A Study on Financial Investment in Indian Commodity Market

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Minor Project Report on

A Study on Financial Investment in Indian CommodityMarket

Submitted in partial fulfilment of the requirement of the

Bachelor of Business Management Degree

Offered by Jain University during the year 2012

By

Name: Charanpreet Singh

Reg No: 11bbm20051

Semester: IIIrdSection: F

Under the guidance of

R.Ratchana

M.com (CA), M.phil, MBA

#1/1-1, Atria Tower, Palace Road, Bangalore560001, India

Phone: +91 80 43430200 |Fax: +91 80 22353215

E-mail:[email protected] | Website:www.cms.ac.in
mailto:[email protected]:[email protected]:[email protected]://www.cms.ac.in/http://www.cms.ac.in/http://www.cms.ac.in/http://www.cms.ac.in/mailto:[email protected]


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Certificate

Awarded to Charanpreet Singh

This is to certify that the Minor Project entitledA Study on Financial

Investment in Indian Commodity Market has been submitted in partial

fulfilment of the requirement for the Degree of Business Management of Jain

University.

Date: Head

Place: JU-CMS


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Certificate

This is to certify that the project titledA Study on Financial Investment inIndian Commodity Marketis a record of the original and independent work

carried byCharanpreet Singhunder my guidance and supervision.

This has not previously formed the basis of the award of any degree/diploma

or other similar title of recognition.

Date :

Place: Guide Signature


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Declaration

I, hereby declare that this minor project titledA Study on Financial Investment

in Indian Commodity Market for is prepared by during the academic

year 2012 under the guidance of Ms.R. Ratchana

This project is not based on any previously submitted project for the award of

any degree or diploma offered by any University. It is the result of my own

effort.

Name:Charanpreet Singh

Sem:III rd SEM

Reg No:11BBM20051

Date:

Place: Bangalore Signature


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Contents

Chapter 1Introduction

Chapter 2Company profile, specifically % of business when

compared to competitors. Highlights of financials of the

company annual report a minimum of two years.

Chapter 3Methodology of the study/Design of the study of

minor projectThe student should take one major problems in

any one functional area like Finance, Marketing, Production,

Human Resource and Systems and make a detailed study on

that area.

Chapter 4Data analysis and interpretation

Chapter 5Summary of findings, suggestions and conclusions

Annexure

Bibliography


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Chapter 1

INTRODUCTIONThe world has changed and so has investing. The market is shell shocked and

yesterdays momentum stocks are todays slow-motion stocks. But in the new reality

of low-growth investing, commodities are hot and getting hotter. A rapidly

industrializing and urbanizing Asia will be demanding lots more copper, zinc, iron ore,

coal, fertilizers, gold and oil to transform their societies. Commodities are it and thats

great news for investors who want to profit from the next great bull market in

commodities. In fact, commodities may be about the only asset class that is likely to

outperform the broad market in the future.

Although they are without a doubt important to the global economy, commodities are

among the most misunderstood of all asset classes. Stocks, bonds and real estate all

have legions of followers and plenty of experts agree on their importance within an

investment portfolio, but venture into the world of commodities and you are into an

area thats intimidating to the average investor, where suspicions run deep and

understanding is limited. As a result, commodities get short-shrift in most investment

accounts and investors miss out on some important opportunities.


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Most people have the impression that commodity markets are very complex and

difficult to understand. Actually, they are not. There are several basic facts that one

must know, and once these are understood one should have little difficulty

understanding the nature of futures markets and how they function.

First, a commodity futures market (or exchange) is, in simple terms, nothing more orless than a public market place where commodities are contracted for purchase or sale

at an agreed price for delivery at a specified date. These purchases and sales, which

must be made through a broker who is a member of an organized exchange, are made

under the terms and conditions of a standardized futures contract.

The primary distinction between a futures market and a market in which actual

commodities are bought and sold, either for immediate or later delivery, is that in the

futures market one deals in standardized contractual agreements only. These

agreements (more formally called futures contracts) provide for delivery of a specified

amount of a particular commodity during a specified future month, but involve no

immediate transfer of ownership of the commodity involved.

In other words, one can buy and sell commodities in a futures market regardless of

whether or not one has, or owns, the particular commodity involved. When one deals

in futures one need not be concerned about having to receive delivery (for the buyer)

or having to make delivery (for the seller) of the actual commodity, providing of

course that one does not buy or sell a future during its delivery month. One may at any

time cancel out a previous sale by an equal off setting purchase, or a previous

purchase by an equal offsetting sale. If done prior to the delivery month the tradescancel out and thus there is no receipt or delivery of the commodity.

Actually, only a very small percentage, usually less than two percent, of the total

futures contracts that are entered into are ever settled through deliveries. For the most

part they are cancelled out prior to the delivery month in the manner just described

Indian markets have recently thrown open a new avenue for retail investors and

traders to participate: commodity derivatives. For those who want to diversify their

portfolios beyond shares, bonds and real estate, commodities are the best option.

Till some months ago, this wouldn't have made sense. For retail investors could have

done very little to actually invest in commodities such as gold and silver or oilseeds in

the futures market. This was nearly impossible in commodities except for gold and

silver as there was practically no retail avenue for punting in commodities.

However, with the setting up of three multi-commodity exchanges in the country,

retail investors can now trade in commodity futures without having physical stocks!

Commodities actually offer immense potential to become a separate asset class formarket-savvy investors, arbitrageurs and speculators. Retail investors, who claim to


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understand the equity markets, may find commodities an unfathomable market. But

commodities are easy to understand as far as fundamentals of demand and supply are

concerned. Retail investors should understand the risks and advantages of trading in

commodities futures before taking a leap. Historically, pricing in commodities futures

has been less volatile compared with equity and bonds, thus providing an efficientportfolio diversification option.

In fact, the size of the commodities markets in India is also quite significant. Of the

country's GDP of Rs 13, 20,730 core (Rs 13,207.3 billion), commodities related (and

dependent) industries constitute about 58 per cent.

Currently, the various commodities across the country clock an annual turnover of

Rs 1, 40,000 cores (Rs 1,400 billion). With the introduction of futures trading, the size

of the commodities market grows many folds here on.

Like any other market, the one for commodity futures plays a valuable role in

information pooling and risk sharing. The market mediates between buyers and sellers

of commodities, and facilitates decisions related to storage and consumption of

commodities. In the process, they make the underlying market more liquid.

Instability of commodity prices has always been a major concern of the producers as

well as the consumers in an agriculture dominated country like India. Farmers direct

exposure to price fluctuations, for instance, makes it too risky for many farmers to

invest in otherwise profitable activities. There are various ways to cope with thisproblem.

Apart from increasing the stability of the market, various factors in the farm sector

can better manage their activities in an environment of unstable prices through

derivative markets. These markets serve a risk -shifting function, and can be used to

lock -in prices instead of relying on uncertain price developments.

Both forwards and futures contracts have specific utility to commodity producers,

Merchandisers and consumers. Apart from being a vehicle for risk transfer among

hedgers and from hedgers to speculators, futures markets also play a major role in

price discovery.

Commodities have attracted considerable interest as a financial investment in recent

years. This project discusses the factors behind their growing appeal and assesses the

extent to which market characteristics, such as price volatility, have changed as a

result. The feature concludes that commodity markets have become more like

financial markets in terms of the motivations and strategies of participants, but that the

physical characteristics of commodity markets are still important.


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INDUSTRY PROFILE

BROKERSHIP CONCEPT

A broker is an individual or party (brokerage firm) that arranges transactions between

abuyerand aseller, and gets acommissionwhen the deal is executed. A broker who

also acts as a seller or as a buyer becomes aprincipalparty to the deal.

Distinguishagent: one who acts on behalf of a principal.Brokers also can furnish

considerable market information regarding prices, products and market conditions.

Brokers may represent either the seller (90 percent of the time) or the buyer (10percent) but not both at the same time. An example would be a stockbroker, who

makes the sale or purchase of securities on behalf of his client. Brokers play a huge

role in the sale of stocks, bonds and other financial services.

A brokerage firm, or simply brokerage, is afinancial institutionthat facilitates the

buying and selling offinancial securitiesbetween a buyer and a seller. Brokerage

firms serve a clientele of investorswho trade public stocks and other securities,

usually through the firm's agentstockbrokers. A traditional, or "full service",

brokerage firm usually undertakes more than simply carrying out a stock or bond

trade. The staff of this type of brokerage firm is entrusted with the responsibility of
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researching the markets to provide appropriate recommendations and in so doing them

direct the actions of pension fund managers andportfolio managersalike. These firms

also offer margin loans for certain approved clients to purchase investments on credit,

subject to agreed terms and conditions. Traditional brokerage firms have also become

a source of up-to-date stock prices and quotes.A commodity broker is a firm or individual who executes orders to buy or

sellcommodity contractson behalf of clients and charges them acommission. A firm

or individual who trades for his own account is called atrader. Commodity contracts

includefutures,options, and similarfinancial derivatives. Clients who trade

commodity contracts are eitherhedgerusing the derivatives markets to manage risk,

orspeculatorswho are willing to assume that risk from hedgers in hopes of a profit.

While historically commodity brokers traded grain and livestock futures contracts,

today commodity brokers trade a wide variety of financial derivatives based on not

only grain and livestock, but also derivatives based onfoods/softs,metals,energy,stock indexes,equities,bonds,currencies, and an ever

growing list of other underlying assets. Ever since the 1980s, the majority of

commodity contracts traded are financial derivatives with financial underlying assets

such as stock indexes and currencies.

COMMODITY BROKERS;

Floor Broker/Trader:An individual who trades commodity contracts on the floor of acommoditiesexchange. When executing trades on behalf of a client in exchange for a commissionhe is acting in the role of a broker. When trading on behalf of his own account, or forthe account of his employer, he is acting in the role of a trader.Floor tradingisconducted in the pits of a commodity exchange viaopen outcry.

Futures Commission Merchant (FCM):

A firm or individual that solicits or accepts orders for commodity contracts traded onan exchange and holds client funds tomargin, similar to a securitiesbroker-dealer.

Most individual traders do not work directly with a FCM, but rather through an IB orCTA.

Introducing Broker (IB):

A firm or individual that solicits or accepts orders for commodity contracts traded onan exchange. IBs do not actually hold customer funds to margin. Client funds tomargin are held by a FCM associated with the IB.

Commodity Trading Advisor (CTA):

A firm or individual that, for compensation or profit, advises others, on the trading of

commodity contracts. They advisecommodity poolsand offermanagedfuturesaccounts. Like an IB, a CTA does not hold customer funds to margin; they are
http://en.wikipedia.org/wiki/Portfolio_managershttp://en.wikipedia.org/wiki/Portfolio_managershttp://en.wikipedia.org/wiki/Portfolio_managershttp://en.wikipedia.org/wiki/Commodity_markethttp://en.wikipedia.org/wiki/Commodity_markethttp://en.wikipedia.org/wiki/Commodity_markethttp://en.wikipedia.org/wiki/Commission_(remuneration)http://en.wikipedia.org/wiki/Commission_(remuneration)http://en.wikipedia.org/wiki/Commission_(remuneration)http://en.wikipedia.org/wiki/Trader_(finance)http://en.wikipedia.org/wiki/Trader_(finance)http://en.wikipedia.org/wiki/Trader_(finance)http://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Option_(finance)http://en.wikipedia.org/wiki/Option_(finance)http://en.wikipedia.org/wiki/Option_(finance)http://en.wikipedia.org/wiki/Financial_derivativeshttp://en.wikipedia.org/wiki/Financial_derivativeshttp://en.wikipedia.org/wiki/Financial_derivativeshttp://en.wikipedia.org/wiki/Hedge_(finance)http://en.wikipedia.org/wiki/Hedge_(finance)http://en.wikipedia.org/wiki/Hedge_(finance)http://en.wikipedia.org/wiki/Speculatorshttp://en.wikipedia.org/wiki/Speculatorshttp://en.wikipedia.org/wiki/Speculatorshttp://en.wikipedia.org/wiki/Metalshttp://en.wikipedia.org/wiki/Metalshttp://en.wikipedia.org/wiki/Metalshttp://en.wikipedia.org/wiki/Energyhttp://en.wikipedia.org/wiki/Energyhttp://en.wikipedia.org/wiki/Energyhttp://en.wikipedia.org/wiki/Stock_indexeshttp://en.wikipedia.org/wiki/Stock_indexeshttp://en.wikipedia.org/wiki/Stock_indexeshttp://en.wikipedia.org/wiki/Equitieshttp://en.wikipedia.org/wiki/Equitieshttp://en.wikipedia.org/wiki/Equitieshttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Currencieshttp://en.wikipedia.org/wiki/Currencieshttp://en.wikipedia.org/wiki/Currencieshttp://en.wikipedia.org/wiki/Commodities_exchangehttp://en.wikipedia.org/wiki/Commodities_exchangehttp://en.wikipedia.org/wiki/Commodities_exchangehttp://en.wikipedia.org/wiki/Commodities_exchangehttp://en.wikipedia.org/wiki/Floor_tradinghttp://en.wikipedia.org/wiki/Floor_tradinghttp://en.wikipedia.org/wiki/Floor_tradinghttp://en.wikipedia.org/wiki/Open_outcryhttp://en.wikipedia.org/wiki/Open_outcryhttp://en.wikipedia.org/wiki/Open_outcryhttp://en.wikipedia.org/wiki/Margin_(finance)http://en.wikipedia.org/wiki/Margin_(finance)http://en.wikipedia.org/wiki/Margin_(finance)http://en.wikipedia.org/wiki/Broker-dealerhttp://en.wikipedia.org/wiki/Broker-dealerhttp://en.wikipedia.org/wiki/Broker-dealerhttp://en.wikipedia.org/wiki/Commodity_poolshttp://en.wikipedia.org/wiki/Commodity_poolshttp://en.wikipedia.org/wiki/Commodity_poolshttp://en.wikipedia.org/wiki/Hedge_fundhttp://en.wikipedia.org/wiki/Hedge_fundhttp://en.wikipedia.org/wiki/Hedge_fundhttp://en.wikipedia.org/wiki/Hedge_fundhttp://en.wikipedia.org/wiki/Hedge_fundhttp://en.wikipedia.org/wiki/Hedge_fundhttp://en.wikipedia.org/wiki/Commodity_poolshttp://en.wikipedia.org/wiki/Broker-dealerhttp://en.wikipedia.org/wiki/Margin_(finance)http://en.wikipedia.org/wiki/Open_outcryhttp://en.wikipedia.org/wiki/Floor_tradinghttp://en.wikipedia.org/wiki/Commodities_exchangehttp://en.wikipedia.org/wiki/Commodities_exchangehttp://en.wikipedia.org/wiki/Currencieshttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Equitieshttp://en.wikipedia.org/wiki/Stock_indexeshttp://en.wikipedia.org/wiki/Energyhttp://en.wikipedia.org/wiki/Metalshttp://en.wikipedia.org/wiki/Speculatorshttp://en.wikipedia.org/wiki/Hedge_(finance)http://en.wikipedia.org/wiki/Financial_derivativeshttp://en.wikipedia.org/wiki/Option_(finance)http://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Trader_(finance)http://en.wikipedia.org/wiki/Commission_(remuneration)http://en.wikipedia.org/wiki/Commodity_markethttp://en.wikipedia.org/wiki/Portfolio_managers


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held at a FCM. CTAs exercise discretion over their clients' accounts, meaning thatthey have power of attorney to trade the clients account on his behalf according to theclient's trading objectives. A CTA is generally the commodity equivalent to afinancialadvisorormutual fundmanager.

Commodity Pool Operator (CPO):A firm or individual that operates commodity pools advised by a CTA. A commodity

pool is essentially the commodity equivalent to a mutual fund.

Registered Commodity Representative (RCR)/Associated Person (AP):

An employee, partner or officer of a FCM, IB, CTA, or CPO, duly registered andlicensed to conduct the activities of a FCM, IB, CTA, or CPO. This is the commodityequivalent to aregistered representative.

REGULATION

A single firm or individual may be registered and act in more than one capacity. In the

United States, an individual working in any of the above roles must pass the Series 3

National Commodity Futures Examination administered by theFinancial IndustryRegulatory Authority (FINRA). With few exceptions, most individuals who act as a

FCM, IB, CTA, and CPO, as well as their RCR/APs, are required to register with

theCommodity Futures Trading Commission (CFTC), and be members of

theNational Futures Association(NFA). Floor brokers/traders who are members or

employees of a commodity exchange generally do not need to be members of the

NFA, as they are regulated by the exchange.

BROKERAGE FEE

A fee charged by an agent, or agents company to facilitate transactions between

buyers and sellers. The brokerage fee is charged for services such as negotiations,

sales, purchases, delivery or advice on the transaction. There are many types of

brokerage fees added in areas such as insurance, realty, delivery services or

stocks. Brokerage fees will usually be based on either a percentage of the transaction

or a flat fee. They can also be a combination of the two.

SUMMARY ABOUT COMMODITY BROKERAGESHIP

STRENGTHS;
http://en.wikipedia.org/wiki/Financial_advisorhttp://en.wikipedia.org/wiki/Financial_advisorhttp://en.wikipedia.org/wiki/Financial_advisorhttp://en.wikipedia.org/wiki/Financial_advisorhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Registered_representativehttp://en.wikipedia.org/wiki/Registered_representativehttp://en.wikipedia.org/wiki/Registered_representativehttp://en.wikipedia.org/wiki/Financial_Industry_Regulatory_Authorityhttp://en.wikipedia.org/wiki/Financial_Industry_Regulatory_Authorityhttp://en.wikipedia.org/wiki/Financial_Industry_Regulatory_Authorityhttp://en.wikipedia.org/wiki/Financial_Industry_Regulatory_Authorityhttp://en.wikipedia.org/wiki/Commodity_Futures_Trading_Commissionhttp://en.wikipedia.org/wiki/Commodity_Futures_Trading_Commissionhttp://en.wikipedia.org/wiki/Commodity_Futures_Trading_Commissionhttp://en.wikipedia.org/wiki/National_Futures_Associationhttp://en.wikipedia.org/wiki/National_Futures_Associationhttp://en.wikipedia.org/wiki/National_Futures_Associationhttp://en.wikipedia.org/wiki/National_Futures_Associationhttp://en.wikipedia.org/wiki/Commodity_Futures_Trading_Commissionhttp://en.wikipedia.org/wiki/Financial_Industry_Regulatory_Authorityhttp://en.wikipedia.org/wiki/Financial_Industry_Regulatory_Authorityhttp://en.wikipedia.org/wiki/Registered_representativehttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Financial_advisorhttp://en.wikipedia.org/wiki/Financial_advisor


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Huge market potential given the under-penetration of commodities as aninvestment avenue amongst Indian investor community and an increasinginvestor interest in new market segments like equity, currency futures, interestrate derivatives.Adequate capitalization levels, at least for larger players provides cushion toabsorb potential losses resulting from the short term challenges in theoperating environment.A relatively diversified revenue profile at least for the larger players.A more flexible cost structure arising from the increasing reliance onfranchisee model.

CHALLENGES;

Protecting brokerage yields and market share in the highly competitive andfragmented commodity brokerage industry; further accentuated by the risingshare of the low yielding options segment.

Volatility in earnings and profitability due to linkages with vagaries of capitalmarket and increasing cost of regulatory compliances.

Achieving a critical scale of operations and managing costs to sustainprofitability even in a prolonged dull phase.

Managing the inherent refinancing risk as players scale up capital marketfunding book.

Continue investing in upgrading the risk management systems and monitoringpolicies to mitigate associated risks, especially during periods of extrememarket volatility.

Scaling up the non broking business lines to diversify revenue streams whilecontaining risks.

Greater dominance of the foreign brokerage houses in the institutional brokingsegment

TOP BROKERAGE FIRMS IN INDIAN CONTEXT

Brokerage firms are the business entities that deal with stock trading. India, with an

increasing capital market and a growing number of investors, has a number of brokerage

firms. In Indian retail brokerage industry, the brokerage firms primarily work as agents for

buying and selling of securities like shares, stocks and other financial instruments and earn


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commission for each of the transactions. There are plenty of brokerage firms in India. Let's

have a look at the top 10 brokerage firms in India.

Before talking anything about top brokerage firms in India, let's have a glance at the Indian

retail brokerage market, which is going through a wonderful phase with high growth rate. The

total trading volume of the Indian brokerage companies stood at US$ 1239.1 billion in theyear 2004, which increased to US$ 1492.1 billion in 2005. It is further expected to reach US$

6535.7 billion by the year 2015.

TOP TEN COMMODITY BROKERAGE FIRMS IN INDIA

Name Kotak Securities Limited

Terminals 4320

Sub Brokers 910

No. of

Employees4008

No. of Branches 350

Name Karvy Stock Broking Limited

Terminals 1700

Sub Brokers 19000

No. of

Employees3910

No. of Branches 581

Name India bulls

Terminals 2876

Sub Brokers NA

No. of

Employees5873

No. of Branches 522

Name IL&FS Investmart Limited

Terminals 1644


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Sub Brokers NA

No. of

Employees1900

No. of Branches 294Name MotilalOswal Securities

Terminals 7923

Sub Brokers 890

No. of

Employees2193

No. of Branches 63

Name Reliance MoneyTerminals 2428

Sub Brokers 1494

No. of

Employees2037

No. of Branches 142

Name India Infoline

Terminals 173

Sub Brokers 173

No. of

EmployeesNA

No. of Branches 605

Name Angel Broking Limited

Terminals 5715

Sub Brokers NA

No. of

Employees284

No. of Branches NA

Name AnandRathi Securities Limited

Terminals 1527


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Sub Brokers 320

No. of

Employees4566

No. of Branches 220

Name Geojit

Terminals 627

Sub Brokers 247

No. of

Employees343

No. of Branches 314

Business Today 2012 may issue

There are basically two types of trading on market

Delivery Intraday

Delivery trading is one in which shares are bought and can only be sold after they aredelivered by the broker that means that they cannot be sold the same day, and delivery

takes two to three days after they are bought and then they are ready to be sold.

Intraday trading which takes place for that very particular day and there is no delivery

they can be bought and sold the same day and are automatically sold at the end of the

trading session if you have not sold it by yourself during the trading session.

Brokerage is usually negotiable: Several of you trying to choose an online broker and

open an online trading account must have been frustrated trying to search for the exactbrokerage charges charged by various online brokers. But the fact is the brokerage

charged by the same broker varies and in several cases is negotiable. For example if

you go and tell a brokerage house that you are going to deposit 2 lakh rupees and try

to convince them you are going to trade heavily, they might consider reducing your

brokerage. That is why in the above table you will find only a range for the brokerage

charges in some cases. But that should be enough to get an idea.

Effective brokerage with taxes is more: In addition to the above brokerage charges

you will have to pay STT (Securities Transaction Tax) at the rate or 0.02% of thetotal transaction amount. You will also be charged 12.5% Service Tax on the


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brokerage amount (and not on the transaction amount). For example, if your brokerage

is 0.50% for delivery and you do a delivery transaction of Rs.100/- then the total

brokerage you pay is 0.50 (brokerage) + 0.02 (stt) + 0.063 (service tax) = 0.58.

Thus our effective brokerage (including all taxes) will be 0.58%. Similarly forbrokerage on intraday transactions.

One may also like to compare brokerages charged by the online brokers mentioned

above for trading in futures and options. I have traded options on SBICAP securities

and have been charged Rs.100/- flat brokerage fee for every options trade. I will

probably find out and also add a comparison table for brokerage charges for trading

derivatives (futures and options) later, if i see enough people Google searching for the

same. For futures, some online brokers charge different brokerage for different legs of

the trade, i.e. different for buy and sell trade.

COMMODITY AND COMMODITY MARKET

The vast geographical extent of India and her huge population is aptly complemented

by the size of her market. The broadest classification of the Indian Market can be

made in terms of the commodity market and the bond market. The commodity market

in India comprises of all palpable markets that we come across in our daily lives. Such

markets are social institutions that facilitate exchange of goods for money. The cost of

goods is estimated in terms of domestic currency. Electronic trading and settlement of

transactions has created a revolution in global financial and commodity markets.

A commodity is a product that has commercial value, which can be produced, bought,

sold, and consumed. Commodities are basically the products of the primary sector of

an economy. The primary sector of an economy is concerned with agriculture and

extraction of raw materials such as metals, energy (crude oil, natural gas), etc., which

serve as basic inputs for the secondary sector of the economy.Ineconomics,

a commodity is the generic term for any marketable item produced to

satisfywantsorneeds. Economic commodities comprisegoodsandservices.

A commodity has full or partialfungibility; that is, the market treats it as equivalent

or nearly so no matter who produces it. "From the taste of wheat it is not possible to

tell who produced it, a Russian serf, a French peasant or an English

capitalist."Petroleumandcopperare examples of such commodities. The price of

copper is universal, and fluctuates daily based on global supply and demand. Items

such as stereo systems, on the other hand, have many aspects of product

differentiation, such as thebrand, the user interface, the perceived quality etc. And,

the more valuable a stereo is perceived to be, the more it will cost.

COMMODITY MARKET
http://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Wantshttp://en.wikipedia.org/wiki/Wantshttp://en.wikipedia.org/wiki/Wantshttp://en.wikipedia.org/wiki/Needshttp://en.wikipedia.org/wiki/Needshttp://en.wikipedia.org/wiki/Needshttp://en.wikipedia.org/wiki/Good_(economics)http://en.wikipedia.org/wiki/Good_(economics)http://en.wikipedia.org/wiki/Good_(economics)http://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Fungibilityhttp://en.wikipedia.org/wiki/Fungibilityhttp://en.wikipedia.org/wiki/Fungibilityhttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Copperhttp://en.wikipedia.org/wiki/Copperhttp://en.wikipedia.org/wiki/Copperhttp://en.wikipedia.org/wiki/Brandhttp://en.wikipedia.org/wiki/Brandhttp://en.wikipedia.org/wiki/Brandhttp://en.wikipedia.org/wiki/Brandhttp://en.wikipedia.org/wiki/Copperhttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Fungibilityhttp://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Good_(economics)http://en.wikipedia.org/wiki/Needshttp://en.wikipedia.org/wiki/Wantshttp://en.wikipedia.org/wiki/Economics


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Commodity market is an important constituent of the financial markets of any

country. It is the market where a wide range of products, viz., precious metals, base

metals, crude oil, energy and soft commodities like palm oil, coffee etc. are traded. It

is important to develop a vibrant, active and liquid commodity market. This would

help investors hedge their commodity risk, take speculative positions in commoditiesand exploit arbitrage opportunities in the market.

The commodities market is actually a collection of 48 worldwide markets that trade

96 commodities. Everything from silver to orange juice concentrate can be sold. The

largest market here in the United States is located in Chicago. Smaller in size and

fame, the Chicago Mercantile Exchange or CME trades in a large amount of

commodities.

STRUCTURE OF COMMODITY MARKET

HISTORY OF EVOLUTION OF COMMODITY MARKET

Commodities trading was evolved from need of assured continuous supply

of seasonal agricultural crops. The concept of organized trading in commodities

evolved in Chicago, in 1848. But one can trace its roots in Japan. In 19th century

Chicago in United States had emerged as a major commercial hub. So that wheat

producers from Mid-west attracted here to sell their produce to dealers & distributors.

Due to lack of organized storage facilities, absence of uniform weighing & grading

mechanisms producers often confined to the mercy of dealers discretion. These

situations lead to need of establishing a common meeting place for farmers and


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dealers to transact in spot grain to deliver wheat and receive cash in return. Gradually

sellers & buyers started making commitments to exchange the produce for cash in

future and thus contract for futures trading evolved; Whereby the producer would

agree to sell his produce to the buyer at a future delivery date at an agreed upon price.

Trading of wheat in futures became very profitable which encouraged the entry ofother commodities in futures market. This created a platform for establishment of a

body to regulate and supervise these contracts. Thats why Chicago Board of Trade

(CBOT) was established in 1848. In 1870 and 1880s the New York Coffee, Cotton and

Produce Exchanges were born. Agricultural commodities were mostly traded but as

long as there are buyers and sellers, any commodity can be traded. In 1872, a group of

Manhattan dairy merchants got together to bring chaotic condition in New -York

market to a system in terms of storage, pricing, and transfer of agricultural products.

The largest commodity exchange in USA is Chicago Board of Trade, The Chicago

Mercantile Exchange, the New York Mercantile Exchange, the New York Commodity

Exchange and New York Coffee, sugar and cocoa Exchange. Worldwide there are

major futures trading exchanges in over twenty countries including Canada, England,

India, France, Singapore, Japan, Australia and New Zealand.

COMMODITY MARKET AND INDIA

Organized futures market evolved in India by the setting up of "Bombay Cotton Trade

Association Ltd." in 1875. In 1893, following widespread discontent amongst

leadingcottonmill owners and merchants over the functioning of the Bombay Cotton

TradeAssociation, aseparate association by the name "Bombay Cotton Exchange Ltd." was

constituted. A future trading in oil seeds was organized in India for the first time with

the setting up of GujaratiVyapariMandali in 1900, which carried on futures trading in

groundnut, castor seed andcotton. Before the Second World War broke out in 1939

several futures markets in oilseedswere functioning in Gujarat and Punjab.

A three-pronged approach has been adopted to revive and revitalize the market.

Firstly, on policy front many legal and administrative hurdles in the functioning of the

markethave been removed. Forward trading was permitted in cotton and jute goods in1998, followed by some oilseeds and their derivatives, such as groundnut, mustard

seed, sesame,cottonseed etc. in 1999. A statement in the first ever National Agriculture

Policy, issued inJuly, 2000 by the government that futures trading will be encouraged

in increasing number ofagricultural commodities was indicative of welcome change in

the government policytowards forward trading.

Secondly, strengthening of infrastructure and institutional capabilities of the regulator

and the existing exchanges received priority. Thirdly, as the existing exchanges are

slow toadopt reforms due to legacy or lack of resources, new promoters with resourcesand


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Professional approach were being attracted with a clear mandate to set up

dematerialized,

technology driven exchanges with nationwide reach and adopting best international

practices.

The year 2003 marked the real turning point in the policy framework for commodity

market when the government issued notifications for withdrawing all prohibitions and

Opening up forward trading in all the commodities. This period also witnessed other

reforms,such as, amendments to the Essential Commodities Act, Securities (Contract)

Rules, whichhave reduced bottlenecks in the development and growth of commodity

markets. Of thecountry's total GDP, commodities related (and dependent) industries

constitute about roughly50-60 %, which itself cannot be ignored.

TYPES OF COMMODITIES

World-over one will find that a market exits for almost all the commodities known to

us. These commodities can be broadly classified into the following:

Precious Metals: Gold, Silver, and Platinum etc

Other Metals: Nickel, Aluminum, Copper etc

Agro-Based Commodities: Wheat, Corn, Cotton, Oils, Oilseeds.

Soft Commodities: Coffee, Cocoa, Sugar etc

Live-Stock: Live Cattle, Pork Bellies etcEnergy: Crude Oil, Natural Gas, Gasoline etc

COMMODITY EXCHANGESMost of the existing Indian commodity exchanges are single commodity platformsare

regional in nature, run mainly by entities which trade on them resulting in

substantialconflict of interests, opaque in their functioning and have not used

technology to scale uptheir operations and reach to bring down their costs. But with

the strong emergence ofNational Multi-commodity Exchange Ltd., Ahmadabad

(NMCE), Multi CommodityExchange Ltd., Mumbai (MCX), National Commoditiesand Derivatives Exchange, Mumbai(NCDEX), and National Board of Trade, Indore

(NBOT), all these shortcomings will beaddressed rapidly. These exchanges are

expected to be role model to other exchanges and arelikely to compete for trade not

only among themselves but also with the existing exchanges.

The current mindset of the people in India is that the Commodity exchanges

arespeculative (due to non delivery) and is not meant for actual users. One major

reason beingthat the awareness is lacking amongst actual users. In India, Interest rate

risks, exchange raterisks are actively managed, but the same does not hold true for the

commodity risks. Someadditional impediments are centered on the safety,transparency and taxation issues.


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LARGEST COMMODITY EXCHANGES IN THE WORLD

Chapter 2

COMPANY PROFILE

Exchange Country Volume per month $M

CME Group USA 19[6]

Tokyo Commodity

ExchangeJapan -

NYSE Euronext USA -

Dalian Commodity

ExchangeChina -

Multi Commodity Exchange India -

Intercontinental Exchange USA, Canada, China, UK -

Africa Mercantile

ExchangeAfrica -
http://en.wikipedia.org/wiki/CME_Grouphttp://en.wikipedia.org/wiki/CME_Grouphttp://en.wikipedia.org/wiki/Commodity_market#cite_note-5http://en.wikipedia.org/wiki/Commodity_market#cite_note-5http://en.wikipedia.org/wiki/Tokyo_Commodity_Exchangehttp://en.wikipedia.org/wiki/Tokyo_Commodity_Exchangehttp://en.wikipedia.org/wiki/Tokyo_Commodity_Exchangehttp://en.wikipedia.org/wiki/NYSE_Euronexthttp://en.wikipedia.org/wiki/NYSE_Euronexthttp://en.wikipedia.org/wiki/Dalian_Commodity_Exchangehttp://en.wikipedia.org/wiki/Dalian_Commodity_Exchangehttp://en.wikipedia.org/wiki/Dalian_Commodity_Exchangehttp://en.wikipedia.org/wiki/Multi_Commodity_Exchangehttp://en.wikipedia.org/wiki/Intercontinental_Exchangehttp://en.wikipedia.org/wiki/Intercontinental_Exchangehttp://en.wikipedia.org/wiki/Africa_Mercantile_Exchangehttp://en.wikipedia.org/wiki/Africa_Mercantile_Exchangehttp://en.wikipedia.org/wiki/Africa_Mercantile_Exchangehttp://en.wikipedia.org/wiki/Africa_Mercantile_Exchangehttp://en.wikipedia.org/wiki/Africa_Mercantile_Exchangehttp://en.wikipedia.org/wiki/Intercontinental_Exchangehttp://en.wikipedia.org/wiki/Multi_Commodity_Exchangehttp://en.wikipedia.org/wiki/Dalian_Commodity_Exchangehttp://en.wikipedia.org/wiki/Dalian_Commodity_Exchangehttp://en.wikipedia.org/wiki/NYSE_Euronexthttp://en.wikipedia.org/wiki/Tokyo_Commodity_Exchangehttp://en.wikipedia.org/wiki/Tokyo_Commodity_Exchangehttp://en.wikipedia.org/wiki/Commodity_market#cite_note-5http://en.wikipedia.org/wiki/CME_Group


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NAME OF THE COMPANY

NIRMAL BANG SECURITIES PVT.LTD

LOGO OF THE COMPANY

Green signifies wealth.

Blue signifies loyalty & perseverance.

The logo symbolizes holding hands together to create a relationship

beyond broking.

MISSION

To work Together With Integrity and Makes Our Customer Feel Valued

VISION

To Create Valuable relationship and Provide the Best Most

Professionally

CORE VALUE

Respect our colleagues and The Business itself


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NIRMAL BANG - AN OVERVIEW

Founded in 1986 by Shri Nirmal Bang, the Nirmal Bang Group is recognized as

one of the largest retail broking houses in India, providing an array of financial

products and service.

Throughout the company history, they have fostered one overriding purpose: To

provide each client with personal service and quality work. By adhering to this

principle, company has grown to become a successful and well-respected firm

of highly qualified professionals. The group is headed by Shri Dilip Bang and

Shri Kishore Bang who bring forward industry expertise and strong business

acumen.

A premier financial services organization in broking, providing individual and

co-operates with customized financial solutions. Nirmal Bang realizes the

dreams, needs, aspirations, concerns and resources that are unique and is

reflected in every move we make with and for you. Nirmal Bang has deep

appreciation for the value of building an everlasting relationship with their

clients.

It inherits the legacy of Nirmal Bang Group which has been one of the

dominant entities in financial Markets. The strive to achieve excellence and

dynamic growth has been possible through optimum mix of technology,customer orientation, best business practices, forging alliances, high quality

standards and proactive business culture.

The company mainly dealing with Equities, Derivatives, Commodities,

Currency, Mutual funds, IPOs, Insurance, DP. Here, in Bangalore branch they

are dealing with Equities, Derivatives, Commodity, and Currency factor.

PRODUCT OFFERD


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SERVICES OFFERD

NIRMAL BANG ADVANTAGES AS A BROKERAGE FIRM

PEOPLE;

Treated as greatest asset. Drawn from a diversity of professional backgrounds,their blend of experience, skill and dedication is shared with all clients.

NirmalBang

Commodities

Currency

Mutual

Funds

Depository

PCG

Deriva

tives

IPOs

Insurance

Equities

NirmalBang

OnlinePlatfor

ms MarginFundin

g

AdvanceBrokera

ge

Backoffice

Software

(LD/HAWKEY)

SMSFacility

InternetPresence

AdvisoryServices

E-Contract

Note

CustomerService

Desk


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APPROACH;

Innovative and enthusiastic. We emphasize adequate, thorough research local

and world-wide developments, balancing these with the astute discovery of

intrinsic values, synergies and growth.

AIM;

Simply to help the clients and maximize their returns. The interests no matter

how big or small - come first.

PRODUCTS & SERVICES;

Comprehensive and available to meet every investment financial need.

COMMITMENT;

To provide service, par excellence and become the spirit of change

TEAM WORK OF NIRMAL BANG


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UNIQUE PROPOSITIONS

A very strong and dedicated Research and Advisory desk

One of the highest success ratio in both technical and fundamental calls

An excellent IT infrastructure in place Marketing support to channel partners

Training Programs to upgrade the knowledge base & competency levels

of our employees

Nirmal Bang has subscribed a SPEED-e Facility of NSDL & Easiest

facility of CDSL

RMSMarketing & Sales

Publishing Legal

IT

Resear

ch

Compliance &Surveillance

KY

C

Dp

Dispatch &

Contract Notes

Finance &

Accounts

Demat

CustomerCare

Settlement

HR


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Like NSDLs Ideas and CDSLs Easi, Nirmal Bang has its own website

which shows holding with valuation as clients request and transaction

statement from the date of A/C opening till date.

Free account opening scheme.

KYC operations run in both the shift to ensure a TAT of 36 to 48 hours to

activate client codes.

Analysts have been featuring daily on various business news channels

like:

ET Now

Zee Business

Bloomberg UTV

NDTV

CNBC Awaaz

CNBC TV-18 and

Second by second S.M.S alert is the one of the prospectus of Nirmal

Bang.

INFRASTRUCTURE

Nirmal Bang have Indias best single screen Multi Exchange Trading

Software platform.

Nirmal Bang has trading terminals (both direct and indirect), online

monitoring, control terminals (administration terminals) and back office

support terminals (settlement terminals) across all locations and centres.

Nirmal Bang provide telephonic and chat support for technical and

functional issues of branches, franchises and all our clients

The company uses the LidhaDidha system of Apex Soft cell Pvt. Ltd

which is one of the topmost back office software which has the capacity

to process over one lakh trades in a five minutes time frame.


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The Company website www.nirmalbang.com is comprehensive and

provides online feeds, net trading and portfolio tracking tool.

GEOGRAPHICAL SPREAD

Registered office: Lower-Parel

Present in 26 states

89 Branches

More than 2000 Employees

More than 360 Cities

More than 2000 Franchisees

REAGIONAL HUBS

Mumbai [H.O]

Kerala

Kolkata

JodhpurBhopal

Delhi

Karnataka

Jaipur

Udaipur

Indore

Gujarat

Tamilnadu

Punjab J&K

ACHIEVEMENTS

Over the last two decades we have achieved many a milestones.

We have been awarded Analyst of the year to Mr. Kunal Shah (Head

Commodity Research (Commodity- Fundamentals) by Zee Business andNCDEX as the Indias Best Market Analyst Awards 2011.


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BEYOND MARKET CONCEPT

Beyond Market is a fortnightly magazine which provides readers with

the latest news, interesting stories and articles, key announcements and

insightful excerpts

Targeting different cities since Oct 2009

It also captures current market trends, useful tips on investing and other

latest developments in economy

BEYOND MANDI

A series of commodity camps organized every month in cities like

Mumbai, Delhi, Kolkata, Nagpur, Indore, Bikaner, Ludhiana, Rajkot,

Kanpur, Lucknow and Jaipur

among others

An average of 400-500 people at each camp.

MEDIA COVERAGE


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Mr. Sunil Jain, Mr.MehraboonIrani, Mr. Rahul Arora, Mr. Vishal Jajoo and

Mr.Kunal Shah are regularly featuring on Business channels like Zee Business,

ET Now, Bloomberg UTV etc .They also quoted in magazines, websites,

newswires and newspapers like Outlook Profit, Forbes, The Analysts, Money

control, Economic Times, Financial Chronicle, Business Bhaskar, Bloombergand PTI.Companies Research team have been quoted in the newspapers like

Economic Times and DNA as well.

GROUP OVERVIEW

NIRMAL

BANGGROU

P

NIRMALBANG

SECURITIES

NIRMAL

BANGCOMMODIT

IES

SAKSHAMHOLDING

S

NIRMALBANG

EQUITIESPVT LTD

SHRESTHSECURITI

ES

SHRESTHPROJECT

S

NIRMA

L BANGFINANCIAL

SERVICES PVT

LTD

Dp


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SWOT ANALYSIS ABOUT NIRMAL BANG

STRENGTHS:

23 years of research and broking experience

Understandings of the markets

All financial needs under one roof

Scalable and robust infrastructure

Full fledge research unit comprising of both fundamental & technical research

Dedicated, Qualified and Loyal staff

Flexible Brokerage charges

WEAKNESS:

Low Brand Image in the market.

Low Professionalism

Low AdvertisementsOPPORTUNITY:

Large potential market for delivery and intra-day transactions.

Open interest of the people to enter in to stock market for investing

Attract the customers who are dissatisfied with other brokers & DPs.

Up growing markets in commodity and forex trading

THREATS:

Decreasing rates of brokerage in the market. An Increasing competition against

other brokers & DPs.

Day to day growing completion, Non availability of Employees, Growing

technologies for analysis of markets etc.

An Indirect threat from instable stock market, i.e., low/no profit of NIRMAL

BANG's clients would lead them to go for other broker/DP.

Witness the power of change at Nirmal Bang!

Be the revolutionbe the change


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Chapter 3


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RESEARCH

METHODOLOGY

Research in common parlance refers to search of knowledge. Research comprises

defining and redefining problems, formulating hypothesis or suggested solutions;

collecting, organizing and evaluating data; making deductions and reaching

conclusions; and at last carefully testing the conclusions to determine whether they fit

the formulating hypothesis. D. Slesinger and M. Stephenson in the Encyclopedia of

Social Sciences define research as the manipulation of things, concepts or symbols


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for the purpose of generalizing to extend, correct or verify knowledge, whether that

knowledge aids in construction of theory or in the practice of an art.

In short, the search for knowledge through the objective and systematic method of

finding solution to the problem is research.

OBJECTIVES OF MY RESEARCH:

The purpose of research is to discover answers to questions through the application of

scientific procedures. My objective in doing this research report:

1. To study in detail the trading system in India.

2. To help potential investors to understand the commodity market

trend

3.

To study in which way the broking companies are assisting

investors.

4. To understand the interest of investors in different investment

options.

The research I have done is explanatory in nature. And I am trying to explain the best market

to invest in by comparing a commodity from others.. The price fluctuations, and the increase

or decrease in profits and also comparing the views of people about markets and investment

options available.

DATA COLLECTION:

Data collection is a term used to describe a process of preparing and collecting data, for

example, as part of a process improvement or similar project. The purpose of data collection

is to obtain information to keep on record, to make decisions about important issues, or to

pass information on to others. Data are primarily collected to provide information regarding a

specific topic.

Data collection usually takes place early on in an improvement project, and is often

formalized through a data collection planwhich often contains the following activity.

1. Pre collection activityagree on goals, target data, definitions, methods

2. Collectiondata collection

3. Present Findingsusually involves some form of sortinganalysis and/or

presentation.
http://en.wikipedia.org/wiki/Datahttp://en.wikipedia.org/wiki/Process_improvementhttp://en.wikipedia.org/wiki/Data_collection_planhttp://en.wikipedia.org/wiki/Data_collection_planhttp://en.wikipedia.org/wiki/Process_improvementhttp://en.wikipedia.org/wiki/Data


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Prior to any data collection, pre-collection activity is one of the most crucial steps in the

process. It is often discovered too late that the value of their interview information is

discounted as a consequence of poor sampling of both questions and informants and poor

elicitation techniques. After pre-collection activity is fully completed, data collection in the

field, whether by interviewing or other methods, can be carried out in a structured, systematic

and scientific way.

A formal data collection process is necessary as it ensures that data gathered are both defined

and accurate and that subsequent decisions based on arguments embodied in the findings are

valid. The process provides both a baseline from which to measure from and in certain cases

a target on what to improve. Secondary data collection and analysis was performed.

Secondary datawas collected from various sources such as websites, financial magazines

and newspapers and financial management textbooks.

OBJECTIVE OF THE STUDY

The main and foremost object of my study is to identify the overall structure of awell reputed Financial based organization.

To study the concepts of commodities trading in India.

To study of the various trends in commodity trading

To make understand the process of future commodity trading in India.

To know the investment pattern of commodity traders and people.

To assess the social commitment of a fast growing business.

To study in detail the role of futures and forwards.

To analyse the present situation of the commodities in Indian market and

suggest for any improvements thereafter. To gain first-hand experience from a Financial based industry etc.


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METHOD OF STUDY

Various methods were used to conduct the study. The data used were collected

through;

Various softwares and Company websites. [www.moneycontrol.com,

Forexfactory.com , Squareindia.com] Different Magazines & Articles. [Business Today, Business world, Indian

financial system etc.]

Different levels of Employees and from Sub brokers in Nirmal Bang Etc.


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LIMITATION OF THE STUDY The data collected is completely restricted to Nirmal Bang Securities Pvt.Ltd.

Bangalore ofJulySeptember 2012, hence this analysis cannot be taken universal.

The study was limited to only the main significant investment options in

commodity market.

Most of the information collected is secondary data.

The data is compared and analyzed on the basis of performance of the

investment options over the past five years.

While considering the returns from mutual funds only top performing schemes

were analyzed.

It was very difficult to obtain the date regarding the details of returns of each

investment history.

I havecollected most of the information about the company from my

external guide and from the written works etc.


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VARIOUS INVESTMENT OPTIONS

IN

INDIAN COMMODITY MARKET


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GOLD AS A COMMODITY
http://www.google.co.in/imgres?q=gold+in+commodity+market&start=12&num=10&hl=en&biw=965&bih=659&tbm=isch&tbnid=2nZmh0CI3kYjPM:&imgrefurl=http://mcxncdex-commodity-tips.blogspot.com/&docid=372-CgRWKRlN-M&imgurl=http://4.bp.blogspot.com/-8hfc2tD75I8/T1SRkecgADI/AAAAAAAAACs/3tNoSPeMZYs/s1600/services.jpg&w=300&h=300&ei=mS8ZULq4C4btrAeSu4CgAw&zoom=1http://www.google.co.in/imgres?q=crude+oil+in+commodity+market&num=10&hl=en&sa=X&biw=965&bih=659&tbm=isch&tbnid=PL-vSp6Iy8fHuM:&imgrefurl=http://www.stockwatch.in/trading-strategy-gold-and-silver-futures-commodity-market-outlook-23376&docid=MTPn-d-8F1EfJM&imgurl=http://www.topnews.in/files/gold-bars.jpg&w=400&h=300&ei=GTAZULb7HsfhrAf8ooGIDQ&zoom=1http://www.google.co.in/imgres?q=gold+in+commodity+market&start=12&num=10&hl=en&biw=965&bih=659&tbm=isch&tbnid=2nZmh0CI3kYjPM:&imgrefurl=http://mcxncdex-commodity-tips.blogspot.com/&docid=372-CgRWKRlN-M&imgurl=http://4.bp.blogspot.com/-8hfc2tD75I8/T1SRkecgADI/AAAAAAAAACs/3tNoSPeMZYs/s1600/services.jpg&w=300&h=300&ei=mS8ZULq4C4btrAeSu4CgAw&zoom=1http://www.google.co.in/imgres?q=crude+oil+in+commodity+market&num=10&hl=en&sa=X&biw=965&bih=659&tbm=isch&tbnid=PL-vSp6Iy8fHuM:&imgrefurl=http://www.stockwatch.in/trading-strategy-gold-and-silver-futures-commodity-market-outlook-23376&docid=MTPn-d-8F1EfJM&imgurl=http://www.topnews.in/files/gold-bars.jpg&w=400&h=300&ei=GTAZULb7HsfhrAf8ooGIDQ&zoom=1


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Since 2000, investors have been buying historically unprecedented volumes ofgold as long-term investments. Those involved in this modern day gold rush have

ranged from individuals around the world to sophisticated institutional investors, fund

managers, and the family offices of high net worth individuals; and from developing

countries to major industrialized nations. Investors have many good reasons to invest

in gold. Some are buying gold to protect their wealth from the impacts of inflation,

recession, currency market upheaval, and financial market crises. Others are buying

gold to capitalize on the shifts in economic and financial markets. Given the ravages

of financial markets worldwide in 2008 and 2009, buying gold has become the hedge

of choice against calamity.

Even before the economic and financial problems associated with the Great Recession

of 2008 and 2009 surfaced, investors were in the midst of this gold buying spree. The

period of intense investor accumulation of gold began in 2001, following the stock

market bubbles popping and a slide into recession in that year. Between 2001 and

2009, investors bought 356.8 million ounces of gold in bullion bars and coins, more

than ever before in any surge of demand, even during the Great Depression and World

War II. The buying of gold has never stopped. In fact, investors have added more gold

to their collective gold bullion holdings between 2000 and 2010 than is estimated to

have been accumulated by investors throughout all of history up to 1967.

It would be a mistake only to focus on the current period of historically strong

investment demand for gold. The fact is that gold always makes sense as an

investment. The wisest and wealthiest people in the world, including famous

institutional investors and billionaires, keep a portion of their assets in gold, silver and

other precious metals as a hedge against various potential problems and as a portfolio

diversifier.

Recently, many investors have been buying gold investments because they wereseeking to diversify their portfolios of stocks and bonds. Others have increased their

gold holdings as a hedge against currency market volatility, not only in terms of the

U.S. dollars exchange rate but out of concern about a wide range of currencies.

Others have bought gold because they are concerned about the stability of financial

institutions at whichthey house their assets, or inflation, or overall economic,

financial, and political calamities. Still others have been buying gold as a

commodity, because they expect the gold price to rise based on the metals

fundamentals of supply and demand.


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Whatever the reason, gold bullion investors did better in 2008 than any other majorclass of investors, and in general have done very well over most of the past decadedue to their investments in gold and gold equities.

In the final analysis, gold is a financial asset. It also is a commodity: The price of goldrises and falls based on its role as a financial asset, like acurrency, a stock or a bond,that investors buy and sell based on a complex web of factors. More importantly, goldhas been a financial asset, a store of value and an investment that has held itsown forfive millennia. Gold has stood the test of time repeatedly and has outlasted all otherfinancial and monetary assets.

Throughout history, gold has served three functions. It has been a financial asset, heldby individual investors as a store of wealth and a portfolio diversifier. It has been acommodity, used primarily in jewelry but also in electronics, dentistry, and manyother applications. Finally, it has been a monetary asset, used by governments as areserve asset, as a form of money, and as a backing for their own currencies. Central

banks have moved away from using gold as money or as backing their owncurrencies, but they still own nearly one billion ounces of gold as a reserve asset. Thecentral banks of Europe, along with a few others (such as those of Canada, Australia,,

THE GOLD PRICE

Many factors influence the price of gold. Central banks have historically held large

positions in gold; as a result, announcements and activities by those banks have

influenced the supply and demand of gold. Fluctuations in the value of the US dollar,

political uncertainties and economic concerns around the world, hedging activities by

gold producers, and trading activities of speculators also help drive the price of gold.

Gold is a physical asset that is accumulated, rather than consumed. This differentiates

it from investment assets such as equities and fixed income instruments (which are

claims on future cash flows), other commodities such as oil (which are consumed),

and paper money (which can be more easily destroyed). Thesetraits are among the

reasons why gold may perform differently than other investments.

There are several ways that investors may use gold as part of a larger investment

strategy. Potential safe haven during political or economic uncertainty;

1. Portfolio diversifier over both long and Short-term horizons

2. Inflation hedge and store of value

3. Hedge against a devaluing dollar.

INVESTING IN GOLD FUTURE


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Gold futures are exchange-traded standardized contracts that oblige the buyer, to buy

a definite quantity of gold at a future delivery date to a price fixed beforehand. The

future buyer assumes that the price of gold increases at due date. The contracts are

usually settled in cash, without delivery of physical gold. Gold futures are traded on

the Commodity Exchange (COMEX) of the NYMEX and the Londoner BullionMarket (LBMA).

The advantage of such gold investment is the possibility to bet on rising (long

position) as well as falling (short position) gold prices depending on the investors

market expectation, without the inconvenience of taking delivery of the underlying

physical gold. The market is deep and liquid, and it is quite easy to track the true value

of the futures contract by following the exchange price.

Trading gold futures eliminates the costs of settlement and significantly reduces the

costs of storage. Buying gold futures implies small transaction costs (initial and

maintenance margin).

An initial margin with 2% of the future value has to be paid up front, and any profit or

losswill be adjusted on the down-payment and paid back to the investor net. In case of

significant movements in the gold price which could lead to losses, the additional

margin (variation margin) is however required. Therefore, the disadvantage is the high

risk because of the high short-term volatility of the gold prices.

GOLD PRICES- A CHART ANALYSIS


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CRUDEOIL AS A COMMODITY
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Crude oil accounts for nearly 40% of the global energy demand and its consumption is

estimated to be over 85 million barrels per day.Crude oil has wide application and

global appeal. When refined, it gives an array of automobile fuels, lubricants, asphalt

and petrochemicals. Petrochemical end-products include plastic, detergent, chemical

fertilizer, synthetic fiber and rubber. Consequently, changes in crude oil price haveconsiderable impact on world economy. As price rises, cost of transportation also

increases. In turn, this raises costs of manufacturing and distribution, adversely

affecting end-product prices. This has an industry-wide impact and adds to

inflationary pressure. Thus, crude oil is the backbone of today's global economy and it

is the largest traded commodity in the world

What makes crude oil a wise investment?

Crude oil is a versatile commodity and its byproducts are used as input for

numerous industries.Modern industrial as well as agricultural economy depends upon crude oil.

This makes it a good investment in the long run.

Crude oil demand is on a rise in emerging nations like India and China and

this trend will persist as economic activity rises further.

Crude oil market is in tight balance and with increasing demand in emerging

markets and dwindling sources of new supplies, price may remain firm in the

long term.

With steadily rising crude oil prices in India, why should a trader add the

commodity to his portfolio?

India is world's 4th largest crude oil consumer with consumption at 3.1 million

barrels per day. India imports almost 70% of its total consumption.

Crude oil is the biggest component of India's import basket and its price

affects overall economy.

Rapid economic development is expected to further increase its

consumption.

Indian commodity market is growing and crude oil is one of the most traded

commodities on domestic bourses.

Crude Oil DescriptionUpdate

Crude oil which is also known as petroleum is a flammable liquid that is naturallyoccurring. In other words, it is a fossil fuel. It is a complex mixture of hydrocarbons.


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Crude oil is an important commodity, used in many countries for various purposes.

The most common use of crude oil is gasoline. The oil is refined and separated, which

is done most often by boiling. Different compounds in the crude oil reach boiling

point at different levels, making separation of the compounds an easy task. Heavy

crude oil is widely available but is not ideal for refinement, taking longer to processand having more waste product. Light crude oil is the best type to use for refining and

is most readily found in Arabic countries.

What Increases the Price of Crude Oil?

Strong oil reserves

Politics Limits Supplies Every nation has resources. Political systems contrive

shortages, by making some resources more difficult to access. Governments

(see OPEC cartel) create artificial shortages. Even rare elements like...

Resource is Limited When resources are limited, they are impossible to replace.

If demand for a resource stays the same, then a decreasing supply will increase

the price of the resource. This happens whenever OPEC, an...

What Decreases the Price of Crude Oil?

Emits Carbon Carbon emitting products and industries are blamed for global

warming. If global warming has a cost on the planet, then that cost should beattributed to the ones creating the problem. Increasing cost...

Risks and benefits

Whether we are new to the trading world or a veteran who knows the ropes, the

chances are that we have had an earful on whether or not crude oil is a smart option

for our investment dollars. Some people in the trading field will tell you that crude oil

is something that we want to stay away from, while others will say that as aninvestment crude oil is actually a way to help us gain nice profits. So, which outlook

are you to believe? As a smart investor, new or old, taking a good look at all of our

options is the only way to find out what is best for us and our investment funding.

Certainly, in order to make the best possible decision on whether or not you should

invest, it is necessary to take a look at the various aspects of crude oil. When it comes

to crude oil, natural gas, unleaded gasoline and heating oil, you should know that they

could be the perfect avenue for big profits with a number of advantages. Energy

markets end up being volatile in nature. This volatility and price movement is needed

in order to gain decent profits in the trading world. Once you learn how to properly
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manage risk, you could be able to take this market volatility and turn crude oil

investing into into profits.

The bottom line is, there is money that can be made from crude oil. When you go into

such investing with your eyes open with a grasp on how this trend works, then you

will have a better chance of higher profits with less risk. Certainly, every single

investment has a potential level of risk as well as reward. As an investor, you always

hope for a decent return as a reward for the risks that you put in front of you. Knowing

how to weed out crude oil investment schemes will help you to put your best foot

forward as you trade.

Take the time to look into all of the research and numbers that are available to you

regarding all of the potential crude oil investments that are out there. There are a

number of publications and online outlets where you can get the latest numbers and

reports on crude oil and related investing. At the same time, be sure that you keeptrack of supply and demand, as well as the fluctuations that take place from season to

season. Additionally, various news stories and political situations going on around the

globe can have quite an impact on how you should be planning out your crude oil

investments.

When it comes to seasonal trends, you will see that the market and the trading patterns

where crude oil is concerned will change greatly around holidays or changes in the

weather. During the summer months, driving season will kick into full swing and

gasoline will be very high in demand. On the other end of the spectrum, during the

winter months heating oil tends to rise in prices as the demand gets higher. The

general rule in trading in this case is that price actually precedes consumption. This

means that the prices can fluctuate in anticipation of the upcoming need.

As you look around for ways to invest in crude oil, you will see that there are many

opportunities for trading. For starters you have crude oil companies of all kinds

including major petroleum companies along with medium sized oil companies. The

bigger petroleum companies have huge reserves and are generally traded publicly all

over the world. There are exchange traded funds to name a few.

When it comes to some of the independent oil companies that are out there, you will

see that there are thousands throughout the United States that actually give you the

option to take your money and turn it into an investment in their various products.

There are a number of risks involved in such a trading venture. You simply have to

make sure that you go back and do all of your research if you decide that this may be

where your money is best suited to your level of comfort in terms of investing. My

choice is in the NYMEX crude oil options on Futures. I can provide you with ideas on

trades such as should you write options or trade spreads or just outright futures.


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No matter what you decide to invest in, when it comes to crude oil or any other type

of investment; you should never invest any more than you can actually afford to lose.

Since there are so many risk factors involved in crude oil trading, it is important that

you take into account any potential wars, the fact that accidents and oil spills can

always happen or even the economy will come into play as you look to the future andyour potential for a good return. All in all, crude oil investing is a smart way to make a

decent return as long as you go into the venture knowing all of the possible risks.

ITS AWISE INVESTMENT BECAUSE..

1. New discoveries.Worldwide oil demand might be off. But its temporary. And even if

demand miraculously plateaus (dont count on it with gas below $2 per gallon), the

world would still need to replace one Saudi Arabia per three years, according to

Petrobras CEO. No other company is making bigger discoveries than Petrobras. In

fact, the companys recent finds could triple its reserves. And as we all know, the

country with the oil is always in control!

2. Long-term focus. With crude below $40 per barrel, most oil companies are cutting

back on exploration and development. Not Petro bras. They plan to spend $174 billion

by 2013, which ensures theyll have plenty of products to sell whenoil pricesclimb

higher.

3. Low cost. Management estimates it can be profitable on new projects, even if crude

oil stays around $45 per barrel. Few if any other major oil producers can claim

such a low hurdle rate. Basic economic principles govern herethe low cost providerof a commodity enjoys the most profits when prices rise. And share prices often go

along for the ride, too.

4. Deep-water expertise. All the easy-to-findcrude oilis gone. But Petrobras is an

expert in deep-water exploration. Thats a competitive advantage no other oil

company can touch. And it should continue to help Petro bras add reserves at much

lower costs than its peers.

5. Valuation. Emerging markets took it on the chintwice as hard as the United States

despite stronger underlying fundamentals. Its pointless to argue whether or not it was

deserved. What matters is many high-quality stocks got caught up in the downdraftand now trade at mouthwatering levels. Petro bras is no exception, trading for less

than 10 times earnings.
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Chapter 4


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ANALYSIS AND

INTERPRETATION


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INTERPRETATION:

Talking to people gave a clear point on why people do not invest in markets. Many people

tried out investing in commodities, stocks, mutual funds etc. but because they had to bear loss

once they left it and never tried again. And here also, the bad experience of one person affects

the interest of the other.

GOLD AND CRUDE OIL:

After the analysis of prices of gold and crude oil it was found out that gold and

crude oil prices are interrelated.

Gold is often seen as a wealth preserver during inflationary periods rather than a

get-rich-quick investment opportunity. A balanced portfolio can certainly

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include gold as a portion. Any investment strategy, though, that relies heavily

on gold is a bet against the dollar. With this in mind, gold investors and

speculators need to approximate when they expect the dollar to rebound and

plan accordingly.

Investors interested in riding the gold bull need to research more than just the

oil-gold relationship as a basis for decisions by considering the other factors in

play. Some long-term studies show gold also to be strongly correlated with

economic indicators other than oil prices, such as the S & P 500 and 10-year T-

bills, according to aGold-Eagle editorial. Also there are other factors that

influence the price rise and fall of gold prices like value of dollar, production of

gold, demand of jewelry and central bank reserves.

THE DOLLAR AND COMMODITY:

When analyzing the four sectors of the economy, the path to take is to start with

the dollar, move into the commodity market, then the bond market, and finally

the stock market. The connection of the dollar to stocks and bonds is more

complete and makes more sense when analyzed through the commodity

markets.

We can see this if we begin with the stock market and work backwards toward

the dollar. The stock market is reactive to interest rates and thus, movements in

the bond market.

A rising dollar has no effect on inflation. A rising dollar usually produces

commodity that are lower. A fall in commodity prices leads to higher bond

prices and lower interest rates. A falling dollar has the converse effect: it is

bearish for bonds and equities and bullish for commodities.
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BONDS AND COMMODITY PRICES:

The relationship between bonds and commodity prices is one of the most

important relationships in the intermarket area. The inverse relationship

between treasury bond prices and commodity market shows the connection

between financial sector and commodity sector that in effect shows a tie

between the stock market and the commodity market. The inverse relationship

between commodity market and bond prices can be documented. If we know

that bond prices and bond yields move in opposing directions and that

commodity prices and interest rate yields head in the same direction, then we

establish that commodity prices and bond prices move in the opposite

directions. These relationships do exist.


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Chapter 5

FINDINGS

AND

SUGGESTION


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FINDINGS;

The study that conducted at M/s Nirmal Bang Securities Pvt.Ltd. in Bangalore found

out the final following facts;-

In my view, the main objectives of Nirmal Bang are to provide improved quality

investment opportunities to customers and build up the public image of the

company through better intermediary techniques.

Majority

A Study on Financial Investment in Indian Commodity Market

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