1

EXECUTIVE SUMMARY
The entire project focuses on commodity market. It deals with
how the trade takes place in commodity market and respective
procedures. Along with that it focuses on calculation of commodities
prices for future period. In commodity market traders may adopt two
different approaches to commodity investment. They may buy
commodities at certain point of time and simply hold these
commodities over a period of time, without restructuring their
portfolio. Such a passive approach to investment is called buy and
hold policy. Alternatively, investor may adopt an active investment
strategy, constantly evaluating their holdings, and reshuffling the
commodities they hold. This approach requires constant evaluation
of market. It is a well established fact that commodity market also
portrays cyclical movement similar to business cycle. An active
investor who is able to identify the turns in the market would be able
to at bottom (low prices) and sell it at peaks (high price) and make
substantial gains out of it.

Objectives of the study:

1. To study about AnandRathi the stockbroker.
2. To study the commodity and commodity market and
3. To analyze the awareness about commodities and commodity
market in the Bijapur City.

Methodology:
Primary Data: Here I will collect the primary data through personal
interviews and discussions with our internal guide. The information
thus gathered is an unstructured interview which is going to ask to
brokers.
Secondary Data:
some

of

data

Here my study depends upon the survey and

collected

from

AnandRathis

manual

reports,

magazines, news papers and internet. All the information is

collected through internet sources and news paper.

Out comes:
Awareness about the commodity market is essential. Almost
respondents are scaring about commodity market and set in their
mind that is commodity trading is very risky. The Commodity trading
is having enough risk. The value of invested assets may fluctuate,
and as a result, clients may lose entire value of their original
investment.

Previous

results

will

not

indicate

the

future

performance. The information drawn in this report is used for

informative purposes and is obtained from sources believed to be
reliable. In commodity trading a commodity client can make heavy
loss or profit. It means commodity trading is unlimited loss or
unlimited profit.

Chapter-I

Company Profile
Introduction:
AnandRathi (AR) is a leading full service securities firm providing the entire gamut of
financial services. The firm, founded in 1994 by Mr. AnandRathi, today has a pan
India presence as well as an international presence through offices in Dubai and
Bangkok. AR provides a breadth of financial and advisory services including wealth
management, investment banking, corporate advisory, brokerage and distribution of
equities, commodities, mutual funds and insurance - all of which are supported by
powerful research teams.
The firm's philosophy is entirely client centric, with a clear focus on providing long
term value addition to clients, while maintaining the highest standards of excellence,
ethics and professionalism. The entire firm activities are divided across distinct client
groups: Individuals, Private Clients, Corporate and Institutions.

Milestones of AnandRathi
1994: Started activities in consulting and Institutional equity sales with staff of 15.
1995: Set up a research desk and empanelled with major institutional investors.
1997: Introduced investment banking businesses and Retail brokerage services
launched.
1999: Lead managed first IPO and executed first M & A deal.
2001: Initiated Wealth Management Services.

2002: Retail business expansion recommences with ownership model.

2003: Wealth Management assets cross Rs1500 crores.
Retail Branch network exceeds 50.
Insurance broking launched.
Launch of Wealth Management services in Dubai.
2004: Retail Branch network expands across 100 locations within India.
Commodities brokerage and real estate services introduced.
Wealth Management assets cross Rs3000crores.
Institutional equities business relaunched and senior research team put in place.
2005: Retail Branch network expands across 200 locations within India.
Real Estate Private Equity Fund Launched.
2006: Completes its presence in all States across the country with offices at 300+
locations within India.
Ranked amongst South Asias top 5 wealth managers for the ultra-rich by Asia
Money 2006 poll.
AnandRathi Core Strengths
Breadth of Services
AnandRathi adopted client-centric philosophy, the firm offers to its clients the entire
spectrum of financial services ranging from brokerage services in equities and
commodities, distribution of mutual funds, IPOs and insurance products, real estate,
investment banking, merger and acquisitions, corporate finance and corporate
advisory. Clients deal with a relationship manager who leverages and brings together

the product specialists from across the firm to create an optimum solution to the client
needs.

AnandRathis Management Team

AR brings together a highly professional core management team that comprises of
individuals with extensive business as well as industry experience. AR senior
Management comprises a diverse talent pool that brings together rich experience from
across industry as well as financial services.
Mr. AnandRathi - Group Chairman
Chartered Accountant
Past President, BSE
Held several Senior Management positions with one of India's largest industrial
groups.
Mr. Pradeep Gupta - Vice Chairman
Plus 16 years of experience in Financial Services.
Mr. AmitRathi - Managing Director
Chartered Accountant & MBA.
Plus 10 years of experience in Financial Services.
Head Office
B-2, Shubham Centre, 4th Floor, Cardinal Gracious Road,
Near P & G Plaza, Chakala,
Andheri (E)
Mumbai
MAHARASHTRA
Pin : 400099

Tel : 40013780 / 40013785 / 28203250

Email ID: mukeshmalpani@rathi.com / andheri@rathi.com

Bijapur Branch Office

Opp. Dharwadkar Medical
Above Colour Square Lab
Gandhi Circle, S S Road
Bijapur
KARNATAKA
Pin : 586101
Tel : 08352 - 320516 / 645045
Email ID : bijapur@rathi.com; machindar@rathi.com

Establishment year

14th June 2006

Regional Office

Bangalore

Head Office

Mumbai

Clients

232(approx)

Commission

Intra Day

0.065% on Equity shares

Delivery Base

0.4%

Mutual Funds

No commission from clients,

It gets commission only from company.
It varies from 2-4 %( approx).

ORGANIZATION CHART OF BIJAPUR BRACH OFFICE

MANAGER

ASSISTANT RELATION MANAGER

DEALER

BACK END EMPLOYEE

FRONT LINE EMPLOYEE

AnandRathis In-Depth Research

AR research expertise is at the core of the value proposition that we offer to ARs
clients. Research teams across the firm continuously track various markets and
products. The aim is however common - to go far deeper than others, to deliver
incisive insights and ideas and be accountable for results.

Achievements of AnandRathi
a)

AR is the first company to launch gold trading in Dubai and

b)

AR becomes Limited company in 2006

Membership and licenses taken by AnandRathi

1. BSE Equities & Derivatives
2. SE Equities & Derivatives
3. NCDEX-Commodities

4. MCX-Commodities
5. Depository Participant-CDSL
6. Depository Participant-NSDL
7. Depository Participant-NCDEX
8. Portfolio Manager (SEBI)
9. Insurance Broker (IRDA)
10. Mutual fund distribution (AMPI)

Private Wealth Management (PWM) in AnandRathi

Introduction:
Affluent individuals need sophisticated advice and strategic guidance to capitalize on
opportunities to preserve, grow and transfer their wealth. In addition, a desire exists
within wealthy families to simplify the management of multigenerational needs and
lessen the profound emotional impact of wealth on family members.
AR offers the most extensive platform of customized servicing, individual strategies
and products to help meet the requirements of the affluent private investor. AR
provides comprehensive, integrated investment strategies to address clients wealth
management needs. Working closely with specialists across firm PWM offers an array
of products and services, which includes AR's highly rated research.

Philosophy of AnandRathi:
AnandRathi try and understand clients financial needs; to offer client personal advice
and expert analysis that client need to make clients assets go the extra mile. AR
ability to think far ahead and formulate a long-term strategy, coupled with long hours

of practice and research are the key drivers, which make clients wealth work harder
for clients.
AR believes that the key to build wealth lies in allocating assets across various
markets, financial instruments and industry sectors. Keeping this in mind AR leverage
their expertise in scientific asset allocation, to help client maximize returns and
minimize risks.

Process in AnandRathi:
AR realizes the need to simplify the complexities of the investment strategies and we
achieve this by offering highly customized wealth management product - LaXmi TM
(let your Assets go the extra Mile TM).
ARs Personalized Relationship Managers along with the expert team of analysts and
advisors will assist client in analyzing all your investment needs and advice clients on
specialized solutions created exclusively for client
AR has a dedicated research team who constantly screens the market for investment
prospects. The team provides support in fine-tuning the investment strategy &
suggests how to capitalize on these opportunities.

Products of AnandRathi:
1. Equity and Derivatives
2. Mutual Funds
3. Depository Services
4. Commodities
5. Insurance Broking

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6. Initial Public Offers

7. Equity and Derivatives Brokerage

1. Equity and Derivatives

The term equity derivative describes a class of financial instruments whose value is at
least partly derived from one or more underlying equity securities. Market participants
trade equity derivatives in order to transfer or transform certain risks associated the
underlying. Options are by far the most common equity derivative, however there are
many other types of equity derivatives that are actively traded.
AnandRathi provides end-to-end equity solutions to institutional and individual
investors. Consistent delivery of high quality advice on individual stocks, sector
trends and investment strategy has established us a competent and reliable research
unit across the country. Clients can trade through us online on BSE and NSE for both
equities and derivatives. They are supported by dedicated sales & trading teams in our
trading desks across the country. Research and investment ideas can be accessed by
clients either through their designated dealers, email, web or SMS.

2. Mutual Funds
The definition of a Mutual Fund is a form of collective investment that pools money
from many investors and invests their money in stocks, bonds, short-term money
market instruments, and/or other securities, In a mutual fund, the fund manager trades
the fund's underlying securities, realizing capital gains or losses, and collects the
dividend or interest income. The investment proceeds are then passed along to the

11

individual investors. The value of a share of the mutual fund, known as the net asset
value per share (NAV), is calculated daily based on the total value of the fund divided
by the number of shares currently issued and outstanding.AR is one of India's top
mutual fund distribution houses.
ARs success lies in their philosophy of providing consistently superior, independent
and unbiased advice to their clients backed by in-depth research. We firmly believe in
the importance of selecting appropriate asset allocations based on the client's risk
profile.
AR have a dedicated mutual fund research cell for mutual funds that consistently
churns out superior investment ideas, picking best performing funds across asset
classes and providing insights into performances of select funds.

3. Depository Services
AR Depository Services provides to their clients with a secure and convenient way for
holding their securities on both CDSL and NSDL. ARs depository services include
settlement, clearing and custody of securities, registration of shares and
dematerialization. AR offers to their clients daily updated Internet access to their
holding statement and transaction summary.
CDSL Depository [Control and Dynamic Systems Lab.]

NSDL Depository [National Securities Depository Limited]

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4. Commodities
Commodities Broking - a whole new opportunity to hedge business risk and an
attractive investment opportunity to deliver superior returns for investors. ARs
commodities broking services include online futures trading through NCDEX and
MCX and depository services through CDSL Commodities broking is supported by a
dedicated research cell that provides both technical as well as fundamental research.
ARs research covers a broad range of traded commodities including precious and
base metals, Oils and oilseeds, agri-commodities such as wheat, chana, guar, guar gum
and spices such as sugar, jeera and cotton. In addition to transaction execution, we
provide our clients customized advice on hedging strategies, investment ideas and
arbitrage opportunities.
5. Insurance Broking
As an insurance broker, AR provides to its clients comprehensive risk management
techniques, both within the business as well as on the personal front. Risk
management includes identification, measurement and assessment of the risk and
handling of the risk, of which insurance is an integral part. The firm deals with both
life insurance and general insurance products across all insurance companies.
ARs guiding philosophy is to manage the clients' entire risk set by providing the
optimal level of cover at the least possible cost. The entire sales process and product

13

selection is research oriented and customized to the client's needs. We lay strong
emphasis on timely claim settlement and post sales services.

5. Initial Public Offers

AR is a leading primary market distributor across the country. ARs strong
performance in IPOs has been a result of our vast experience in the Primary Market, a
wide network of branches across India, strong distribution capabilities and a dedicated
research team. ARs have been consistently ranked among the top 10 distributors of
IPOs on all major offerings.
ARs IPO research team provides clients with in-depth overviews of forthcoming
IPOs as well as investment recommendations. Online filling of forms is also
available.

6. Equity & Derivatives Brokerage

Ownership interest in a corporation in the form of common stock or preferred stock. It
also refers to total assets minus total liabilities, in which case it is also referred to as
shareholder's equity or net worth or book value. In real estate, it is the difference
between what a property is worth and what the owner owes against that property (i.e.
the difference between the house value and the remaining mortgage or loan payments
on a house). In the context of a futures trading account, it is the value of the securities
in the account, assuming that the account is liquidated at the going price. In the
context of a brokerage account, it is the net value of the account, i.e. the value of
securities in the account less any margin requirements.

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Derivative:
A financial instrument, traded on or off an exchange, the price of which is directly
dependent upon the value of one or more underlying securities, equity indices, debt
instruments, commodities, other derivative instruments, or any agreed upon pricing
index or arrangement. Derivatives involve the trading of rights or obligations based on
the underlying product but do not directly transfer property. They are used to hedge
risk or to exchange a floating rate of return for a fixed rate of return.

Brokerage:
For a commission or fee, bringing together parties interested in buying, selling,
exchanging or leasing real property. Or the bringing together of parties interested in
making a real estate transaction.

AnandRathi Services:
I. Risk Management
II. Due diligence and research on policies available
III. Recommendation on a comprehensive insurance cover based on clients needs
IV. Maintain proper records of client policies
V. Assist client in paying premiums
VI. Continuous monitoring of client account and
VII. Assist client in claim negotiation and settlement

15

Strengths of AnandRathi:
a) One Stop Shop: Offering a wide range of services to cater to their clients
investment needs
b) Strong distribution network: AnandRathi group has been ranked consistently
amongst the top 10 distributors for IPO.
c) No conflict of interest: At AR, clients will get tailor made solutions keeping in
mind their financials needs and AR distributes only 3 rd party products. There is
no bias towards any product or any company.
d) Geographical Reach: Presence in over 180 locations all over India
e) Research: AnandRathi provides value based research for their products. They
have a dedicated team of professional from various fields covering various
sectors and companies.
f) Global Perspective: AR follow a top down approach where in firm cover the
global markets their impact on Indian economy, the sectors and companies
affected by these changes.

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Chapter-II

Commodity
Introduction :
The word commodity is a term with distinct meanings in business and in Marxian
political economy. For the former, it is a largely homogeneous product, whereas for
the latter, it refers generically to wares offered for exchange.
Linguistically, the word commodity came into use in English in the 15th century,
being derived from the French word "commodit" , meaning today's (2000)
"convenience" in term of quality of services. The Latin root meaning is commoditas,
referring variously to the appropriate measure of something; a fitting state, time or
condition; a good quality; efficaciousness or propriety; and advantage, or benefit. The
German equivalent is die Ware, i.e. wares or goods offered for sale. The French
equivalent is "produit de base" like energy, goods, industrial raw materials.
In the original and simplified sense, commodities were things of value, of uniform
quality, that were produced in large quantities by many different producers; the items
from each different producer are considered equivalent. It is the contract and this
underlying standard that define the commodity, not any quality inherent in the
product. One can reasonably say that food commodities, for example, are defined by

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the fact that they substitute for each other in recipes, and that one can use the food
without having to look at it too closely.

Characteristics of Commodity:
The following are te main characteristics of commodity;
1. In Marx's theory, a commodity has value, which represents a quantity of human
labor. The fact that it has value implies straightaway that people try to economise
its use.
2. A commodity also has a use value, an exchange value and a price. It has a use
value because, by its intrinsic characteristics, it can satisfy some human need or
want, physical or ideal. By nature this is a social use value, i.e. the object is useful
not just to the producer but has a use for others generally.
3. It has an exchange value, meaning that a commodity can be traded for other
commodities, and thus give its owner the benefit of others' labor (the labor done to
produce the purchased commodity).
4. According to the labor theory of value, product-values in an open market are
regulated by the average socially necessary labour time required to produce them,
and price relativities are ultimately governed by the law of value.
5. Price is then the monetary expression of exchange-value (but exchange value
could also be expressed as a direct trading ratio between two commodities without
using money).

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Commodity Markets:
Commodity markets are markets where raw or primary products are exchanged. These
raw commodities are traded on regulated commodities exchanges, in which they are
bought and sold in standardized Contracts.
This article focuses on the history and current debates regarding global commodity
markets. It covers physical product (food, metals, electricity) markets but not the ways
that services, including those of governments, nor investment, nor debt, can be seen as
a commodity. Articles on reinsurance markets, stock markets, bond markets and
currency markets cover those concerns separately and in more depth. One focus of this
article is the relationship between simple commodity money and the more complex
instruments offered in the commodity markets.

History of Commodity Market:

The modern commodity markets have their roots in the trading of agricultural
products. While wheat and corn, cattle and pigs, were widely traded using standard
instruments in the 19th century in the United States, other basic foodstuffs as soybeans
were only added quite recently in most markets. For a commodity market to be

19

established, there must be very broad consensus on the variations in the product that
make it acceptable for one purpose or another.
The economic impact of the development of commodity markets is hard to overestimate. Through the 19th century "the exchanges became effective spokesmen for,
and innovators of, improvements in transportation, warehousing, and financing, which
paved the way to expanded interstate and international trade."

Regulation of commodity markets:

Cotton, kilowatt-hours of electricity, board feet of wood, long distance minutes,
royalty payments due on artists' works, and other products and services have been
traded on markets of varying scale, with varying degrees of success. One issue that
presents major difficulty for creators of such instruments is the liability accruing to the
purchaser. Unless the product or service can be guaranteed or insured to be free of
liability based on where it came from and how it got to market, e.g. kilowatts must
come to market free from legitimate claims for smog death from coal burning plants,
wood must be free from claims that it comes from protected forests, royalty payments
must be free of claims of plagiarism or piracy, it becomes impossible for sellers to
guarantee a uniform delivery.
Generally, governments must provide a common regulatory or insurance standard and
some release of liability, or at least a backing of the insurers, before a commodity
market can begin trading. This is a major source of controversy in for instance the
energy market, where desirability of different kinds of power generation varies
drastically. In some markets, e.g. Toronto, Canada, surveys established that customers

20

would pay 10-15% more for energy that was not from coal or nuclear, but strictly from
renewable sources such as wind.

Commodity markets and protectionism:

Developing countries (democratic or not) have been moved to harden their currencies,
accept IMF rules, join the WTO, and submit to a broad regime of reforms that amount
to a "hedge" against being isolated. China's entry into the WTO signalled the end of
truly isolated nations entirely managing their own currency and affairs. The need for
stable currency and predictable clearing and rules-based handling of trade disputes,
has led to a global trade hegemony - many nations "hedging" on a global scale against
each other's anticipated "protectionism", were they to fail to join the WTO. There are
signs, however, that this regime is far from perfect. U.S. trade sanctions against
Canadian softwood lumber (within NAFTA) and foreign steel (except for NAFTA
partners Canada and Mexico) in 2002 signalled a shift in policy towards a tougher
regime perhaps more driven by political concerns - jobs, industrial policy, even
sustainable forestry and logging practices.

Commodities Trading:
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

21

delivered. This protects the farmer from price drops and the buyer from price rises.
Speculators also buy and sell the futures contracts to make a profit and provide
liquidity to the system.

Commodities exchanges across the world:

Some examples of commodity exchanges are as under ;
1.

HedgeStreet Exchange (California)

2.

Central Japan Commodity Exchange (Nagoya)

3.

Chicago Board of Trade (Chicago)

4.

Chicago Climate Exchange (Chicago)

5.

Chicago Mercantile Exchange (Chicago

6.

European Climate Exchange (Europe)

7.

Intercontinental Exchange (Atlanta)

8.

London Metal Exchange (London)

9.

Multi Commodity Exchange (India) and

10. New York Board of Trade (New York)

Indian Markets:
1.

Multi-Commodity Exchange (MCX)

2.

National Commodity and Derivative Exchange (NCDEX)

3.

National multi commodity exchange (NMCE)

Indian Commodity Futures Exchanges:

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Type of Markets:

Cash market: it deals with the spot market trading

Future market: it deals with future market trading

Cash and Future Market:

1.

Hedging is a mechanism by which the participants in the physical/cash markets

can cover their price risk. Theoretically, the relationship between the futures and cash
prices is determined by cost of carry. The two prices therefore move in random. This
enables the participants in the physical/cash markets to cover their price risk by taking
opposite position in the futures market.
2.

Futures prices evolve from the interaction of bids and offers emanating from all

the buyers and sellers which converge in the trading floor or the trading engine. The
bid and offer prices are based on the expectations of prices on the maturity date.

23

3.

Participants in physical markets use futures market for price discovery and price

risk management. In fact, in the absence of futures market, they would be compelled
to speculate on prices.
4.

The spot price is the real price of the physical commodity while the futures price

refers to the price of a contract being traded in the futures market.

Commodity Exchanges:
A commodity exchange is an exchange where various commodities and derivatives
products are traded. Most commodity markets across the world trade in agricultural
products and other raw materials (like wheat, barley, sugar, maize, cotton, cocoa,
coffee, milk products, pork bellies, oil, metals, etc.) and contracts based on them.
These contracts can include spots, forwards, futures and options on futures. Other
sophisticated products may include interest rates, environmental instruments, swaps,
or ocean freight contracts.

Exchange may mean:

a) Trade or barter, the voluntary exchange of goods and/or services
b) Student exchange program or high school exchange
c) Exchange rule, from Mathematical Logic
d) The exchange (chess), the value difference between rook and a bishop or knight
e) Public exchange, or open exchange .

Commodities exchanges include the following ones;

24

1) Chicago Board of Trade

2) Euronext.liffe
3) London Metal Exchange
4) New York Mercantile Exchange and
5) Microeconomists also include labor, and currency as commodities that can be
bought and sold.

Cost structure of Commodities:

In considering the unit cost of a capitalistically produced commodity Marx claims that
the value of any such commodity is reducible to three components equal to:
a) Variable capital used up to produce it, plus
b) Fixed and circulating constant capital used up per unit, and
c) Surplus value per unit.

Every trader passes through three stages:

I. Every trader loses initially.
We strongly believe that every investor who comes for trading initially gives losses as
he/she is unable to have control over his greed and fear. At times with all the
information and luck in his favors, he makes profit, and then because of his new over
confidence, trades more which results in his profit gone and also sometimes a portion
of his capital gone, this cycle of fear of the losses and greed to earn more makes him
initially give losses
II. The trader begins to make no profit no loss

25

Out of the total investors who enter the first stage, 80% of them finish off at the first
stage only and after a year or two find that the stock market is not their cup of tea. So
in the 2nd stage only the 20% investors try to break even in their trading and quite a
lot of them are able to have control over their fear and greed with a result that they
stop giving losses. Now these traders are ready for the 3rd stage.
III. The trader starts to make profits
This stage where a trader makes consistent profit i.e. he does not give loss cheque to
the broker. In fact this is the stage which everyone wishes to have in the stock market.
But we strongly believe that anybody who wishes to come to the 3 rd Stage has to
pass through the above 2 stages.
Trading Rules
These are some of the trading rules which are universally valid for stock trading.
1. Never risk more than 10% of your trading capital in a single trade.
2. Always use stop loss orders (Here you should know your loss you can give in a
situation where the trade starts going against you.)
3. Never do overtrading.
4. Never let a profit run into a loss.
5. Don't enter a trade if you are unsure of the trend.
6. When in doubt, get out, and don't get in when in doubt.
7. Only trade active markets.
8. Distribute your risks equally among different markets.
9. Never limit your orders. Trade at the markets.
10. Extra monies from successful trades should be placed in a separate account.
11. Never trade to scalp a profit.
12. Never average a loss.
13. Never get out of the market because you have lost patience, or get in because
you are anxiously waiting.

26

14. Avoid taking small profits and large losses.

15. Never cancel a stop loss after you have placed it.
16. Avoid getting in and out of the market too soon.
17. Be willing to make money from both sides of the market.
18. Never buy or sell just because the price is low or high.
19. Never hedge a losing position.
20. Never change your position without a good reason.
21. Avoid trading after long periods of success or failure.
22. Don't try to guess tops or bottoms.
23. Don't follow a blind man's advice.
24. Avoid getting in wrong and out wrong; or getting in right and out wrong. This
is making a double mistake.
25. When you lose don't blame it on luck.

Historical origins of commodity trade:

Commodity-trade historically begins at the boundaries of separate economic
communities based otherwise on a non-commercial form of production. Thus,
producers trade in those goods of which they have episodic or permanent surpluses to
their own requirements, and they aim to obtain different goods with an equal value in
return.
Marx refers to this as "simple exchange" which implies what Frederick Engels calls
"simple commodity production". At first, goods may not even be intentionally
produced for the explicit purpose of exchanging them, but as a regular market for
goods develops and a cash economy grows, this becomes more and more the case, and
more and more production becomes integrated in commodity trade. Even so, in simple
commodity production, not all inputs and outputs of the production process are
necessarily commodities or priced goods, and it is compatible with a variety of
different relations of production ranging from self-employment and family labour to

27

serfdom and slavery. Typically, however, it is the producer himself who trades his
surpluses.
However, as the division of labour becomes more complex, a class of merchants
emerges which specialises in trading commodities, buying here and selling there,
without producing products themselves, and parallel to this, property owners emerge
who extend credit and charge rents. This process goes together with the increased use
of money, and the aim of merchants, bankers and rentiers becomes to gain income
from the trade, by acting as intermediaries between producers and consumers.
Modern Capitalism however is a mode of production based on generalised commodity
production a universal market This means that both the inputs and the outputs of most
production in society have become priced, tradeable goods (including the means of
production and human labour power), and that what and how much is produced is
largely determined by the response of producers to the "state of the market".
Production is now explicitly engaged in for the purpose of market sales only, which
implies both that its whole organisation is reshaped for this aim, and that people can
meet their own needs by purchases in the market (rather than producing goods for
their own consumption).

Forms of commodity trade

The seven basic forms of commodity trade can be presented as follows:
1)

M-C (an act of purchase: a sum of money purchases a commodity)

2)

C-M (an act of sale: a commodity is sold for money)

28

3)

M-M' (a sum of money is lent out at interest to obtain more money, or, one
currency is traded for another)

4)

C-C' (countertrade, in which a commodity trades directly for a different

commodity, with money possibly being used as an accounting reference, for
example, food for oil, or weapons for diamonds)

5)

C-M-C' (a commodity is sold for money, which buys another, different

commodity with an equal or higher value)

6)

M-C-M' (money is used to buy a commodity which is resold to obtain a larger

sum of money) and

7)

M-C...P...-C'-M' (money buys means of production and labour power used in

production to create a new commodity, which is sold for more money than the
original outlay).

Commodity Derivatives:
Derivatives as a tool for managing risk first originated in the commodities markets.
They were then found useful as a hedging tool in financial markets as well. In India,
trading in commodity futures has been in existence from the nineteenth century with
organized trading in cotton through the establishment of Cotton Trade Association in
1875. Over a period of time, other commodities were permitted to be traded in futures
exchanges. Regulatory constraints in 1960s resulted in virtual dismantling of the
commodities future markets. It is only in the last decade that commodity future
exchanges have been actively encouraged. However, the markets have been thin with

29

poor liquidity and have not grown to any significant level. The commodity derivatives
differ from financial derivatives.

Difference between Commodity and Financial Derivatives

The basic concept of a derivative contract remains the same whether the underlying
happens to be a commodity or a financial asset. However there are some features
which are very peculiar to commodity derivative markets. In the case of financial
derivatives, most of these contracts are cash settled. Even in the case of physical
settlement, financial assets are not bulky and do not need special facility for storage.
Due to the bulky nature of the underlying assets, physical settlement in commodity
derivatives creates the need for warehousing. Similarly, the concept of varying quality
of asset does not really exist as far as financial underlings are concerned. However in
the case of commodities, the quality of the asset underlying a contract can vary
largely. This becomes an important issue to be managed.

Global Commodity Derivatives Exchanges:

Globally commodity derivatives exchanges have existed for a long time. The below
table gives a list of commodities exchanges across the world. The CBOT and CME are
two of the oldest derivatives exchanges in the world. The CBOT was established in
1948 to bring farmers and merchants together. Initially its main task was to
standardize the quantities and qualities of the grains that were traded. Within a few
years the first futures-type contract was developed. It was know as to-arrive contract.

30

The Global Derivatives:

Speculators soon became interested in the contract and found trading in the contract to
be an attractive alternative to trading the underlying grain itself. In 1919, another
exchange, the CME was established. Now futures exchanges exist all over the world.
On these exchanges, a wide range of commodities and financial assets form the
underlying assets in various contracts. The commodities include pork bellies, live
cattle, sugar, wool, lumber, and copper, aluminium, gold and tin. We look at
commodity exchanges in some developing countries.

31

32

Global Commodity Exchanges:

Africa:
Africa's most active and important commodity exchange is the South African Futures
Exchange (SAFEX). It was informally launched in 1987. SAFEX only traded
financial futures and gold futures for a long time, but the creation of the Agricultural
Markets Division (as of 2002, the Agricultural Derivatives Division) led to the
introduction of a range of agricultural futures contracts for commodities, in which
trade was liberalized, namely, white and yellow maize, bread milling wheat and
sunflower seeds.
Asia:
China's first commodity exchange was established in 1990 and at least forty had
appeared by 1993. The main commodities traded were agricultural staples such as
wheat, corn and in particularly soybeans. In late 1994, more than half of China's
exchanges were closed down or reverted to being wholesale markets, while only 15
restructured exchanges received formal government approval. At the beginning of
1999, the China Securities Regulatory Committee began a nationwide consolidation
process which resulted in three commodity exchanges emerging; the Dalian
Commodity Exchange (DCE), the Zhen Zhou Commodity Exchange and the Shanghai
futures Exchange, formed in 1999 after the merger of three exchanges: Shanghai
Metal, Commodity, and Cereals & Oils Exchanges. The Taiwan Futures Exchange was
launched in 1998. Malaysia and Singapore have active commodity futures exchanges.
Malaysia hosts one futures and options exchange. Singapore is home to the Singapore
Exchange (SGX), which was formed in 1999 by the merger of two well established

33

exchanges, the Stock Exchange of Singapore (SES) and Singapore International

Monetary Exchange (SIMEX).

Latin America:
Latin America's largest commodity exchange is the Bolsa de Mercadorias & Futuros,
(BM&F) in Brazil. Although this exchange was only created in 1985, it was the 8th
largest exchange by 2001, with 98 million contracts traded. There are also many other
commodity exchanges operating in Brazil, spread throughout the country. Argentina's
futures market Mercado a Termino de Buenos Aires, founded in 1909, ranks as the
world's 51st largest exchange. Mexico has only recently introduced a futures exchange
to its markets. The Mercado Mexicano de Derivados (Mexder) was launched in 1998.

Evolution of the Commodity Market in India:

Bombay Cotton Trade Association Ltd., set up in 1875, was the first organized futures
market. Bombay Cotton Exchange Ltd. was established in 1893 following the
widespread amongst leading cotton mill owners and merchants over functioning of
Bombay Cotton Trade Association. The Futures trading in oilseeds started in 1900
with the establishment of the Gujarati Vyapari Mandali, which carried on futures
trading in groundnut, castor seed and cotton. Futures trading in wheat were existent at
several places in Punjab and Uttar Pradesh. But the most notable futures exchange for
wheat was chamber of commerce at Hapur set up in 1913. Futures trading in bullion
began in Mumbai in 1920. Calcutta Hessian Exchange Ltd. was established in 1919
for futures trading in rawjute and jute goods. But organized futures trading in raw jute

34

began only in 1927 with the establishment of East Indian Jute Association Ltd. These
two associations amalgamated in 1945 to form the East India Jute & Hessian Ltd. to
conduct organized trading in both Raw Jute and Jute goods. Forward Contracts
(Regulation) Act was enacted in 1952 and the Forwards Markets Commission (FMC)
was established in 1953 under the Ministry of Consumer Affairs and Public
Distribution. In due course, several other exchanges were created in the country to
trade in diverse commodities.

Volume on existing exchanges:

Latest Developments:
Commodity markets have existed in India for a long time. The above table gives the
list of registered commodities exchanges in India. The total annualized volumes on
various exchanges. National level commodity derivatives exchanges seem to be the
new phenomenon. The Forward Markets Commission accorded in principle approval

35

for the following national level multi commodity exchanges. The increasing volumes
on these exchanges suggest that commodity markets in India seem to be a promising
game.
1. National Board of Trade
2. Multi Commodity Exchange of India
3. National Commodity & Derivatives Exchange of India Ltd.

36

37

Commodities traded on the NCDEX platform:

In December 2003, the National Commodity and Derivatives Exchange Ltd (NCDEX)
launched futures trading in nine major commodities. To begin with contracts in gold,
silver, cotton, soyabean, soya oil, rape/ mustard seed, rapeseed oil, crude palm oil and
RBD palmolein are being offered. AR have a brief look at the various commodities
that trade on the NCDEX and look at some commodity specific issues. The
commodity markets can be classified as markets trading the following types of
commodities.

A. Agricultural products
B. Precious metal
C. Other metals and
D. Energy

Of these, the NCDEX has commenced trading in futures on agricultural products and
precious metals. For derivatives with a commodity as the underlying, the exchange
must specify the exact nature of the agreement between two parties who trade in the
contract. In particular, it must specify the underlying asset, the contract size stating
exactly how much of the asset will be delivered under one contract, where and when
the delivery will be made. In this chapter we look at the various underlying assets for
the futures contracts traded on the NCDEX. Trading, clearing and settlement details
will be discussed later.

38

A. Agricultural Commodities:
The NCDEX offers futures trading in the following agricultural commodities refined
soy oil, mustard seed, expeller mustard oil, RBD palmolein, crude palm oil, medium
staple cotton and long staple cotton. Of these we study cotton in detail and have a
quick look at the others.
1. Cotton
Cotton accounts for 75% of the fibre consumption in spinning mills in India and 58%
of the total fibre consumption of its textile industry (by volume). At the average price
of Rs.45/ kg, over 17 million bales (average annual consumption, 1 bale = 170 kg) of
raw cotton trade in the country. The market size of raw cotton in India is over Rs.130
billion.
The average monthly fluctuation in prices of cotton traded across India has been at
around 4.5% during the last three years. The maximum fluctuation has been as high as
11%. Historically, cotton prices in India have been fluctuating in the range of 3-6% on
a monthly basis.
Cotton is among the most important non-food crops. It occupies a significant position,
both from agricultural and manufacturing sectors' points of view. It is the major source
of basic human need - clothing, apart from other fibre sources like jute, silk and
synthetic. Today, cotton occupies a significant position in the Indian economy on all
fronts as a commodity that forms a means of livelihood to over millions of cotton
cultivating farmers at the primary agricultural sector.

39

It is also a source of direct employment to over 35 million people in the secondary

manufacturing textile industry that contributes to 14% of the country's industrial
production, 27-30% of the country's export earnings and 4% of its GDP.
2. Crude palm oil
Annual edible oil trade in India is worth over Rs.440 billion, with the share of CPO
being nearly 20% (Rs.80-90 billion). The country is over dependent on CPO imports
to the extent of over 50% of its annual vegetable oil imports. There is a close inter
linkage between the various vegetable oils produced, traded and consumed across the
world. The average monthly fluctuation in prices of imported CPO traded at Kandla
(one of the major importing ports in Gujarat) has been at 9.7% during the past two and
a half years, the maximum monthly fluctuation being as high as 25% during the
period. Palm oil is extracted from the mature fresh fruit bunches (FFBs) of oil palm
plantations. One hectare of oil palm yields approximately 20 FFBs, which when
crushed yields 6 tons of oil (including the kernel oil, which is used both for edible and
industrial purposes). Crude palm oil (CPO), crude palmolein, RBD (refined, bleached,
deodorized) palm oil, RBD palmolein and crude palm kernel oil (CPKO) are the
various forms of palm oil traded in the market.
3. RBD Palmolein
The RBD (refined, bleached and deodorized) palmolein is the derivative of crude
palm oil (CPO), which is obtained from the crushing of fresh fruit-bunches (FFBs)
harvested from oil palm plantations. When CPO is subjected to renement, RBD palm
oil and fatty acids are obtained. Fractionation of RBD palm oil yields RBD palmolein
along with stearin, which is a white solid at room temperature. While Oil is a stable

40

derivative saturated fat, solid at room temperature), Olein is relatively unstable

(unsaturated fat, liquid at room temperature, but low cholesterol). The whole quantity
of CPO that is produced and used for human consumption is in the form of RBD
palmolein. Cropping of growth patterns of CPO has been already covered.
4. Soy oil
Soy oil is among the major sources of edible oils in India. Of the annual edible oil
trade worth over Rs.440 billion in the country, soy oils share is over 20- 21% at Rs.9092 billion in terms of value. Being an agricultural commodity, which is often
subjected to various productions and market related uncertainties, soy oil prices traded
across the world are highly volatile in nature. The average fluctuation in spot prices of
refined soy oil traded at Mumbai has been at 6.6% during the past two and a half
years, the maximum monthly fluctuation being as high as 17% during the period.
Historically, soy oil prices in the major spot markets across the country have been
fluctuating in the range of 4.5 - 8.5%. This offers immense opportunity for the
investors to profitably deploy their funds in this sector apart from those actually
associated with the value chain of the commodity, which could use soy oil futures
contract as the most effective hedging tool to minimize price risk in the market. Soy
oil is the derivative of soybean. On crushing mature beans, 18% oil and 78 - 80% meal
is obtained. While the oil is mainly used for human consumption, meal serves as the
main source of protein in animal feeds. Soy oil is the leading vegetable oil traded in
the international markets, next only to palm. Palm and soy oils together constitute
around 68% of global edible oil export trade volume, with soy oil constituting
22.85%. It accounts for nearly 25% of the world's total oils and fats production.

41

Increasing price competitiveness, and aggressive cultivation and promotion from the
major producing nations have given way to widespread soy oil growth both in terms
of production as well as consumption.
5. Rapeseed oil
Rapeseed (also called mustard or canola) oil is the third largest edible oil produced in
the world, after soy and palm oils. On crushing rapeseed, oil and meal are obtained.
The average oil recovery from the seed is about 33%. The remaining is obtained as oil
cake/ meal, which is rich in proteins and is used as an ingredient in animal feed.
Mustard oil, which is known for its pungency, is traditionally the most favored oils in
the major production tracts world over.
6. Soybean
The market size of the popularly known miracle bean in India is over Rs.5000 crore.
With an annual production of 5.0 - 5.4 million tons, soybean constitutes nearly 25% of
the country's total oilseed production. The average monthly fluctuation in prices of
soybean traded at one of the active soybean spot markets at Indore (Madhya Pradesh)
has been at 10.07% during the past two years, the maximum monthly fluctuation
being as high as 24 - 30% during the period. Historically, soybean prices in the major
spot markets across the country have been fluctuating in the range of 5- 9%. Soybean
is the single largest oilseed produced in the world. The commodity has been
commercially exploited for its utility as edible oil and animal feed. On crushing
mature beans, around 18% oil could be obtained; the rest being the oil cake/ meal,
which forms the prime source of protein in animal feeds.

42

7. Rapeseed:
Rapeseed/ Mustard is one of the major sources of oil and meal to India. It supplies
over 1.5 million tons of oil (15 - 18% of India's annual edible oil requirement) and 3
3.2 million tons of 48 Commodities traded on the NCDEX platform oil meal, the
major protein source in animal feeds. The average monthly fluctuation in prices of
rapeseed traded at one of the active rapeseed spot market at Jaipur (Rajasthan) has
been at 9.8% during the past two years (July 2001 to July 2003), the maximum
monthly fluctuation being as high as 23.4% during the period. Rapeseed/ Mustard/
Canola is a traditionally important oilseed. China, Canada and India are the major
producers of this commodity. The other major producers are Germany, France,
Australia, Pakistan and Poland. The commodity has been commercially exploited in
the form of seeds, oil (seed to oil recovery is 3940%) and meal. The hybrid form of
rapeseed, known as canola, is more popular internationally.

B. Precious Metals:
1. GOLD
Gold is a brilliant yellow precious metal that is resistant to air and water corrosion. It
is a very soft and pure metal (24 Kt.). Gold is the most malleable and ductile metal
found on earth. Thats why it is expensive and it is alloyed with other metals, usually
copper and silver to make it less expensive and harder. A karat is the unit that
measures the purity of gold jewelry or else it is hallmarked with a three-digit number
that indicates the parts per thousand of gold. Some countries hallmark gold with a

43

three-digit number that indicates the parts per thousand of gold. The alloyed gold
comes in many colors and may not be bright yellow all the time.

Indian gold market

Gold comes second after bank deposits when it comes to the preference for investment
in India and considered a savings and investment vehicle. India is the world's largest
consumer of gold in jewelry as investment. The commercial banks were authorized to
import gold from jewelers and exporters for sale or loan in 1997 by the RBI. In India
13 banks are involved in the imports of gold currently. As a result the difference in
international and domestic prices is reduced from 57% during 1986 to 1991 to 8.5
percent in 2001. In Indian society the gold hoarding tendency is well ingrained.
Monsoon, harvest and marriage season dictates the domestic consumption. Indian
jewelry is highly volatile and sensitive. Stock market and a wide range of consumer
goods are providing competition to gold in cities. As compared to the rest of the
world, facilities for refining, assaying, making them into standard bars in India, are
insignificant, both qualitatively and quantitatively.

Market Moving Factors

Years

Indian
demand
(Figures in
metric tons)

Total World
demand
(Figures in
metric tons)

Indian
demand as %
of the total
World
Demand

1996
1997
1998
1999
2000
2001

508
737
815
839
830
843

2780
3054
2714
3284
3264
3218

18%
24%
30%
25%
25%
26%

Average price
(Rs per 10
grams)
5191
4556
4182
4327
4518
4080

44

1. Reclaimed scrap and official gold loans (Above ground supply from sales by
central banks)
2. Producer / miner hedging interest.
3. World macro-economic factors - US Dollar, Interest rate.
4. Comparative returns on stock markets
5. Domestic demand based on monsoon and agricultural output.

2. SILVER
Silver is a white colored shiny element that is highly ductile and malleable and is used
in making jewelry, coins and tableware. It is also used in chemical experiments as it
provides a high electrical and thermal conductivity. It is found in the metallic state and
also in a large amount of minerals mainly in argentite. That is why it is called
argentums in Latin.

Indian silver market

As mentioned above, India is primarily a silver importing country, as the production
of India is not sufficient to satisfy the ever-growing domestic demand. The production
of silver in India stands out at the figure of around 2.1 million ounces placing it at the
20th position in the list of major silver producing countries. The import of silver in
India hovers over 110 million ounces that shows the huge size of Indian domestic
demand.
However, this import level fell sharply as a result of the decline in demand due to rise
in silver prices and inconsistent monsoon on which the income of the rural sector

45

depends. But, even this sharp decline could not affect Indias reputation of being one
of the largest consumer countries of silver in the world. India stands third after United
States and Japan among the leading consumers of silver in the world. The countries
from which India imports silver and maintain the flow of silver in the market are: 1. China
2. United Kingdom
3. European Union
4. Australia
5. Dubai
Over 50% share of import of silver in India is held by Chinese silver. The major
importing center of silver in India was Mumbai but now it has been shifted to
Ahmedabad and Jaipur due to high sales tax and octroi charges.

Market influencing factors

1. Price movements of other metals
2. Income level of the rural sector of the economy
3. Available supply verses Fabrication demand
4. Fluctuation in deficits and interest rates
5. Inflation

Major trading centers of silver

1. London
2. Zurich
3. New York (COMEX)
4. Chicago (CBOT)
5. Hong Kong
6. Tokyo Commodity Exchange (TOCOM)

46

In India, silver is traded at the following places

1. Delhi
2. Indore
3. Rajasthan
4. Madhya Pradesh
5. Mathura (Uttar Pradesh)
6. Rajkot (Gujarat)
Also, silver is traded in the Indian commodity exchanges like National Commodity &
Derivatives Exchange ltd, Multi Commodity Exchange of India ltd. and National
Multi Commodity Exchange of India ltd
3. ZINC
Zinc is a not too hard metallic element, bluish white in color that is used in the
formation of various alloys and also in electrical fuses, meter cases, roofing, gutters
etc. In the scientific periodic table, zinc has the atomic number 30 and is known by the
symbol Zn. Normally it is found in brittle form in the nature but when it is heated, it
gets converted into malleable metal. The metal has a lustrous surface and is
moderately reactive. As its a bit reactive element as compared to other elements like
aluminium and copper, if not in the pure form, it is found in alloy form in the earths
crust.

Indian zinc market

As India was one of the first countries to gain the knowledge of extracting zinc from
zinc ores and start the production of zinc metal, it should have been an important
player in the world zinc market but this is not the current situation. Indias reputation

47

regarding zinc is not significant as it just produces a small share of the metal in the
worlds production and is not able to satisfy its domestic consumption demand making
it a net importer of zinc.
Zinc production in India was in the hands of the government initially as all the
operations in India relating to the metal were in the hands of a public sector company
Hindustan Zinc Limited. It was the biggest company in India, which took care of
zinc extraction and its smelting process. But in April 2002, this company was
privatized in favor Sterlite group and after that the Indian industry is in the hands of
private sector completely. The current Indian demand for zinc stands at around 3.5
lakh tons that is fulfilled with the help of domestic production and imports too. About
70% of the Indian demand comes from the galvanizing sector. After privatizing the
zinc sector it is expected that by 2010 the country would become self-reliant to satisfy
the domestic demand. After that, India may transform into a net exporter of the metal.

Market influencing factors

1. Level of stocks with London Metal Exchange
2. Fluctuation in the world demand for zinc
3. Growth rate of the zinc producing countries
4. Changes in the prices of the other substitute metals
5. Funds in the zinc sector.

Major trading centers of zinc

The largest zinc market in the world is the London Metal Exchange that affects the
world demand and supply for zinc significantly. Zinc is also traded in the Indian

48

commodity exchanges like Multi Commodity Exchange of India, National

Commodity and Derivatives Exchange of India and National Multi Commodity
Exchange of India.

4. COPPER
Copper is an element, reddish brown in color, having atomic number 29 and
pertaining to the scientific symbol Cu. Coming from the same family of silver and
gold, this element shares numerous common characteristics with those precious
metals. This element is a highly ductile and malleable element and a very good
conductor of electricity. That is why it is highly used in the electrical appliances as a
thermal and electrical conductor and in building wires. It occurs in various minerals
on earth and is also forms part of a lot of alloys. Copper also has characteristics that it
is a creep and corrosion free metal and all of its so very useful features make it an
element on which the worlds economy directly depends.

Indian copper market

India does not provide a big market for copper. Due to shortage of copper mines and a
low percentage of productivity of copper in the mines, India suffers a loss in the level
of production and it has to completely depend on the copper ore imports. Also, not
many companies are indulged in the refining and extraction of copper from its alloys
and ores.
India produces copper from the imported copper ore that accounts to around 6 lakh
tons of production. This production level is contributes to a mere 4% share in the total
copper production in the world. Indian market is divided into three parts i.e. primary

49

and secondary. Primary segment comprises of the producers that convert copper ore
into refined copper. Three companies namely Hindustan Copper ltd, Birla Copper and
Sterlite Industries constitute this primary segment. Secondary segment comprises the
producers that manufacture value added products made from copper like wires, foil
etc.
The domestic consumption demand of copper is around 5.5 lakh tons in the country. A
major percentage i.e. 10% of the total consumption in India is contributed by the two
major tele-communication providers namely BSNL and MTNL. The rest of the
demand is contributed by the construction and automobile sector. India has always
been an importer of copper ore to satisfy the domestic consumption demand. The
countries from the ore is imported into India are;
1. Chile
2. Indonesia
3. Australia
4. Canada
But, due to the rise in the production of the three major players in the Indian market,
the country is now emerging as a net exporter. The production of copper has
significantly during the last few years that has enabled India not only to satisfy it is
own domestic demand but export refined copper in small quantities. The prices of
copper in Indian market are highly dependent on the prices in London Metal
Exchange.

50

Market Influencing Factors

1. Price fluctuations of copper in London Metal Exchange
2. Production level of copper in the world
3. Growth prospects of the major copper consuming countries of the world
4. Growth prospects of the various consuming sectors in the market

Major trading centers of copper

Copper is an important commodity that is traded mainly in;
1. London Metals Exchange (London)
2. New York Mercantile Exchange (New York)
3. Shanghai Futures Exchange (China)
These commodity exchanges direct the world market in the context of prices.
In India, copper is traded in the commodity exchanges namely Multi Commodity
Exchange of India ltd, National Multi Commodity Exchange of India and National
Commodity and Derivatives Exchange.
5. ALUMINIUM
Aluminium is a silver to white colored, highly elastic, ductile element having atomic
number 13 in the periodic table. It is a light metal with only 1/3rd density as compared
to that of steel. It is as good a conductor of heat and electricity as the metal copper is.
Aluminium is known for its feature of being resistant to outside weather, atmospheric
gases and liquids. Thats why it is largely used in the cold conditions where it
maintains its toughness unlike other metals and gains advantage over the metals
carbon-steel and copper etc. Non-toxicity and non-magnetic are some of the other

51

characteristics of this metal. Aluminiums abundance in the earths crust stands third
among other elements. But it is not found in the Free State anywhere in the world but
in combined form with other materials in the ore form.

Indian aluminium market

Indian market for aluminium has expanded since a few years and is directing towards
further growth in coming years. Both public and the private sector are indulged in the
production of alumina and aluminium. With the change in time, Indian aluminium
sector has observed drastic changes. Earlier government played an important role in
fixing the regulations in trading of aluminium as it had the monopoly in the
production of the metal but currently it has lost its control over the price and
distribution due to the emergence of private sector. With the take over of INDAL by
HINDALCO in the year 2000, it has emerged to be the largest producer of aluminium
in India.
Indian production figure for this metal is around 0.8 million tons in a year. That
makes it the fifth largest producer of aluminium in the world. India has 5% of the total
bauxite deposits in the world that can last for approximately 350 years with the
present consumption rate. The consumption of this metal is also on a rising trend with
a figure of around 0.618 million tons which is expected to touch 0.78 million tons
mark in 2007. In early 1990s when the Indian economy was liberalized, India
identified its export potential and emerged out to be a net exporter of Aluminium. Till
now it has been an exporter of this metal, though Indian scenario hasnt been a selfdependent one. Indian exports figures hovers around 82000 tons annually and the
major importer countries of Indian aluminium are;

52

1. Bangladesh
2. Sri Lanka
3. Egypt
4. Iraq

Market influencing factors

1. Domestic demand and supply
2. International prices
3. Interference of government and various associations
4. Import duties and other economic activities in the world
5. Price fluctuations of the input materials like power, freight etc

Major trading centers of aluminium

The major trading centers of aluminium in the world are;
1. London Metal Exchange (LME)
2. Tokyo Commodity Exchange (TOCOM)
3. Shanghai Futures Exchange (SHFE)
4. New York Mercantile Exchange (NYMEX)

These above mentioned commodity exchanges provide direction to the world

aluminium prices. In India, aluminium is also traded at various commodity exchanges
namely Multi Commodity Exchange of India and National Multi Commodity
Exchange of India.

53

CHAPTER-III
ANALYSIS AND INTERPRETATION
This chapter analyses the investors behavior and their interest
towards the investing in commodity market. The data required was
collected from 1st Jan to 31st March 2007, from the individual
investors of Bijapur city. The data was analyzed with the help of
trend ratios, growth ratios etc.

The following points have been covered in this chapter.

1. Age groups
2. Educational qualification
3. Occupation
4. Awareness about commodity market
5. Preference to invest in commodity market
6. Assessment of commodity market fluctuation
7. Preferred form of commodities
8. Basis of trading
9. Annual income and amount of investment
10.

Investment motivators

11.

Periodicity of investment

12.

Knowledge of stock brockers

13.

Source of information about AnandRathi

14.

Preference for investing through AnandRathi and form of

services

15.

Factors favoring the stock broker

16.

Basis of selection of stock broker and assessment of quality of

stock broker

54

17.

Sources of feedback

18.

Factors, difficulties and suggestions to the company

1. Age Groups: The investors belong to different age groups

namely below 25 years, 26 to 35 years, 36 to 45 years, 46 to
55 years, above 55 years etc. This analysis helps to know the
age group of investors in commodities. The information
relating to different age group of investors is presented in Table
1.
Table -1
Investors age
Sl no
a)
b)
c)
d)
e)

Age groups
Below 25 years
26 -35 years
36-45 years
46-55 years
Above 55 years
Total

No of investors
16
10
10
8
6
50

Percentage
32
20
20
16
12
100

Graph -1
Investors age

Table 1 reveals that the majority of investors (32%) belong to the

age group of below 25 years followed by 20% each in the age group

55

of 26 to 35 years and 36 to 45 years, 16% in the age group of 46 to

55 years and about 12% investors are in the age group of above 55
years.
2. Educational qualification: The investors have to different

educational qualifications namely non matriculation, matriculation,

any degree, any masters degree etc. This analysis helps to know
the educational background of investors in commodities. The
information

relating

to

different

educational

qualification

investors is presented in Table 2.

Table -2
Investorseducational qualification.
Sl no
a)
b)
c)
d)
e)

Educational qualification
Non matriculation
Matriculation
Degree
Masters Degree
Others
Total

No of investors
4
10
10
26
0
50

Graph- 2
Investors educational qualification group.

Percentage
8
20
20
52
0
100

of

56

Table 2 depicts that the majority of investors (52%) are masters

degree holders followed by matriculation and degree (20% each),
non matriculation (8%).
2. Occupation:

The

investors

are

engaged

in

different

occupations namely agriculture, business, service, profession

and others. This analysis helps to know the occupation
background of investors in commodities. The information
relating to different occupation of investors is presented in
Table 3
Table - 3
Investors occupation.
Sl no
a)
b)
c)
d)
e)

Occupation
Agriculture
Business
Service
Profession
Other
Total

No of investors
7
11
12
19
1
50

Graph - 3
Investors occupation

Percentage
14
22
24
38
2
100

57

Table 3 depicts that the majority of investors (38%) are engaged

in professionals followed by service (24%) and business (22%),
agriculture (14%) and other occupations (2%).
4. Awareness of commodity market: The general public may or
may not be aware of commodity market in Bijapur city. This
analysis helps to know the public awareness about commodity
market in Bijapur city. The information relating to public
awareness about commodity market in Bijapur city is represented
in Table-4.

Table - 4
Awareness of commodity market.
Sl no

Option

No of investors

Percentage

a)

Yes

42

84

b)

No

16

Total

50

100

Graph - 4
Awareness of commodity market.

58

From Table 4, it may be inferred that the majority of investors (84%) are aware of
commodity market in Bijapur city whereas about 16% of the investors are unaware
of the commodity market.
5. Preference for investing in commodity market : The general

public may or may not be ready to invest in commodity market. This

analysis helps to know the public s interest to investment in
commodity market. The information relating to public s interest
about investment in commodity market in Bijapur city is represented
in Table-5.
Table -5
Preference for investing in commodity market
Sl no

Option

No of investors

Percentage

a)

Yes

50

100

b)

No

Total

50

100

Graph -5
Preference for investing in commodity market

59

Table 5, reveals that all the investors (100%) have preferred to

invest in commodity market in Bijapur city.

6. Assessment of commodity market fluctuations: The

investors may or may not assess the market fluctuations
independently. This analysis helps to know the investors ability to
assess the commodity market fluctuations individually. The
information relating to investors ability of assessment of market
fluctuation is presented in Table 6.
Table- 6
Assessment of commodity market fluctuations
Sl no

Option

No of investors

Percentage

a)

Yes

27

54

b)

No

23

46

Total

50

100

Graph -6
Assessment of commodity market fluctuations

60

From Table 6, it may be inferred that the majority of investors (54%)

assess the market fluctuations individually whereas about 46% of
the investors are not able to assess the market fluctuations
individually.
7. Preferred form of commodities: The investors may invest
in different commodities namely gold, silver, copper, zinc, maize,
oil, coffee, etc. This analysis helps to know the investors interest
in investing in different types of commodities in commodity
market. The information relating to investors interest in investing
in different types of commodities is presented in Table 7.

Table -7
Preferred form of commodities
Sl no
a)
b)
c)
d)
e)
f)
g)
h)

Option
Gold
Silver
Copper
Zinc
Maize
Oil
Coffee
Others

No of investors
22
22
0
1
4
1
0
0

Percentage
44
44
0
2
8
2
0
0

61

Total

50

100

Graph -7
Preferred form of commodities

Table 7 depicts that the majority of investors (44% each) are ready
and interested to invest in gold and silver followed by maize (8%)
and (2%) in the zinc and copper (2% each). No investors are found in
coffee and others.
8. Basis of trading: The investors may trade on a specific basis.
So, some of the investors may trade on intra base trading and some
of the investors may trade on delivery base trading. This analysis
helps to know the investors basis of trading in commodity market.
The information relating to respondents basis of trading is
presented in Table 8.
Table -8

Basis of trading

Sl no

Option

No of investors

Percentage

a)

Intra based Trading

28

56

b)

Delivery based Trading

22

44

Total

50

100

Graph- 8

Basis of trading

62

Table 8, it shows that the majority of investors (56%) trade on intra

based trading, whereas about (44%) of the investors want to trade
on delivery based trading.

9. Annual income: Investors are engaged in different occupations

and earn different size of income i.e., Below Rs.50,000 , Rs.50,0011,50,000 , Rs.1,50,001 to 3,00,000 , Rs.3,00,001 to 5,00,000 and
above 5,00,000. They may earn more or less. But this helps to study
the annual income of investors.
Table - 9
Annual income of investors
Sl no
a)
b)
c)
d)
e)

Annual income
Below Rs 50,000
Rs 50,001-1,50,000
1,50,001-3,00,000
3,00,001-5,00,000
Above 5,00,000
Total

No of investors
10
22
16
2
0
50

Percentage
20
44
32
4
0
100

63

Graph - 9
Annual income of investors

Table 9 depicts that the majority of investors (44%) belong to the

income slab between Rs.50,001-1,50,000 followed by Rs.1,50,001
to 3,00,000 (32%) below Rs.50,000 (20%). About 4% of investors
belong to the income group Rs.3, 00,001 to 5,00,000. However, no
investors are found in top end income slab.
10. Amount of investment: People earn different size of income
and invest the amount in various fields to earn money i.e., Rs.5000,
Rs.5001-15000, Rs.15001-30,000, Rs.30,001-50,000 and Rs.50,000.
They may invest more or less. But this helps to study the amount of
investment of investors.

Table -10
Amount of investment
Sl no
a)
b)
c)
d)

Amount of investment
Below Rs 5000
Rs 5001-15000
15001-30000
30001-50000

No of investors

Percentage

29
12
7
1

58
24
14
2

64

e)

Above 50000
Total

1
50

2
100

Graph -10
Amount of investment

Table 10 reveals that the majority of investors (58%) invested an

amount below Rs.5,000 followed by investment slab between
Rs.5,001 and Rs.15,000 (24%) and between Rs.15,001 - Rs.3,00,000
(14%). About 2% each of the investors invested in the investment
slab between Rs.30,001 to Rs.50,000 and above Rs.50,000.
11. Investment motivators: The investors may invest in different
commodities for the reasons namely; provision for old age, capital
appreciation, children education, and marriage, etc. This analysis
helps to know the investors motivating factor to invest in commodity
market. The information relating to motivating factor to invest
/investing in different types of commodities is presented in Table
11.

Table -11
Investment motivators
Sl no
a)
b)
c)

Option
Provision for old age
Capital appreciation
Children education and

No. of investors
14
25
11

Percentage
28
50
22

65

d)

marriage
Others
Total

0
50

0
100

Graph -11
Investment motivators

Table-11 shows that the majority respondents (50%) are motivated

by capital appreciation, followed by children education and marriage
(22%) and provision for old age (28%).
12. Periodicity of investment: Some of the investors invest
periodically namely; quarterly, half yearly, yearly, 1-2 years, 2-5
years, once in more than 5 years etc. The information relating to
periodicity of investment in commodity market is presented in
Table 12.

Table 12
Periodicity of investment
Sl.no
a)
b)
c)
d)

Periodicity of investment
Quarterly
Half yearly
Yearly
1 to 2 years

No of investors
5
14
17
8

Percentage
10
28
34
16

66

e)
f)

2 to 5 years
Once in more than 5 years
Total

5
1
50

10
2
100

Graph- 12
Periodicity of investment

Table -12 shows that the majority of investors (34%) invest yearly,
followed

by

half

yearly

and

1-2

years

(28%)

and

(16%)

respectively .quarterly and 2- 5 years (10% each) and once in more

than 5 years (2%).
13. Knowledge about stock brockers: There are many stock
brokers who act as mediators between public and firm in the Bijapur
city. The investors may consult any stock brokers in Bijapur city for
investing

in

commodity

market.

The

information

relating

to

investors knowledge of stock broker in Bijapur city is represented in

Table-13.

Table -13
Knowledge about stock brockers
Sl no

Knowledge about stock brockers

No. of investors

Percentage

67

a)
b)
c)
d)
e)
f)
g)
h)

Anand Rathi
Karvy
Geogit
Nimesh securities
Dharamsingh securities
Share khan securities
India Info line
Others
Total

16
14
15
3
1
0
0
1
50

32
28
30
6
2
0
0
2
100

Graph -13
Knowledge about stock brockers

Table 13 reveals that the majority of investors (32%) consulted

Anandrathi followed by Geogit (30%), Karvy (28%) and Nimesh
Securities (6%) Dharmasingh securities and others (2% each).
14. Sources of information about AnandRathi : The investors

may come to know about AnandRathi from different sources such as

friends, your family members, advertisement etc. This analysis helps
to know about how the investors come to know about AnandRathi.
The information relating to source of information about AnandRathi
is presented in Table 14.

Table -14

68

Sources of information
Sl no
a)
b)
c)
d)

Source of information
Friends
Family members
Advertisements
Others
Total

No of investors
36
5
7
2
50

Percentage
72
10
14
4
100

Graph -14
Sources of information

Table 14, it may be inferred that among those investors who

consulted AnandRathi, the majority of investors (72%) came to know
about

AnandRathi

from

the

friends

(72%)

followed

by

advertisements (14%), family members,(10%) and others (4%).

15.

Preference

for

investing

through

AnandRathi:

The

investors may or may not be ready to invest through AnandRathi.

This analysis helps to know the investors preference to invest
through AnandRathi. The information relating to preference of
investors to invest through AnandRathi.

Table -15

69

Preference for investing through AnandRathi

Sl no

Option

No of investors

Percentage

a)

Yes

31

62%

b)

No

19

38%

Total

50

100%

Graph -15
Preference for investing through AnandRathi

Table-15 reveals that 62% of the investors preferred to invest

through AnandRathi stock broking house whereas 38% of the
investors did not prefer to invest through AnandRathi.
16. Preferred form of services: The investors may expect different
services from the stock brokers like customer relation management, more security for
the money invested, keep in touch with on regular basis, provision for update
information. This analysis helps to know the preferred form of service from
stockbrokers. The information relating to preferred form of service from stockbrokers
is presented in Table 16.
Table -16

70

Preferred form of services

Sl no
a)
b)
c)
d)
e)

Preferred form of services

Customer relationship management
More security for money invested
Keep in touch on regular basis
Provision for up date information
Other
Total

No. of investors
18
16
9
5
2
50

Percentage
36
32
18
10
4
100

Graph 16
Preferred form of services

Table 16 shows that the majority of investors (36%) expect service like customer
relationship management followed by more security for money invested (32%), keep
in touch on regular basis (18%), provision for update information (10%) and others
(4%).
17. Factors favoring the stock brokers: The investors consider
some factors while selecting the stock brokers namely, promoters
credibility and experience, earning per share, competitive positions,
growing stream, return on equity, return on investment, etc. This
analysis helps to know the factors favoring for investing in
commodities. The information relating to factors favoring for
investing in commodities is presented in Table 17.
Table -17

71

Factors favoring the stock brokers

Sl no
a)
b)
c)
d)
e)
f)
g)

Factors favoring the stock broker

Promoters credibility and experience
Earning per share (EPS)
Competitive position
Growing stream
Return on Equity
Return on Investment
Others
Total

No of investors
18
5
10
2
6
9
0
50

Percentage
36
10
20
4
12
18
0
100

Graph -17
Factors favoring the stock brokers

Table 17 reveals that the majority of investors (36%) favored promoters credibility
and experience followed by competitive position (20%) and return on investment
(18%), return on equity are (12%), EPS (10%) and growing stream (4%).
18. Basis of selection of stock broker: The investors select the stock
brokers while investing on the basis of namely, familiarity, size of clientele, average
daily turnover, etc. This analysis helps to know the investors basis for selecting the
stock brokers. The information relating to investors basis for selecting the stock
brokers is presented in Table 18.
Table -18

72

Basis of selection of stock broker

Sl no
a)
b)
c)
d)
e)
f)

Basis of selection of stock broker

Familiarity
Financial soundness
Track Record
Size of Clientele
Average daily turnover
Other
Total

No of investors
8
15
14
4
7
2
50

Percentage
16%
30%
28%
8%
14%
4%
100%

Graph -18
Basis of selection of stock broker

From Table 18 it may be inferred that the majority of investors (36%) select the
stock brokers on the basis of financial soundness followed track record of the stock
brokers (20%), familiarity (16%), average daily turnover (14%), size of clientele (8%)
and other (4%).
19. Assessment of quality of stock brokers: The investors
assess the quality of management of commodity broking company
while investing that company on the basis of media reports, meeting
and interaction with management, promoters background, promises
made by management, vision /mission statement, management
performance etc. The information relating to respondents basis for

73

assessing the quality of stock broker at commodity market is

presented in Table 18.
Table- 19
Assessment of quality of stock brokers
Sl no
a)
b)
c)
d)
e)
f)

Assessment of quality of stock broker

Media Reports
Meeting and interaction with management
Promoters background
Promises made by management
Vision/Mission Statement
Management Performance
Total

No of investors
18
9
12
2
0
9
50

Percentage
36
18
24
4
0
18
100

Graph- 19
Assessment of quality of stock brokers

Table 19 reveals that the majority of investors (36%) want to assess the quality of
stock brokers on the basis of media reports followed by promoters background
(24%), meeting and interaction and management performance (18% each) and
promises made by management (4%).
20. Sources of feedback: The investors collect the feedback
about the companies i.e., companys annual report, advertisements,
professional

consultants,

friends,

and

relatives,

publications, internet ,etc. sources of feedback

Table- 20.

BSE/NSE,

is presented in

74

Table -20
Sources of feedback
Sl no
a)
b)
c)
d)
e)
f)
g)

Sources of feedback
Companys annual income
Advertisements
Professional consultants
Friends and relatives
BSE/NSE publications
Internet
Others
Total

No.of investors
8
22
7
8
5
0
0
50

Percentage
16
44
14
16
10
0
0
100

Graph -20
Sources of feedback

From the Table 20 it may be inferred that 44% of the investors select the broking
company from the advertisements followed by companys annual income and friends
and relatives (16% each) professional consultants (14%) and BSE/NSE publications
(10%).

CHAPTER - IV
Findings, suggestion and conclusion
Findings
The following are the major findings of the present study,

75

1. It is found that majority of investors (32%) belong to the age

group of below 25 years.
2. The study reveals that the majority of investors (52%) are master
degree holders.
3. The study shows that majority of investors (38%) are engaged in
professionals.
4. The study indicates that majority of investors (84%) are aware of
commodity market in Bijapur city.
5. It is found that all the investors (100%) covered under the study
have preferred to invest in commodity market.
6. The study reveals that the majority of investors (54%) assess the
market fluctuations individually.
7. The study shows that majority of investors (44% each) are ready
and interested to invest in gold and silver.
8. The study indicates that majority of investors (56%) trade on intra
based trading.
9. It is found that majority of investors (44%) belong to the income
slab between Rs.50,001- Rs.1,50,000.
10.

The study reveals that majority of investors (58%) invested an

amount below Rs.5,000

11.

The study shows that majority investors (50%) are motivated

by earning capital appreciation.

76

12.

The study indicates that majority of investors (34%) invest

once in a year.
13.

The study reveals that majority of investors (32%) have

consulted AnandRathi for investing in the commodities.

14.

It is found that majority of investors (72%) came to know about

AnandRathi from the friends for investing their savings.

15.

It is found that 62% of the investors preferred to invest

through AnandRathi stock broking house in different commodities.

16.

The study reveals that majority of investors (36%) expect

service like customer relationship management regarding their

investments in commodities.
17.

The study indicated that majority of investors (36%) favored

promoters credibility and experience for making their investment

decisions.
18.

The study shows that majority of investors (36%) are selecting

the stock brokers on the basis of financial soundness.

19.

The study reveals that majority of investors (36%) want assess

the quality of stock brokers on the basis of media reports to make

future investment decisions.
20.

It is found that 44% of the investors select the broking

company from the advertisements

Suggestions:
The following suggestions are offered,

77

1. The study reveals that the majority of investors investing in

commodities are in the age group below 25 years. Hence it is
necessary to concentrate on the middle age investors who may
have excess savings to invest in commodities.
2. The majority of investors are interested to invest in gold and
silver. The prospective investors may be advised to buy copper
also, to get the advantage of hike in price in the future. It is make
the investors to invest in agricultural commodities because no
investors have taken the advantage of agricultural commodities
till now in Bijapur city.
3. The study suggests that the investors want the company to keep
in touch with their clients on regular basis, provision for update
information to be given; more security for money invested is to be
given by the company.

4. The study finds that the investors engaged in business, service,

agriculture etc. are less in number as compared to professionals
for investing in commodities. Therefore, the prospective investors
engaged in business, service, agriculture etc need to be
motivated to invest in commodities by offering incentives.
5. The investors having higher income are to be convinced about
the importance and benefits of investing in commodities. So, that
they may turn their mind to invest in commodities.

78

6. The rigorous campaign needs to be undertaken to attract more

potential investors to invest in commodities.
7. Recreational activities may be initiated to keep the investors
abreast of commodity market fluctuations.
8. There is a need of the hour to enhance the investors confidence
in the stock broking house like AnandRathi.

Conclusion:
Commodity markets are markets where raw or primary products are
exchanged. These raw commodities are traded on regulated
commodities exchanges, in which they are bought and sold in
standardized Contracts. Most of investors are interested to invest in
gold and silver, advice investors to purchase copper also, to get the
advantage of hike price in the future. Make the investors to invest in
agricultural commodities because no investors have taken the
advantage of agricultural commodities till now in Bijapur city. The
study found that the investors engaged in business, service,
agriculture etc. are less in number as compared to professionals for
investing in commodities. Therefore, the prospective investors
engaged in business, service, agriculture etc need to be motivated
to incentives. According to the outcomes of the study it may be
concluded that the awareness about commodity market is necessary

79

and it is a need of the hour to enhance the investors confidence in

the stock broking house AnandRathi.

Bibliography

Websites:
1. www.rathi.com
2. www.mcxindia.com
3. Google search engine.

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