futures of commodity market in india

8/7/2019 Futures of Commodity market in India

http://slidepdf.com/reader/full/futures-of-commodity-market-in-india 1/19

Presented by:-Neeraj kumar

RS1903A52

10907209

Futures of Commodity market in India



Derivative

Derivatives are financial contracts of pre-

determined fixed duration, whose values are

derived from the value of an underlying primary

financial instrument, commodity or index, such

as: interest rates, exchange rates, commodities,

and equities



Features of derivatives

y Derivatives are contracts that have no independent

value

y They derive their value from their underlying assets

y They are used as ´ risk shiftingµ or hedging

instruments



Players in the derivative marketHedgers:

Hedgers face risk associated with the price of an asset. They

use futures or options markets to reduce or eliminate this

risk.

Speculators :

They are people who wish to bet on future movements in the

price of the asset. Future and Options contracts can give

them an extra leverage; that is, they can increase both thepotential gains and losses in a speculative venture.



Cont«.

Arbitrageurs:

Arbitrageurs are in business to take advantage of a

discrepancy between prices in two different markets. For eg.If they see the futures price of an asset getting out of line

with the cash price, they will take offsetting positions in the

two markets to lock in a profit.



Kinds of derivatives

yOn the basis of underlying assets

yFinancial derivatives

yCommodity derivatives = my topic

y Index derivatives



Common financial derivatives

y forward contracts

y Futures

y Options

y swaps



Derivatives in India

y The futures contract at NSE is based on S&P

CNX Nifty # Index.

y It has a maximum of 3-month expiration cycle.

y Three contracts are available for trading I.e. with

1 month, 2 months and 3 months expiry.



Commodity Markets - Overview

y Four licenses recently issued by Govt. of India to set-up

National Online Multi Commodity Exchanges ² to ensure atransparent price discovery and risk management

mechanism

y List of commodities for futures trade ² increased from 11 in

1990 to over 100 in 2003y Reforms with regard to sale, storage and movement of

commodities initiated

y Shift from administered pricing to free market pricing ²

WTO regime

y Overseas hedging has been allowed in metals

y Petro-products marketing companies have been allowed to

hedge prices

y

Institutionalization of agriculture



About MCXNational Level Online Multi Commodity Futures Exchange

Key Promoters ²

y Financial Technologies (India) Ltd, State Bank of India,

Union Bank

y Corporation Bank, Bank of India, Canara Bank,

y State Bank of Indore ,Bank of Baroda

Operations from 300 cities with over 775 members & 3000TWS

First Indian Exchange to enter into an agreement with an International

Exchange (TOCOM)

FacilitatingCost effective and economic technology.



Commodity Ecosystem



MCX Business Associates

y

StatutoryA

uditor - M/s. Deloitte, Haskins & Sellsy InternalAuditor- M/s V.ShankarAiyer & Company

y Network services - HCL Comnet Ltd.(VSAT)S

VSNL (Internet)

Tata Tele (Leased line)

Reliance gateway ( Wireless )

y Clearing Banks - BOI, HDFC, IndusInd, UBI & UTI

y Quality Certification SGS, Geochem , Dr.Amin Lab.,

Agencies Rubber Boardy Warehouses ² CWC, Gujarat, Kerala, Tamilnadu and UP

y Bullion Logistics ² Group 4 and BrinksArya



Participants in Commodity FuturesParticipants in Commodity Futures

Farmers/ Producers

Merchandisers/ Traders

Importers

Exporters

Consumers/ Industry

Commodity Financers

Agriculture Credit providing agencies

Corporate having price risk exposure incommodities



India·s Place in World Market

COMMODITY INDIA WORLD SHARE RANK

RICE (PADDY) 240 2049 11.71 THIRD

WHEAT 74 599 12.35 SECO D

PULSES 13 55 23.64 FIRSTGROUNDNUT 6 35 17.14 SECOND

RAPESEED 6 40 15.00 THIRD

SUGARCANE 315 1278 24.65 SECOND

TEA 0.75 2.99 25.08 FIRST

COFFEE(GREEN) 0.28 7.28 3.85 EIGTHJUTE AND JUTE FIBERS 1.74 4.02 43.30 SECOND

COTTON (LINT) 2.06 18.84 10.09 THIRD



Business Potential

Commodities

Size of Physical

Market

(Rs. Crore)

Conservative

Multiplier

(Rs. Crore)

( In 3 years)

Global Multiplier

(Rs. Crore)

(In 3 ± 5 Years)

Gold & Silver Rs. 43000 cr 20 Times

Rs. 8,30,000 cr

50 Times

Rs. 21,50,000 cr

Edible Oils Rs. 30000 cr 10 Times

Rs. 3,00,000 cr

20 Times

Rs. 6,00,000 cr

Metals Rs.11000 cr 10 TimesRs. 1,10,000 cr

20 TimesRs. 2,20,000 cr

Total Rs. 84,000 cr Rs. 12,40,000cr Rs. 29,70,000cr



Uses of commodity market in future

y Price discovery for commodity players

y A farmer can plan his crop by looking at prices prevailing in the futures

market

y Hedging against price risk

y A farmers can sell in futures to ensure remunerative prices

y A processor/ manufacturing firm can buy in futures to hedge against

volatile raw material costs

y An exporter can commit to a price to his foreign clients

y Easy availability of financeBased on hedged positions commodity market players (farmers,processors,manufacturers, exporters) may get easy financing from the banks



Future of Commodity Market

y India - Largest Consumer - Producer - Exporter -Importer

y Large size intermediaries penetrate commoditiesmarket

y Banks to Finance commodities ² Futures a secured routey RBI permits Banks to hedge their bullion risk throughFutures Exchange ² Other commodities to follow

y Using Exchange Network for various products &

Servicesy BPO & Trade Interest will attract International players

y Hub for value added services & food processing

y New class of commodity Traders & Value Investors



Futures of commodity market

India to become Hub of Global Trading in Commodities

y It is a US $ 600 billion Opportunity

futures of commodity market in india

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