Commodity Markets

July 2010

Way2Wealth Commodities Pvt. Ltd.

making investing simpler, more understandable and profitable

Index
Definition
Commodity As Asset Class
Commodity Uniqueness
Classification of Commodities
Indian Commodity Market Size
Commodities Offered for Trading
Why Commodities
How to Invest
Commodities @ Way2Wealth

Commodity - Definition
A commodity is any good or service produced by human labour
and offered as a product for general sale on the market
- Karl Max
Characteristics

Commodity is anything movable (a good) that has

following characteristics

Fungible, i.e. the same no matter who produces it

Derivatives, i.e. involves further processing into

number of products

Economic cost, i.e. production of it involves some cost

Commodities in Real Life

Wheat in your bread
Petrol in your vehicle
Coffee on your table
Sugar in your sweets
Chana in your chhole
Gold in your necklace
and so on .
Commodities are everywhere

Index
Definition
Commodity As Asset Class
Commodity Uniqueness
Classification of Commodities
Indian Commodity Market Size
Commodities Offered for Trading
Why Commodities
How to Invest
Commodities @ Way2Wealth

Commodity As Asset Class

In financial parlance, assets are economic resources that is capable of
being owned or controlled to produce value
Commodity too has gained importance currently as independent asset
class
Commodity, being the natural goods are independent of other asset classes
Assets Classes
Equities

Fixed Income

Performer during economic expansion & an out

performer over very long term
Performs at the later stage of recession

Real Estate

Performs during early expansion

Commodities

Performance spread evenly over the economic

cycle

Index
Definition
Commodity As Asset Class
Commodity Uniqueness
Classification of Commodities
Indian Commodity Market Size
Commodities Offered for Trading
Why Commodities
How to Invest
Commodities @ Way2Wealth

Commodity Unique points of diversification

1. Seasonality

A major force in the commodities markets

2. Correlation

Unlike other asset class, commodities are

positively and negatively correlated within
& outside the group which is unique to
commodities only

3. Weather

No other asset class are so much influenced

by weather patterns

4. Hedge

Provides natural hedge against war,

inflation, other asset portfolios, recessions
etc. example -GOLD

Commodity Performance

Commodity Performance

Contribution in global landscape

Global Vs. India
Global commodity has relatively long history
Size is 9 times larger than India

India

Commodity Trading ( Value in Million USD)

Global
India

2009
14831317
1469673

2008
11712611
1067984

Source:FMC,Way2Wealth Research

Commodity futures, though active since 19th

century was banned later in 1970s
Commodity volumes shoots up significantly
after re-launch in 2003
MCX emerged as worlds Sixth largest
exchange
Volumes on Indian exchanges are increasing
at CAGR of 73.7 percent

Global growth in Commodities 2004-09

Share of Asia has jumped

more than 5 times

Global growth in Commodities 2008-09

Chinese exchanges
has seen
two fold increase
in volume

Index
Definition
Commodity As Asset Class
Commodity Uniqueness
Classification of Commodities
Indian Commodity Market Size
Commodities Offered for Trading
Why Commodities
How to Invest
Commodities @ Way2Wealth

Classification of Commodities
Bullion
Gold
Silver
Palladium
etc

Agriculture
Grains
Pulses
Edible oils/seeds
Spices etc

Commodities

Base Metals
Copper
Zinc
Aluminum
Nickel
Tin

Energy
Crude oil
Heating oil
Natural gas
Furnace oil
Etc.

Index
Definition
Commodity As Asset Class
Commodity Uniqueness
Classification of Commodities
Indian Commodity Market Size
Commodities Offered for Trading
Why Commodities
How to Invest
Commodities @ Way2Wealth

Commodity Indian Structure

FMC The Regulator
Commodity Exchanges

National
Exchanges

NCDEX

NMCE

Regional
Exchanges

MCX

Leadership position with >90% share

NBOT

20 Other Regional
Exchanges

Indian Growth so far

Significant rise in
volume since
launch of
exchanges in 2003

Volume Growth in Indian Exchanges

700
> 65% CAGR Growth

600
500
400
300

MCX
Leader in Metals & Energy

200
100
0
2004

2005

2006
MCX

2007
2008
NCDEX TOTAL

2009

2010

Source:FMC,Way2Wealth Research

Segment wise % Share of Commodities

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Bullion and other metals
31.5
36.1
57.9
64.6
56.7
40.8
Other than bullion metals
23.2
Agriculture
68.2
55.335.8
23.1
11.9 15.7
Energy
0.3
8.4
6.3
12.3
20.3
Others
0.0
0.1
0.0
0.0
31.4
0.0 Source:FMC,Way2Wealth Research

* 2008-09 other segment includes energy& other metals

NCDEX
Leader in Agri

Indian Growth during 2004-09

Indian Growth during 2004-09

Returns in Indian commodities

Almost 45 commodities are available for trading in both NCDEX & MCX
Though few have been de-listed during high inflation times, re-listing also has happened
Bullion, Base metals, energy & Agri are the major contributors in terms of volumes

Index
Definition
Commodity As Asset Class
Commodity Uniqueness
Classification of Commodities
Indian Commodity Market Size
Commodities Offered for Trading
Why Commodities
How to Invest
Commodities @ Way2Wealth

Why Invest in Commodities

Commodity provides true diversification in financial portfolio
Commodity act as hedge against risks involved in business
Rising income will ensure Inflation which in turn will ensure bull
market in commodites

Explosion of population and shriking agricultural land would leave

commodity scarce

Returns chasing funds & investors (traders, investor &HNI) will

make it vibrant
Consumption / Spending in infrastructure / GDP growth will lead to
depletion of metals
Secular bull market in commodities is likely to continue

Who Can Invest

Hedgers : Risk Management

o Consumers Refineries, food processing companies

o Traders, exporters, importers
o Producers farmers, Integrated producers

Speculators: High Volatility Higher Leverage

o Retail investors, Commodity spot trader
o Institutional, Corporate & proprietary traders

Arbitrageurs : Safe Opportunist

o Spot future arbitrage

o Spread Strategies
o Intra and inter market arbitrage

Investors: Portfolio diversifier

o Individuals, Pension & Mutual Funds
o Corporate bodies

Index
Definition
Commodity As Asset Class
Commodity Uniqueness
Classification of Commodities
Indian Commodity Market Size
Commodities Offered for Trading
Why Commodities
How to Invest
Commodities @ Way2Wealth

How to Invest
Procedure for Trading in Commodities

Open Demat & Trading A/C (Way2Wealth)

Filling KYC (Know Your Customer)
Documents required : Pan Card, Address Proof, Networth, Cancelled cheque
(MICR), Photo etc

To get familiar with this asset class, start reading research reports and
monitor advisory and execution

Acquire full knowledge of risk involved in futures

Mark to Market
Daily Pay-in & pay-out
Margin requirements
Contract expiry & rollover
Leverage, profit & loss etc

Index
Definition
Commodity As Asset Class
Commodity Uniqueness
Classification of Commodities
Indian Commodity Market Size
Commodities Offered for Trading
Why Commodities
How to Invest
Commodities @ Way2Wealth

Research @ Way2Wealth
Methodology - Analysis
Fundamental
Supply-n-demand, crop survey, climatic changes, policies, logistics,
specifications, delivery stocks, physical market linkages, Cartel move, etc
Technical
Chart patterns, indicators etc
Derivative
Volume and Open Interest Change, Contract duration, rollover, Relative
analysis with other markets etc
Statistical
Arima modelling, Correlation & regression study, Deviation, Time series,
Seasonality, Ratio study etc.

Research Products @ Way2Wealth

Products
Strategies
Arbitrage / Spreads
Hedging All commodities
Trading / Investment advisory

Reports

Daily
Weekly
Special
Events
Commodity Profiles

Special Support
Need based special coverage of non futures commodities like Coal,
Chemicals, Naptha, Freight, Carbon credits etc. (on cost basis)

Products @ Way2Wealth
Trading Products

Based on Fundamental / Technical / Derivatives & Algorithm

Plain vanilla Trading
Customised Trading

Investing Products

Algorithm or statistical based

Trend chasing, Money management principle, premium brokerage
Strong execution skills

The People @ Way2Wealth

Sunil Ramrakhiani

- COO

More than 15 years in industry. Founder member NCDEX, Member of product committee,
Regular speaker in various forum

Vinay Tiwary

- Sales Head

More than 8 years in industry. Have worked with prominent exchange as product head for
bullions.

Shantanu Bhardwaj

- Head Business Analytics & Product Development

More than 8 years in industry. Conceptualise & Launched pulses & Guarseed contracts in
NCDEX. Have worked as Regional Manager west in IL&FS Investsmart.

Brajendra Talesara

- Head Dealing & Arbitrage desk

More than 12 years experience in industry. Strong execution skills. Have worked in Anand
Rathi, Investsmart etc.

The People @ Way2Wealth

K N Rahaman

- Research Head

More than 10 years in Industry. Former Research Head in Agriwatch & Investsmart.
Consultancy Projects done for ADB, JBIC, ICICI, OXFAM, DUPONT etc. Member of All
India crop forecasting committee (industry) for pulses & oilseeds.

Prasad MSR

- Research Analyst

More than 6 years in industry as Research analyst for various commodities. Have worked
with IL&FS Investsmart, Transgraph etc

Krishna Reddy

- Research Analyst

More than 6 years in industry as Research Analyst for various commodities. Have worked in
IL&FS investsmart

Thank you
Team Commodities