price environment of
the past five years and the natural exhaustion of existing mines.
8. Large Short Positions:
To fill the gap between mine supply and demand, central bank gold has
been mobilized primarily through the leasing mechanism, which
facilitated producer hedging and financial speculation. Strong evidence
suggests that between 10,000 and 16,000 tones (30- 50% of all central
bank gold) is currently in the market. This is owed to the central banks
by the bullion banks, which are the counter party in the transactions.
9. Low Interest Rates Discourage Hedging:
Rates are low and falling. With low rates, there isn't sufficient contango
to create higher prices in the out years. Thus there is little incentive to
hedge, and gold producers are not only hedging, they are reducing their
existing hedge positions, thus removing gold from the market.
10. Rising Gold Prices and Low Interest Rates Discourage Financial
Speculation on the Short Side:
When gold prices were continuously falling and financial speculators
could access central bank gold at a minimal leasing rate (0.5 - 1% per

annum), sell it and reinvest the proceeds in a high yielding bond or

Treasury bill, the trade was viewed as a lay up. Everyone did it and now
there are numerous stale short positions. However, these trades now
make no sense with a rising gold price and declining interest rates.
11. The Central Banks are nearing an Inflection Point when they
will be Reluctant to provide more Gold to the Market:
The central banks have supplied too much already via the leasing
mechanism. In addition, Far Eastern central banks that are accumulating
enormous quantities of US dollars are rumored to be buyers of gold to
diversify away from the US dollar.
12. Gold is increasing in Popularity:
Gold is seen in a much more positive light in countries beginning to
come to the forefront on the world scene. Prominent developing
countries such as China, India and Russia have been accumulating gold.
In fact, China with its 1.3 billion people recently established a National
Gold Exchange and relaxed control over the asset. Demand in China is
expected to rise sharply and could reach 500 tons in the next few years.
13. Gold as Money is Gaining Credence:
Islamic nations are investigating a currency backed by gold (the Gold
Diner), the new President of Argentina proposed, during his campaign, a
gold backed peso as an antidote for the financial catastrophe which his

country has experienced and Russia is talking about a fully convertible

currency with gold backing.
14. Rising Geopolitical Tensions:
The weakening conditions in the Middle East, the US occupation of Iraq,
the nuclear ambitions of North Korea and the growing conflict between
the US and China due to China's refusal to allow its currency to
appreciate against the US dollar headline the geopolitical issues, which
could explode at any time. A fearful public has a tendency to gravitate
towards gold.
15. Limited Size of the Total Gold Market Provides Tremendous
Leverage:
All the physical gold in existence is worth somewhat more than $1
trillion US dollars while the value of all the publicly traded gold
companies in the world is less than $100 billion US dollars. When the
fundamentals ultimately encourage a strong flow of capital towards gold
and gold equities, the trillions upon trillions worth of paper money could
propel both to unfathomably high levels.
Other Findings
In India MCX is trading in bullion market.
Goldsmiths get their raw material from wholesale dealers.
They fix the prices on daily trading bases.

 Hence there is positive correlation between both market traders can

easily predict the future prices of the commodities and hedge their
positions.
For gold price fluctuation main reasons are
1. Dollar depreciation / appreciation
2. World distress
3. Increase in money supply
4. Inflation

CONCLUSIONS AND RECOMMENDATIONS:

Both Spot Gold & Future Gold Markets are positively correlated
the traders have knowledge about the commodity demand and
supply and their price fluctuations. So India Info line Limited can

approach these traders and they can easily convince them so these
people are the targeted customers for India Info line Limited.

More Awareness program has to be conducted by India Info line

Limited consultants so that already aware investor takes the
challenge to invest in this commodity future market. Because since
this was new to the market and also risky but gives good return. 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 genuine information and moderate brokerage
so India Info line Limited can look upon this. If it can give good
information and charge moderate brokerage it will help to attract
more and more customers..

The best opportunities for investors to protect themselves against

the coming financial reckoning are with precious metals and
mining stocks.

Both the markets are positively correlated the traders have

knowledge about the commodity demand and supply and their

fluctuations
More Awareness program has to be conducted by consultants so
that already aware investor takes the challenge to invest in this
commodity future market. Because since this was new to the
market and also risky but gives good return. so it can be done
through by giving advertisements in local channels, Newspapers,
by sending E-mail to present customer etc.
From study it is found that most of the potential customers are
concerned about the genuine information and moderate brokerage
so MCX can look upon this. If it can give good information and
charge moderate brokerage it will help to attract more and more
customers.