vague lining to july clouds - karvy corporate · “during the period from 1st june 2015 to 25th...

Invest & HarvestA Comprehensive English Monthly Magazine on Commodity Futures

Karvy Comtrade’s

Volume 08 Issue 06 Hyderabad July 2015 Pages 36 `25/-

Vague Lining to July CloudsVague Lining to July Clouds

July 2015 Karvy Comtrade’s Invest & Harvest 3

EditorSushil Sinha

Managing EditorTR Vivek

Executive EditorVeeresh Hiremath

Research TeamAnup BP

Dilip Kumar NathGinumol MathewJitendra K ParasharRamesh Chenchala

Ravi Shankar PandeyRaj Nawab Singh Kashyap

Ritu Raj JhaSarika R. Agarwal

Sonali PatnaikTapan Trivedi

ProductionVijayendra Kumar Ch.

DistributionShabna R. Iyer

Printed & Published by:Sushil Kumar Sinha

on behalf ofKarvy Consultants Limited.

Karvy House, 46Avenue 4, Street No-1, Banjara Hills

Hyderabad-500034. AP.

Printed at:Harshitha Printers

6-2-985, Yousuf BuildingAdj. Railway Gate,

Khairatabad, Hyderabad-500004

Editor: Sushil Sinha

Let me start my July issue by wishing all my readers a Happy Ramadan! I am sure you would have already satisfi ed your taste buds with Hyderabad’s delicacy Haleem. Before we

take a quick sneak peek into what our authors have in store for in this edition, I just wanted to confi rm if you are enjoying our Olio.

Oh! Did I just say Olio? Yeah, right. For all the crossword fans, olio can be a pretty cool synonym for this game. For those who are new to this jargon, olio means ‘A mixture or medley: a hodgepodge’ and that meaning is the one that came to mind as I was conducting the fi nal review of the current issue. In this case the hodgepodge is a good thing, with a set of seven articles, each highly relevant to the existing scenario, each in its own way.

We lead off with an overview of news covering various commodities across the nation. If in case you’ve missed out anything important that occurred past month, our News Digest is going to give you a quick update.

We have the southwest monsoon featured in our cover story by Veeresh and his team which kicked off a bit late by a week this time. Here is what Veeresh and team had to augur -

“During the period from 1st June 2015 to 25th June 2015, the entire country received 159.20 mm rainfall, 28% higher than normal rainfall of 124.60mm. The highest rainfall is seen in Central India i.e. 55% higher than normal followed by South Peninsula i.e. 30% higher than normal.

As the rainfall distribution has been good, the sowing activities picked up pace during the period under review. Overall acreage under kharif cultivation is leading the numbers compared to last year.”

We then move from monsoon to the long-running Greek debt crisis that has been extensively covered by Tapan Trivedi, where he throws some light on long standing issue related to its economic and debt problems for over 5 years now. As of the current state, Greece is being marred by huge debt with the economy staying into recession for almost all years but one since 2008.

Tapan has also highlighted on the Referendum which was indeed a surprising move by the Greek PM, whilst calling for a vote from the public on 5th July.

We have also featured an exclusive article on the resilience of Indian rupee by Sumit Mukherjee, where he has gone positive about our dinero. Here is a snapshot -

“Post the Union Election of 2014, the Indian rupee has not only depicted growing optimism in the domestic economy, but was far more resilient compared to other emerging market currencies.”

Moving on from this knowledge transfer session, our last two articles, the fi rst by Pramod Shinde and the second by MMR, can be thought of as a pair, although each can be read on its own.

EDITORIAL

Note: The data in all charts and tables have been sourced from Bloomberg, KCTL Research, unless otherwise indicated.

From the Editor’s DeskFrom the Editor’s Desk

July 2015 Karvy Comtrade’s Invest & Harvest July 2015 Karvy Comtrade’s Invest & Harvest4 5

CONTENTS

Cover Story

Southwest Monsoon Boosts Kharif Crops 09

DisclaimerThe technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The report contains the opinions of the author(s) that are not to be construed as invest-ment advice. The author, directors and other employees of Karvy, and its affi liates, cannot be held responsible for the accuracy of the information presented herein or for results of the posi-tions taken based on the opinions expressed within. The opinions are based on the information believed to be accurate, and no assurance can be given for the accuracy of this information. There is risk of loss in trading in derivatives. The author, directors and other employees of Karvy and its affi liates cannot be held responsible for any losses in trading.Commodity derivatives trading involves substantial risk. The valuation of the underlying may fl uctuate, and as a result, clients may lose their entire original investment. In no event should the content of this research report be construed as an express or an implied promise, guarantee or implication by, or from, Karvy Comtrade that you will profi t or that losses can, or will be, limited in any manner whatsoever. The past results are no indication of future performance. The information provided in this report is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. We do not offer any sort of portfolio advisory, portfolio management, or investment advisory services.

Features & Updates

Special Feature

Adding Flavor in Commodity through Forward 13

Hike on Import Duty Aids Domestic Steel Companies 24

Resilience of the Indian Rupee 26

All that You wanted to Know about the Greece Debt Crisis 16

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STATISTICS

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COMEX Gold (US$/oz) NYMEX Crude (US$/bbl)

Thomson Reuters Jefferies CRB Index MCX Lead Price Movement (Rs/kg)

Rogers International Commodity Index MCX Mentha Oil Price Movement (Rs/Kg)

S&P GSCI Commodity Index NCDEX Soyabean Price Movement (Rs/quintal)

Major Global Commodity Index Performers Of The Month (MCX/NCDEX)

By Invitation

Impact of Exchange Traded Forwards on Physical Business 28 - Ms. Pallavi Oak, NCDEX


-2.50-1.250.001.252.503.755.006.25

May

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Jun-14 Sep-14 Dec-14 Mar-15 Jun-1559.0

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Rupee Movement 10-year Bond Yield (%)

Infl ation (%) Index of Industrial Production (%)

DoE Inventory Levels (June) Inventory level M/M change (%)

Crude oil 462993 5.19

Gasoline 218494 4.28

Distillate 25846 0.29

Refi nary Utilization (%) 94 -1.06Note: DoE - Department of Energy; volumes in thousand barrel

LME Inventory Levels (June) Inventory level M/M change (%)

Nickel 459018 -1.15Aluminium 3589825 -3.85Copper 307650 -4.50Zinc 464925 2.28Lead 176300 11.09

Note: LME - London Metal Exchange; volumes in metric tonne

Exchange Rate TrendsJune 29,

2015May 29,

2015% Change 52 Week

High% Change from

52 Week High52 Week

Low% Change for52 Week Low

Indian Rupee 63.8525 63.8250 0.04% 64.3000 -0.70% 59.5387 7.25%

Euro 1.1236 1.0986 2.28% 1.3700 -17.99% 1.0458 7.44%

Great Britain Pound 1.5738 1.5291 2.92% 1.7192 -8.46% 1.4566 8.05%

Japanese Yen 122.5400 124.1500 -1.30% 125.8600 -2.64% 101.0700 21.24%

Swiss Franc 0.9249 0.9403 -1.64% 1.0240 -9.68% 0.7406 24.89%

Canadian Dollar 1.2403 1.2454 -0.41% 1.2835 -3.37% 1.0621 16.78%

Australian Dollar 0.7679 0.7645 0.44% 0.9505 -19.21% 0.7533 1.94%

New Zealand Dollar 0.6851 0.7107 -3.60% 0.8836 -22.46% 0.6787 0.94%

Danish Krone 6.6402 6.7897 -2.20% 7.1345 -6.93% 5.4421 22.02%

Norwegian Krone 7.8607 7.7716 1.15% 8.4188 -6.63% 6.1301 28.23%

Swedish Krona 8.2274 8.5188 -3.42% 8.8847 -7.40% 6.6787 23.19%Note: All quotes are against the US dollar.

News Digest

Shanghai Exchange approves Norilsk Nick-el for Futures DeliveryThe Shanghai Futures Exchange SHFE on Monday ap-proved nickel from Russian producer Norilsk for deliv-ery against its futures contracts, after concern that do-mestic suppliers would fail to provide enough supply. ShFE said it had approved the following Norilsk brands: Norilsk Combine H-1, Severonickel Combine H-1 and Severonickel Combine H-1Y. The exchange said in a statement on its website that the Russian metal will be allowed for delivery effective on Monday. It is the fi rst international brand that SHFE has allowed for nickel de-livery. Worries over lack of lack of exchange-approved supply from six Chinese producers helped push the most-active July nickel contract up after the launch of the new Shanghai futures contract on March 27. This could be one of the prime factors that led to the massive decline in the prices of the metal towards the end of June 2015. (Source: Reuters.com)

The Iran Nuclear Deal: A look at what it does and problems remaining World powers and Iran are back in nuclear talks, and this round may be the deciding one. After nearly a decade of international diplomacy, negotiators are working past Tuesday’s deadline, trying to reach a fi nal agreement that would curb Iran’s nuclear activities for a decade and put tens of billions of dollars back into the Iranian economy through the easing of fi nancial sanctions. But signifi cant obstacles remain. Iran says it won’t allow inspectors to visit military. (Source: The Economic Times)

People’s Bank of China Cuts Interest Rates After more than a week of a brutal selloff in Chinese stocks, the country’s central bank on Saturday took a rare easing step, cutting both its benchmark interest rates and the amount of reserves certain banks are required to hold. In a statement, the People’s Bank of China said both steps were aimed at lowering borrowing costs and “stabilizing growth” in the world’s second-largest econ-omy. The PBOC cut its one-year benchmark lending rate by a quarter of a percentage point to 4.85% and its one-year deposit rate by the same scale to 2%. At the same time, it also lowered the reserve requirement by half a percentage point for banks with sizable lending to farm-ers and small businesses. The central bank has rarely cut both interest rates and the reserve-requirement ratio on the same day. The last time it did so was in October 2008, the height of the global fi nancial crisis. The actions

came a day after Chinese stocks saw their biggest one-day decline in several years. On Friday, the Shanghai Composite Index fell 7.4% and was off 19% since hit-ting a 52-week high on June 12, a decline that has wiped away $1.25 trillion in market capitalization, an amount roughly equal to the size of Mexico’s economy. (Source:

The Wall Street Journal)

Crop planting to pick up in Uttar Pradesh, Bihar, and West Bengal after rains The monsoon is weakening, but crop planting is likely to gather pace as the fertile areas of Uttar Pradesh, Bi-har and West Bengal are among the few patches where it rained in the last two days. In eastern Uttar Pradesh monsoon rains on Monday was 177% above normal, giving the much needed moisture that will help farmers’ complete nursery sowing of long duration varieties of paddy and transplant them in some places. Farmers were advised to undertake land preparation for transplanting of rice and transplant 20-25 days old rice nursery in East Uttar Pradesh, Bihar, West Bengal and Jharkhand. Also, farmers were going ahead with planting of nursery of kharif onion, tomato, brinjal, lady fi nger, chili and cauli-fl ower, he said. The weather offi ce said that a low pres-sure area over East Uttar Pradesh and adjoining north Madhya Pradesh persists, which would give heavy rains at few places in eastern state. (Source: Economic times)

Government may extend ban on onion hoarding beyond ceiling by 1 year In order to check price rise of onions, the government may extend by another year the ban on hoarding of the


News Digest

key kitchen staple beyond a prescribed limit. Last year, both onions and potatoes were brought under the pur-view of the Essential Commodities Act, 1955 and gave powers to state governments to impose upper limit for holding the stock of these two commodities by individu-als and traders. The state governments were given the powers to impose the stock limits on these two com-modities and ban hoarding beyond the set ceiling for a year till July 2. Apprehending further increase in onion prices in coming days due to supply shortage, the gov-ernment has already increased the minimum export price of the commodity to $ 425 per tonne and is also planning to import some quantities of onions to boost domestic availability. Prices in both wholesale and retail markets have started increasing due to sluggish supply of good quality onion in the wake of the crop being damaged in storage in major growing states, including Maharashtra. (Source: Economic Times)

Sugar Exports From India Seen Doubling as Bumper Crop LoomsSugar exports from India may double as farmers pre-pare to harvest the third-biggest crop ever, extending the country’s surplus for a sixth year. Shipments will be 2 million metric tons in the 12 months starting Oct. 1, according to the median of six estimates from refi n-ers, brokers and analysts compiled by Bloomberg. That compares with 700,000 tons to 800,000 tons this year, the Indian Sugar Mills Association says. Production will be 27.25 million tons from a record 28.4 million tons this year, estimates from eight survey participant’s show. The glut in the world’s second-largest producer threat-ens to extend a 35 percent slump in New York futures in the past year. The decline in prices to the lowest since 2009 has forced the government to subsidize exports and waive interest on bank loans to processors. Stockpiles of 10 million tons will add to supplies and exceed demand

of 25.5 million tons, the mills say. That may force pro-ducers to ship as much as possible. (Source: Bloomberg)

As rain gods smile, farmers plant more pulses and oilseeds Consumers can hope for some relief from spiraling dal and edible oil prices, with farmers signifi cantly stepping up sowing of pulses and oilseeds on the back of bountiful monsoon rain. This comes even as the Met department announced Friday that the south-west monsoon has now covered the entire country and the season’s overall rain-fall has so far been nearly 27 per cent higher than the normal average for this period. The good spell of rains in June across central, western and southern India has led to the progressive area planted under kharif pulses nearly doubling to 11.04 lakh hectares (lh), from 6.14 lh covered during this period last year, while going up more than fi ve times in the case of oilseeds (from 5.29 to 27.89 lh) (Source: Indian Express)

India set to record highest coffee production in 2015-16Coffee Board of India has forecast the post blossom crop of coffee in 2015-16 to touch a record 355,600 tonnes, up by 8.75% over the fi nal production estimate of coffee in 2014-15. Every year the board releases two forecasts, the post blossom and post monsoon estimates. The total post blossom crop comprises 110,300 tonnes of arabica and 245,300 tonnes of robusta. The total crop showed an increase of 28,600 tonnes over 327,000 tonnes estimated in 2014-15. The post blossom estimate shows 12.55 % increase in arabica production over that in 2014-15 while robusta is up by 7.12%.

A board statement said the production gain has mainly come from Karnataka to the tune of 23,270 tonnes. The board has pegged the fi nal crop estimate of coffee for 2014-15 at 327,000 tonnes, which is the highest so far comprising 98,000 tonnes of arabica and 229,000 tonnes of robusta.

Last year the condition was good and favorable at the time of prediction of post blossom crop. However, according to the board, coffee areas witnessed a long period of drought after receiving blossom showers fol-lowed by an extremely harsh monsoon. As a result the fi nal estimate showed a marginal decrease of 1.21% or 4000 tonnes over the post monsoon estimate. The loss came mainly from Karnataka. (Source: Economic Times)

Please read the Disclaimer carefully on page 4

Southwest Monsoon Boosts Kharif Crops— KCTL Research

Finally, the monsoon season has started in India, which is the life line of Indian economy. Being predominantly with agrarian economy, the

overall growth of India is dependent on monsoon season. In the current year, the monsoon season started a bit late by 5 days because of unfavourable climatic conditions for progress and onset of monsoon over Kerala.

Though the onset was bit late, it brought a relief to the farming community as its revival after stagnant pe-riod was very fast. From the map of advance of S-W

COVER STORY


monsoon, we can see that monsoon has covered entire Southern Peninsula and Eastern India. This monsoon has brought enough rains to Southern Peninsula and on the other hand, it even created havoc on North East India.

The Indian Meteorological Department has projected 93% of Long Period Average rainfall during April in its forecast report, which was revised downward to 88% of LPA in fi rst week of June. Lower revision of rain-fall has raised the concern among farming community, policy makers etc. However, the kind of rainfall that India received so far has eroded the negative concern from the stakeholders.

The IMD in April has projected occurrence of El Nino over India, which would have resulted into drought sit-uation in India. However, the progress of monsoon and better-than-normal rainfall so far over India has eased the concerns of drought in India.

Rainfall DistributionDuring the period from 1st June 2015 to 25th June 2015, the entire country received 159.20 mm rainfall, 28% higher than normal rainfall of 124.60mm. The highest rainfall is seen in Central India i.e. 55% higher than normal followed by South Peninsula i.e., 30% higher than normal. During this period, North West In-dia witnessed a marginal rise in rainfall than normal.

Looking into rainfall category, out of 36 meteoro-logical sub-divisions, 17 sub-divisions have received excess rainfall during the period from 01.06.2015 to 25.06.2015, which accounts for 62% of the country’s area. Furthermore, 13 sub-divisions accounting for 26% of India’s area received normal rainfall during the period under review.

Surprisingly, the drought-hit regions such as Marath-wada and Vidarbha regions have received 2% and 108% excess rainfall as compared to the period under review.

Sowing progressKharif crops such as cotton, paddy, groundnut, maize, paddy, soybean, bajra and seasame etc. rely heavily on monsoonal rains. Even dairy farms in India depend on Southwest Monsoon for maintaining healthy and well-fed cattle.

With the onset of monsoon, the farmers have started agricultural activities. As the rainfall distribution has been good, the sowing activities picked up pace during the period under review. Overall acreage under kharif cultivation is leading the numbers compared to last year.

From the table below, it can be revealed that rice acreage improved marginally and as on 26th June 2015, the total acreage covered with rice cultivation declined by 7.03% to 23.28 lakh hectares. Total pulses acreage saw a tremendous increase of 79.80% Y/Y, with major increase in Urad (177.78% Y/Y) cultivation followed by Tur (160.78%). On the other hand, area under cereal cultivation, which was lagging behind by 42.11% as on 19th June has picked up and as on 26th June, its acreage rose by 15.17% Y/Y.

Oilseeds, one of the largest grown Kharif crops, have shown a positive trend with acreage increasing by 427.22% Y/Y. The single largest gain was seen in soy-bean with acreage increasing by 14 times to 20.34 lakh hectares. Farmers are showing less interest in sowing of sugarcane, as they have still not received remunera-tive price for their crop in the last year. Ongoing tussle between state governments and sugar mills over cane pricing and continuous fall in sugar prices despite gov-ernment sops is discouraging farmers from cultivating sugarcane in the current season.

It is just a beginning of the kharif season and so far only 16% of the total cultivable land is covered with various crops. We have to travel a way forward and monitor the progress of monsoon as well as sowing ac-tivity on weekly basis till end of July to arrive at total

COVER STORY

acreage under kharif season. The progress of sowing activity is purely dependent on rainfall distribution till end of July.

MSP: Boost to Farming SectorIn order to protect the interests of the farmers from dis-tress sale during harvesting season, the Central Govt. announces Minimum Support Price prior to commence-ment of each season. This will assure the farming com-munity of minimum price they can get once produce is ready for harvesting. History shows that Central Govt. increases MSP every year in order to protect interest of the farmers.

Considering the factors such as lower crop size and rising price level of farm products, the Central Govern-ment has increased the MSP by considerable amount in the current season. Pulses segment is one of the most important sectors, which is consumed by every Indian irrespective of their standard of living. Though India is the largest producer and consumer of pulses, its pro-

duction is not suffi cient to meet the growing demand for pulses. Hence, it is relying on imports. In order to bring more area under pulses cultivation, the Cabinet Committee on Economic Affairs has increased the MSP for pulses in the range of Rs. 250 to Rs. 275 per quintal. Moreover, crop damage happened to chana due to unseasonal rainfall has prompted the Central Govt. to increase MSP of pulses considerably. Among other Kharif crop, the MSP has increased marginal to keep pace of production level.

Food Infl ation: Still a ConcernThe Wholesale Price Index-based infl ation of all com-modities is continuing to remain in negative territory at -2.65% for the month of May 2015 Y/Y compared to -2.33% recorded in the month of April 2015. How-ever, the WPI infl ation of Food Articles is continuing to be positive at 3.80% Y/Y. Among Food Articles, WPI of pulses is staying much higher at 22.84%, which is a cause of concern. Short supply and crop damage to

COVER STORY

Region wise rainfall distribution

Region Actual Normal % Departure

East & North East India 289.30 281.20 3%

North West India 60.90 48.00 27%

Central India 184.40 119.30 55%

South Peninsula 164.40 126.00 30%

Country As A Whole 159.20 124.60 28%

Category wise rainfall distribution

Category No. of Subdivisions

Sub-divisional % Area of Country

Excess 17 62%

Normal 13 26%

Defi cient 6 12%

Scanty 0 0%

No Rainfall 0 0%

Kharif sowing update as on 26.06.2015

CropArea covered

Yr-on-yr Change Season Normal Area2015 2014

Rice 23,28,000 25,04,000 -7.03% 3,88,31,000

Tur 3,99,000 1,53,000 160.78% 39,05,000

Urad 2,00,000 72,000 177.78% 23,74,000

Moong 3,43,000 2,00,000 71.50% 24,22,000

Other Pulses 1,52,000 1,88,000 -19.15% 18,34,000

Total Pulses 11,04,000 6,14,000 79.80% 1,08,18,000

Jowar 2,01,000 1,24,000 62.10% 27,17,000

Bajra 1,47,000 2,59,000 -43.24% 82,40,000

Ragi 88,000 93,000 -5.38% 12,07,000

Small Millets 74,000 66,000 12.12% 7,73,000

Maize 14,18,000 11,32,000 25.27% 72,50,000

Total Coarse Cereals 19,28,000 16,74,000 15.17% 2,01,97,000

Groundnut 6,42,000 2,58,000 148.84% 44,97,000

Soybean 20,34,000 1,46,000 1293.15% 1,04,02,000

Sunfl ower 25,000 35,000 -28.57% 3,33,000

Sesamum 79,000 77,000 2.60% 16,13,000

Total Oilseeds 27,89,000 5,29,000 427.22% 1,82,30,000

Sugarcane 41,58,000 43,92,000 -5.33% 48,37,000

Cotton 34,87,000 29,07,000 19.95% 1,15,02,000

Jute & Mesta 7,69,000 7,98,000 -3.63% 8,74,000

Total* 1,65,62,000 1,34,18,000 23.43% 10,50,68,000*Total may not tally as some crops are not included


Rabi pulses led to a sharp rise in prices of pulses across major markets of India.

Among the pulses, the prices of tur and urad shot up by 29.93% and 29.72% respectively Y/Y due to supply side constraints. Further, price of chana also shot up by 20.44% due to crop damage on account of unseasonal rainfall at the time of crop harvesting.

Conclusion

Since beginning of current monsoon season, the rainfall activity and sowing progress have been moving in good tandem with each other. The monsoon has revived very fast after stagnant phase moved to cover other parts of India. The sowing activities are gathering momentum across the country and we expect a good rainfall albeit forecast of defi cit rainfall by IMD.

The acreage under various crops is likely to meet the targeted fi gures. However, fi ngers are crossed for actual rainfall and its distribution through July. Central Gov-ernment is taking various steps to boost India agri sec-tor through higher MSP and other incentives. After the announcement of MSP and progress of monsoon, the prices of all agri commodities have softened and we are hoping easing of food infl ation for the month of June. Finally, we are expecting a good kharif season, which would wipe out all the odds seen in the recent past.

COVER STORY


FEATURE

A Forwards Contract is a bilateral agreement be-tween two parties to buy or sell an asset or a commodity of specifi ed quantity and quality at

a future date on a mutually agreed delivery price. For-wards contracts are dissimilar from a spot contract or a futures contract. A spot contract is an agreement to buy or sell a commodity for immediate delivery, not at a future date. In a spot transaction trade and settlement happens on the spot.

A futures contract, on the other, is also an agreement to buy or sell a commodity at a future date. But unlike Forwards contracts, which are negotiated between in-dividual parties, futures contracts are standardized and traded on formal exchange. Spot contracts are thus for delivery whereas futures are primarily used as an in-strument to hedge underlying risks. Specifi c character-istics of Forwards market make it a bridge between spot and futures market.

— Ms. Smita

Adding Flavor in Commodity through ForwardMSP for Kharif Crops (in Rs/Quintal)

Commodity Variety 2014-15 2015-16 Change

PaddyCommon 1360 1410 50

Grade A 1400 1450 50

JowarHybrid 1530 1570 40

Maldandi 1550 1590 40

Bajra --- 1250 1275 25

Maize --- 1310 1325 15

Ragi --- 1550 1650 100

Tur (Arhar) --- 4350 4625 275

Moong --- 4600 4850 250

Urad --- 4350 4625 275

Groundnut-in-shell --- 4000 4030 30

Soyabean Yellow 2560 2600 40

Sunfl ower Seed --- 3750 3800 50

Sesamum --- 4600 4700 100

Nigerseed --- 3600 3650 50

CottonMedium

Staple 3750 3800 50

Long Staple 4050 4100 50

Wholesale Price Indices of Food Articles

Group Commodity Weight May-15 May-14 %

change

All Commodities 100 177.7 182.0 -2.36%

Food Articles 14.34 253.9 244.6 3.80%

Food Grains (Cereals+Pulses) 4.09 239.5 230.5 3.90%

Cereals 3.37 230.1 230.4 -0.13%

Pulses 0.72 284 231.2 22.84%

Fruits & Veg-etables 3.84 240.7 235.5 2.21%

Vegetables 1.74 223.5 236.6 -5.54%

Fruits 2.11 254.9 234.6 8.65%

Milk 3.24 249.6 233.6 6.85%

Eggs, Meat & Fish 2.41 292.1 289.6 0.86%

Condiments & Spices 0.57 313.4 275.3 13.84%

Other Food Articles 0.18 236.9 256.9 -7.79%

Oil Seeds 1.78 215.4 217.6 -1.01%

Wholesale Price Indices of Pulses

Weight Commodity Weight May-15 May-14 %

change

Pulses 0.72 284.0 231.2 22.84%

Gram 0.33 241.6 200.6 20.44%

Tur 0.14 278.7 214.5 29.93%

Moong 0.08 379.0 334.0 13.47%

Masur 0.06 300.4 241.1 24.60%

Urad 0.10 342.2 263.8 29.72%

Forwards Vs Futures

Parameter Forwards Contract Futures Contract

Defi nitionAn agreement between two parties to buy or sell an asset at a pre-agreed future point in time at a pre-agreed price.

A standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future at a specifi ed price.

Structure & Purpose Customized to customer needs. Usually no initial payment required. Standardized. Initial margin payment required.

Type of contract Unstandardized Standardized

Transaction method Negotiated directly by the buyer and seller Quoted and traded on the Exchange

Institutional guarantee The contracting parties Clearing House or Exchange

Risk High counter party risk Low Counter party risk

Settlement Settlement occurs at the end of the period Marked to market daily

Contract Maturity Forwards contracts generally mature by delivering the commodity.

Future contracts may not necessarily mature by delivery of commodity and it gets ended.


FEATURE FEATURE

Advantages of Forwards1. Forward contracts are decentralized; it means that

they are traded over the counter2. The price of forward contract is called “delivery

price” which usually equalizes to the sum of spot price and cost of carry

3. Forward contracts are mostly non-standardized and are custom designed

4. In case of forward contracts actual physical delivery takes place on maturity

Although there is benefi t of no margin requirement for forward contracts but there is also a negative point of no exchange guarantee.

Apart from such main features there are many more characteristics of forwards, some of them are listed below:• It leads to integrated price structure throughout the

nation• Eases lengthy and complex, production and manu-

facturing activities• Helps in balancing of supply and demand position

throughout the year• Promotes competition and keeps an eye on prices for

farmers and other trade functionaries

Need of a unifi ed structureConsidering the amount of transactions taking place, the forwards segment is enormous, but mostly they have been conducted privately without any regulatory purview. Therefore price discovery has been a concern because details are not known to the wider public. In case if prices are not favorable to any party then ab-sence of any regulating body creates threat for partici-pant. There is no provision of providing guarantee for counter party risk.

These above issues thus dampen the participation of participants in forwards. Also the bilateral nature of such contracts and also no safety against counterparty-risk creates a barrier for entry in forward market for small traders and farmers.

Trading through forwards on the exchange platform can be very much benefi cial to trade participant in many ways. Forwards provide a larger national level market platform and wide opportunities to the participant, unlike the limited number of counterparties the participant would normally trade with so that the bilateral risks can be gradually eliminated in the process of trading.

Unlike normal trading and bilateral trades, the for-wards contract backed by exchanges provides the

support of RMS (Risk Management System) which collects margins and related dues so that fraudulent ac-tivities or default does not happen, and the other parties remain safe and secure.

In case any time counterparty defaults happens then the participant is protected against that and gets assured compensation to the extent of margin collected till that particular date. Although forwards traded on exchange are far more foolproof and reliable, still they also hold the feature of fl exibility and convenience as exchange traded forwards maintain the fl exibility of customized contract norms for any commodity, quantity, specifi ca-tion, location, duration of contract and delivery date. It helps the manufacturers and bulk traders to keep a con-tinuous supply of required goods at the desired time, thus helping in better inventory management.

Recent DevelopmentsIntroduction of forward contracts by well established and a major exchange NCDEX under the name of “Ag-rim Sauda” has been a giant leap and game changer for commodities market, as it has eliminated the most prominent drawback of counter-party risk, while re-ducing the participation of speculators. This ultimately provides a wonderful central platform for forward trad-ing in agricultural commodities. Through this we can magnetize bilateral forward contracts being conducted at mandi or APMC to the exchange platform and thus reduce risk of default and also removes cost of interme-diaries. Earlier commodity could only be traded under futures on the exchange platform where quality and quantity of the commodity were pre-fi xed as per the contract specifi cations.


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Thus “Agrim Sauda” or forward has now become a boon for those participants, who are directly involved in physical trading of agricultural commodities and are exposed to their price fl uctuations. The exchange has guaranteed that forward trading is only for com-pulsory delivery and thus there will be no speculation. Ultimately this provides an exclusive platform only for physical delivery. Introduction of forwards through ex-change has also removed the basic ineffi ciencies like risk of counter-party default, absence of a mechanism for settling disputes, built-in cost of intermediaries and lack of transparency in the price discovery process

Through forward contracts, there are many options available for delivery FOT/FOR/FOB/Comtrack which has made an attractive proposal for all physical partici-pants such as Miller/Trader/Exporter. As we all know that market is never steady but sometimes it is extra volatile, thus in case of vicious price fl uctuations for-wards also provides price stabilization.

SummaryForwards contract has proved itself as an imperative tool for physical delivery, especially in the case of ag-ricultural commodities. Thus they ensure timely avail-ability of commodities to the manufacturers, proces-sors, importers and exporters and also provide hedge against price fl uctuations and ultimately reduces risk. It

have been used by many huge multi-national corpora-tions who are somewhat exposed to some form of risk associated with commodity. Even today, many forward contracts are traded in physical commodity markets/mandi through private negotiations with details regard-ing contract known to the parties involved in transac-tion. But somewhat such transactions are exposed to counterparty default and risk, which has been removed by exchange traded forwards. Forwards contracts are ubiquitous in the physical markets of grains, sugar, veg-etables, fruits etc.

The beginning of exchange traded forward is the most important and single step taken by exchange through which the loopholes will be corrected and function-ing will get better and ultimately the goal of price risk management and boosting of physical delivery will be achieved and prosperity will fl ow in the economy.

Thus with the advent of NCDEX traded forward “Agrim Sauda” the commodity market have got a new direction. Since India is an agri-based economy and for improving our economy along with boosting agricul-ture the government have taken many steps in the form of “Make in India”. Physical delivery of commodities especially agricultural ones will give encouragement for small and medium enterprises and also to farmers, which will ultimately bring prosperity and growth in economy.


— Tapan Trivedi

All that You wanted to Know about the Greece Debt Crisis

Greece debt crisis is a long standing issue related to its economic and debt problems for over 5 years now. The Greek economy virtually en-

joyed a honeymoon period between the year 2003 and 2006 with easy monetary fl ow into the economy, strong external economic growth which kept exports and im-ports growing and healthy EU and US economy aiding support. As per the data available from Eurostat, Greece clocked an average GDP growth of over 5% during the aforementioned period between 2003 and 2006.

However the scenario shifted into deceleration mode after 2008, as the global economy and mainly the US and European region got hit by its worst fi nancial and housing crisis since the ‘Great Depression’ in 1930’s. As of the current state, Greece is being marred by huge debt with the economy staying into recession for al-most all years but one since 2008. While one may say, economic contraction and debt problems were faced by all major economies around the world then why only Greece remain in focus time and again. That issue can

SPECIAL FEATURE

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Greece GDP has remained in contraction for almost all quarters since 2007

Greece government debt rises while the budget remains stagnant

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2014201320122011201020092008200720062005

Greece Govt Debt as a % of GDP Budget Balance as a % of GDP

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be justifi ed with the fact that Greece’s own problems regarding the long-standing budget defi cit into the economy, burgeoning Debt/GDP ratio of the economy along with lower actual internal output pushed it at the bottom raking in terms of economic comparison in the EU region.

This was conjugated with calls that Greece govern-ment made changes in its accounting policies so as to suit the requirements from the Euro group to enter as a EU Member state in 2000 (Budget defi cit below 3% of GDP and debt below 60% of GDP or declining). It is said that the government manipulated the account-ing norms so as to show its budget defi cit by a reduced rate and thus enhanced the troubles for the economy. Above mentioned problems along with issues regard-ing its economic contribution, growth, employment, debt cycle, bank and fi nancial sector leverage in the EU region have troubled Greece for last couple of years.

Amidst its structural issues, Greece has already got two bailouts. The country received fi rst assistance worth €110 Bln in 2010, saving it from sovereign de-fault while covering its fi nancial needs through May 2010 - Jun 2013 period. Lenders are EC (European Commission), the ECB and the IMF which were called the Troika. While markets got a sigh of relief post the fi nancial support, actual situation didn’t change much with the Greek economy maintaining its recession mode. This pushed a case for another round of bailout worth €130 Bln 2012.

Additionally, private creditors holding Greek govern-ment bonds took a hit in their balance sheet by extending the maturity for repayment, lowered interest rates while pulled their face value of the bonds by 53.5%. One may remember the 2012 crisis when long-term 10 year bond yields of Greece, Spain and Italy amongst others moved up to record high levels creating additional pressure in the fi nancial markets. The second bailout programme made the total fund provided to Greece to €240 Bln with the timeframe extending from May 2010 - Dec 2014.

Greece Debt Timeline Graph

Why June 30 has become important???Election win by the extreme left political alliance in Greece named Syriza directly or indirectly forced the Troika to extend the deadline for bailout by 4 months. The Left party won elections in the country backed by promises that bailout conditions maintained by previ-ous government and austerity procedures to be man-dated as per the Troika would be renewed. Political uncertainty pushed the lenders to switch to a hard stand wherein they froze the last tranche payment initially to given till April to Jun 30th which falls next week.

The problem lies with the fact that as a debtor, you need to repay what you have taken. Greece needs to repay a €1.5 Bln worth by this Jun 30th. On a cumula-tive front, the money due by Greece over the next 12 months period of less accounts to be €29.23 Bln how-ever that is not something which the markets concerned about at this stage. Greece which is facing both internal as well as external pressure, is not is a state to repay even €1.5 Bln worth of amount as well. Non-repayment would eventually trigger default which may push it to exit EU region and thus all this mess. The situation can be handled wherein Troika gives the last tranche to Greece (€7.2 Bln) through which it repays IMF and

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SPECIAL FEATURE


continue to stay in EU region. However the creditors want the country to maintain its prior terms of lend-ing and austerity which the current political system in Greece is avoiding and thus this mess.

The Referendum twist!!!Major European policy makers including the IMF were expected to come out with an amicable solution to the Greece crisis, with talks seen moving into fi nal rounds on Saturday, 27th Jun 2015. However, Greece’s Prime Minister Alexis Tsipras had provided enough meat to the global markets so as to produce a highly volatile week starting 29thJun. In an unexpected state of events Greece PM on 27th Jun came out with a call of REFER-ENDUM against the demand from the Troika weighed on Greece in return for the fi nancial assistance. The government called for a vote from the public on 5th Jul.

This surprising move is seen to satisfy internal ar-rangements by the government with the opposition parties and public as the latter were voicing resistance against the austerity proposals by the Troika. Tsipras in the parliament said, policy proposed by lender will add “unbearable weight” to Greece’s troubles. While different market polls suggest majority of Greek people supporting to remain in the EU though they are against further tax increases and cut in spending.

What to expect next???Post the twist in tale as put in due to the referendum, Greece needs to cross the IMF deadline to repay €1.5 Bln on Jun 30th. Its coffers are depleting out of cash on a daily basis and the creditors have already held back the money until the country signs the austerity pack. This is directly or indirectly pushing the country into default mode, while the worst scenario also makes a condition of Grexit, i.e. exiting the EU.

The fate of the political battle now seems in hands of the Greece public wherein we should watch the govern-ment if it can work out a temporary model by asking for the IMF to go light up till the self-imposed Jul 5th deadline. The step by the Greece government has shat-tered the market confi dence and also raises questions about the sanctity of the EU group which was formed in 1993.

Following the change in plans, FM of EU 18 (Ex-Greece) rejected its plea to extend a bailout until the proposed vote is passed and results out. Also, indirect comments came with the EU group members suggest-ing to prepare for the default of Greece. EU 18 mem-bers in joint statement said they pledge again to secure

the strength and the power of the Euro currency and the group with or without Greece. Separately, the FM’s also advised Greece to impose capital controls against its banks so as to stabilize its banking system which is consistently dependent on the ECB to work effi ciently due to lack of money and huge drawdown from the pub-lic since the middle of Jun. As per the Financial Times, the ECB and the Bank of Greece likely discussed im-plementing capital controls or limiting the ability for money in Greek banks to be withdrawn. There is also speculation that Greece would offi cially declare holi-day for its banks till the Jul 5th vote.

Traders and investors note that global markets are moving into highly uncertain territory over the next few weeks with the critical period watched in and around 5th of Jul. We believe during the short-to-medium term as well, the outcome of the aforementioned cues could be felt on the Greece economy and politics, EU area economy, policy dynamics by major leaders, Euro cur-rency and select other asset classes like the Bullion complex which gets fl avour in times over economic or political uncertainty globally.

Volatility is anticipated to be high while markets would be closely watching major aspects like:

� Greece may witness political upheaval on what may happen after the outcome of the referendum

� Already the Syriza party headed by the PM is un-der pressure as opposition and also its own allies are questioning the promises made to the public during elections

� Syriza while getting elected promised reversal of select austerity measures and also guided for almost 100% standstill in fresh austerity

� A NO by the public in the referendum could pave way for Grexit. However what could happen to its is-sues over likely default to IMF, launch of new policy

and also how it manages its future fi nancial obliga-tion with likely that ECB and EU members too stop-ping any kind of support

� A YES would force the Greece government to ac-cept the complete terms set-in by the Troika, even though this may trigger internal political restructur-ing as current government failed to take the respon-sibility

� For the Euro, Greece’s actual exit may have mini-mal effects on the economic side as Greece counts of under 2% of the total share on EU GDP, though sentimental impact could be damaging

� Exit by Greece may incite other Left wing political outfi ts arising in Spain, Italy and other smaller nation like Portugal and Ireland which like Greece are suf-fering post the recession in 2008, though their situa-tion is somewhat contained at this stage

� In the worst case, speculation about other nations too looking for similar exit (if Grexit really happens) may lead to the destabilization of the EU economic structuring

� Worst case scenario could lead to Euro currency moving below 1 against the USD while infl icting very sharp negative reactions in region and global equities

� Bond yields in the EU region could spike heav-ily while spread between Bunds and regional bond widening. Spread between US Treasury and Bunds too might see an increase probably triggering another round of global bond sell-off which has already been a critical issue in last few months

� Emerging markets currencies along with the bigger ones like USD and JPY may also get affected heavily while in commodities, major volatility could be seen in precious metal and especially gold


ANYA LAXMI - QUIZ SERIES 4

Q1: D – explana� on - Par� cipants in forward/futures markets are hedgers, speculators, day-traders/scalpers, market makers, and, arbitrageurs.;Q2: B – explana� on - A market in which prices are rising;Q3: A – explana� on - Contango means a situa� on, where futures contract prices are higher than the spot price;Q4: - to be given by the readers. (Contest);Q5: C – explana� on - This refers to the tendency of diff erence between spot and futures contract to decline con� nuously, so as to become zero on

the date on maturity.

Answer of Anya Laxmi Series 3: Q. No. 3 – Answer - A (Liquidate the posi� on same day)

By - Priya

ANSWERS

ContestAnswer of Q. No. 4 to be given by the readers. Plz mail answer to [email protected] by mentioning “Anya Laxmi Quiz Series 3” in the subject along with your name

and mobile no. One winner will be selected based on lottery system from the received correct nominations. KCTL Research is not eligible to participate in this contest.

Q.1

Who are the participants in futures markets?

A) Hedgers B) Speculators C) Arbitrageurs D) All of the above

Q.2 What is Bull Market?

A) Market in which price go down B) Market in which price go up C) Market in which price remain same D) None of the above

Q.3 What is ‘Contango’?

A) Future price > spot price B) Future price < spot price C) Future Price = Spot Price D) None of the above

Q.4 What is settlement price?

A) Price at which all the profi ts are settled B) Price at which all the outstanding trades are settled C) Price at which all the losses are settled D) None of the above

Q.5 What is convergence?

A) Future price > spot price B) Future price < spot price C) Future Price = Spot Price D) None of the above

Alexis Tsipras. Greece PM

SPECIAL FEATURE SPECIAL FEATURE


BY INVITE

In order to meet the long awaited demand from the domestic steel manufacturers, government has in-creased the import duties to protect the domestic

players who are reeling under cheaper steel imports from China and South East Asia.

Such changes in import duty announcement come on the top of recent imposition of anti-dumping duty on some grades of stainless steel products. And these include the Hot Rolled (HR) fl at products of stainless steel Grade 304 with all its variants originating from China, Malaysia and Korea.

As per the notifi cation, duty on fl at products of steel like hot and cold rolled (HR/CR) sheets and coils typi-cally used in automobiles, refrigerators and washing machines were revised upwards from 7.5% to 10%. On long products of steel like TMT bars, angles and chan-nels used in building and construction, duty has been raised from 5% to 7.5%. The two exceptions where duty has been maintained at existing levels –

1. CRGO (cold rolled grain oriented) steel or “elec-trical steels” that few domestic players manufacture

2. Stainless steel fl at products.

The hike in steel import duty will reduce the gap between domestic steel prices and the landed cost of Chinese steel (estimated between 12%-17%) only by around 2.5%, says India Ratings & Research (Ind-Ra). Moreover, the benefi t may quickly disappear if Chinese exporters indulge in undercutting if the rupee appreci-ates. Though the domestic steel players had appreciated the step but remained disappointed with the quantum of the hike.

“The move will benefi t Indian steel makers from the pressure of imports,” Union Steel & Mines Minister Narendra Singh Tomar tweeted on the micro-blogging site. “Combined with a recent anti-dumping duty on stainless steel, it is also a sign of our commitment to Make in India,” the minister commented on Twitter.

Indian Steel Alliance (ISA), an industry body of pri-vate and public steel producers like JSW Steel, Tata Steel, SAIL and JSPL lobbying also welcomed the move. “It is a welcome step since it relieves some of the pressure on steelmakers though we wanted a bigger hike in duty.”

“The rising imports are posing a serious challenge to

Hike on Import Duty Aids Domestic Steel Companies

— Pramod Shinde

BY INVITE

steel industry”, said Sanak Mishra, Secretary General of ISA. He further said that ISA to continue our dia-logue with the government on ways to sustain domestic steel industry.

ISA intensifi ed its efforts in the wake of a 71% jump in imports between April’14 and March ‘15 to nine mil-lion tonne (mt) of which China accounted for 2.9 mt or 33% of it. Imports, which have been clocking almost 1 mt per month since September 2014, remained un-abated, going up 43% in April and 85% in May 2015. Chinese imports had amounted to 1.08 mt in 2013-14 when total steel imports touched 5.45 mt.

Last month, ISA members, including top steel hon-chos like JSW Steel chief Sajjan Jindal, Tata Steel MD TV Narendran, the- then SAIL chairman C S Verma, Essar Steel chairman Shashi Ruia, Jindal Steel and Power Limited’s Naveen Jindal met Finance Minister Arun Jaitley and Tomar Singh, Steel Minister to ap-prise him of the threat posed by rising steel imports.

While the increase of import duty would impact on imports from China and Russia but it would not ap-ply to countries which are under Free Trade Agreement (FTA) with India, such as Korea and Japan. The gov-

ernment has taken his move to increase domestic steel production and discourage imports.

Such import duty reduction would certainly help steel producers currently struggling at capacity utiliza-tion of near 55%-65% to improve their utilization.

Overall, the impact of imposition is likely to be mod-erately positive in the long term; however, any near-term benefi t is less likely given bleak consumer spend-ing and falling steel demand.

As per the India Rating report, the impact will be minimal on the imports, given the price differential be-tween domestic and imported steel prices. Though this move may not help domestic players in seeing an im-provement in demand for their products, it should ease the pressure on them by restricting the fall in domestic prices to some extent.

The import duty could raise steel prices for certain end-user industries such as auto ancillaries, infrastruc-ture companies and construction companies that import from China and Russia.

Steel traders who import from these countries could also see a dip in their already slim margins if steel de-mand remains weak.


FEATURE FEATURE

Resilience of the Indian Rupee— Sumit Mukherjee

Post the Union Election of 2014, the Indian ru-pee has not only depicted growing optimism in the domestic economy, but was far more resil-

ient compared to other emerging market currencies. Expectation of a new stable government at the center, backed by surprise end for a decade old policy pa-ralysis regime favored the Indian rupee to appreciate against the US dollar in broader half of 2014.

Since the last quarter of 2014, most of the curren-cy pairs including the Euro and Yen have witnessed a roller-coaster ride amidst looming Fed tightening fears with increase in US interest rates (sometime in later 2015). Only a select few currencies, surprising-ly rupee has marked a slow depreciation against the greenback.

The fundamental demand – supply dynamics at the currency sphere over the past year clearly remains a one sided story favoring the US dollar. Conclusion of US Federal Reserve’s third tranche of quantita-

tive easing in October’14 and increasing US shell oil production has ultimately resulted in lower US dollar supply across the globe. Further, a hawkish monetary policy tone by the Federal Reserve and fl attening trea-sury yield curve (increasing short to medium term yields) made the run–up for US dollar worth the rally.

Separately, safe haven demand for the greenback amid expanded asset purchase set by the European Central Bank to the tune of EUR 60 billion per month until September’2016 were the key drivers supporting the gains in US dollar.

Surprisingly at the domestic front, Indian rupee too depreciated towards 64 levels against the dollar by the end of the fi scal year in the run up to 2015. Fear of foreign currency outfl ow and increasing non-perform-ing assets marring credit and business environment, remained the key threat limiting any appreciation in Indian rupee. However, before we try to ascertain the current weakness in Indian rupee, we fi rst need Please read the Disclaimer carefully on page 4

to glance the unfolding of fundamentals over the past one year.

Fundamentally, a pro-growth government elected last year has earlier resulted in improving optimism and higher foreign currency infl ows. Both, foreign in-stitutional as well as direct investors remained a net buyer which has contributed to a change in foreign exchange reserves. And this contribution is based on balance of payments basis to USD 61.4 billion in fi -nancial year 2014-15 compared to only USD 15.5 bil-lion in the previous fi scal year, recording nearly 296% growth. However, considering the valuation effects, we have witnessed only 200% growth from USD 12.2 billion to USD 37.4 billion in the past two fi scals.

The contribution from foreign infl ows, which was ex-pected to peak as similar to 2007, had the dispute over Minimum Alternate Tax concerns on a retrospective ba-sis not surfaced in the past quarter. Additionally, sharp fall in crude-oil prices (India being a net importer) too substantially helped to control the current account defi -cit. The widening current account defi cit, which stood at 1.6% of GDP (USD 8.3 billion) at the OND’14 was limited to 0.2% of GDP (USD 1.3 billion) by JFM’15. For the full fi scal ending March’15, the current account defi cit shrunk to USD 27.5 billion, or 1.3% of GDP, from USD 32.4 billion, or 1.7% of GDP, a year ago. Merchandise trade defi cit at USD 31.7 billion in fourth quarter contracted sharply on a Q-o-Q basis on account of a larger decline in merchandise imports (13.4%) as compared to merchandise exports (10.4%). Hence, signifi cant improvement in the Indian balance of pay-ments was majorly infl uenced by not only increasing foreign infl ows but also declining import bill in the past fi scal which in part explains the resilience of the rupee among the Emerging Market currencies.

The Indian Reserve Bank in line with International standards has targeted infl ation to decide on monetary policy outlook and interest rates since October, 2013. The above development has resulted in positive real interest rates as well as stability at the exchange rate front. Additionally, low infl ation on the back of fall-ing energy and food prices coupled with efforts to curtail supply bottlenecks resulted in lower infl ation concerns providing more room for policy makers to brace interest rate cut.

The Wholesale Price Index (WPI)-based infl ation stayed in the negative zone for the seventh consecu-tive month in May’15 at -2.36%, compared to -2.65% in April, with price rise in food items, fuel and manu-factured goods slowing down further. Low infl ation-ary concerns have already resulted in 0.75% cut in repo rates in three tranches beginning January’15. Hence, a lower infl ation reading and cautious rate cut approach by the RBI too has contributed stability in the exchange rate. Currently, the RBI targets below 6% CPI by Jan’16 and hence any further downside revision of infl ation is ought to lower the interest rate further in the coming days.

Change in base year from 2004-05 to 2011-12 and change in GDP calculations from growth in produc-tion basis to gross value addition basis have contrib-uted higher GDP growth rate from nearly 5% to 8% at present. However, downstream economic devel-opment has remained lackluster with slow growth in industrial production and purchasing manager index. Industries have failed to increase exports while the public sector banks too failed to pass on the benefi ts of rate cut to the borrowers.

Additionally, lack of majority at the upper house (Rajya Sabha) and delay in passage of key bills like Land Acquisition is ought to attract fi scal concerns in future too. Amidst the given juncture, we expect the fl exible monetary policy targeting CPI is likely to keep the exchange rate fragile to make exports com-petitive ahead of Fed’s interest rate hike. As far as the economic growth is concerned, downside risk pertain-ing to delay in implementation and sluggish global economic health is unlikely to support double digit GDP growth for India in the coming fi scal.

However, slowing Chinese economy and focus on government policies like “Make in India” should hold the key for strengthening GDP numbers in the long term.

Indian Foreign Currency Reserves in USD billion

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200

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Jan-03 Oct-04 Jul-06 Apr-08 Jan-10 Oct-11 Jul-13 Apr-15

Record high foreign currencyreserves amid increasingforeign inflows

Source: RBI & KCTL Research


Over the last decade, Indian commodity market has made notable progress with the commodi-ty futures and electronic spot markets, backed

by state-of-the-art technology, sound governance and risk management practices, thereby enhancing trad-ing effi ciency and strengthening market confi dence. Cohesive development of the commodity eco-system, however, requires effi cient functioning of forwards transactions which form more than half of the coun-try’s total commodity trade.

Forward Contract, in its traditional form, reduces price risk for both the seller and the buyer. A maize farmer, for instance, enters into a pre-harvest forward contract with a buyer to sell his produce at a mutually agreed price on a pre-specifi ed date at the time of har-vesting. This type of trading arrangement saves time and cost for both the buyer and seller to locate coun-ter-party, while giving them an assurance of price, de-livery and market.

It is this comfort of trading that makes forward con-tracts the most preferred form of trading. Does that mean both the parties are getting the best deal? Prob-ably not.

Forward contracts help the two concerned parties lock in prices, yet a risk of any one of the sides de-

faulting remains. In fact, they have a higher risk of resulting in counter-party default, as being bilaterally negotiated deals they do not have any legal authority or regulatory framework in place that can penalize a defaulting party.

Small and marginal farmers as well as the traders are the worst sufferers of such trade-defaults owing to their smaller marketable surplus, inadequate access to warehouses and quality assaying facilities, insuffi -cient credit facilities and least bargaining power. The unorganized and fragmented structure of the physical market further amplifi es the possible occurrence of such defaults, magnifying their impact in the physical market transactions.

Moreover, forward trade offers limited growth op-portunities to small and marginal market players, as exploring new business territories or trading with unknown/lesser known counterparties has huge risks and operational costs attached to it - in the form of appointing intermediaries to reach suitable counter party, and/or increased investment in marketing in-frastructure. In case of large corporations that buy in bulk and those who cater to the needs of niche mar-ket segment or have exposure to international market where margins are largely quality-determined, for-

Impact of Exchange Traded Forwards on Physical Business

— Ms. Pallavi Oak, NCDEX

ward transactions help them procure desired quality of raw material at over a preferred time-span. How-ever, this trading arrangement forces large producers to adopt stringent contract terms, stick to the regular set of suppliers and to maintain higher inventories of raw material. As a result, large traders, processers are unable to minimize their input costs and utilize their resources optimally.

NCDEX, the country’s largest agricultural com-modities exchange, offers a refi ned version of for-ward contract known as ‘Agrim Sauda’ on its online national trading platform that retains innate features such as fl exibility to negotiate trading parameters, while increasing ease of trading by providing a fi rm legal underpinning to reduce counter-party risks and enabling them expand their market reach at reduced operational expenses.

Mitigating couter-party riskExchange-traded forwards allow buyers and sellers to execute their customized bilateral deals on the na-tional electronic trading platform under the regulatory framework of NCDEX as well as Forwards Market Commission. Prudent risk management practices of the Exchange, viz. the robust system of margin collec-tion, help them minimize their counter-party default risk by assuring compensation guarantee to the extent of margin collected.

A participant pays for an initial margin at the time of making a trade. Then, there is an Incremental Mar-gin, similar to exposure margin that is charged in fu-tures trading, to cover risks that may arise from un-usual fl uctuations in commodity prices. In the event of default, ninety percent of margin amount collected from the defaulting party is paid as compensation to the counterparty and 10 percent is retained by the Ex-change.

Enhanced convenience to trade and access to pan-India market Exchange-traded forwards provide for customizing the contract terms. For example, a feed miller from Delhi, willing to buy maize, can negotiate pricing date, packaging, moisture content, broken/damage grain count, foreign matter, delivery location and mode of delivery as he enters Agrim Sauda. He can enter the contract at fl at price (say e.g. at Rs 1100 per quintal) or link it to the NCDEX maize contract quot-ing a premium or discount.

It thus enables commodity stakeholders with diver-

sifi ed requirements to participate in this market seg-ment. Additionally, as the contract period under the exchange-traded forwards varies from minimum 12 days to maximum 180 days, commodity stakehold-ers do not have to buy /sell their stocks at one go, instead they can enter a series of exchange-traded for-ward contracts of different maturities and adjust their delivery schedule accordingly. This helps farmers avoid distress sale, processors or traders overstock-ing the commodity and reduce the short-term liquidity crunch.

Moreover, online trading mode facilitates a buyer or a seller seek a suitable counter-party from across the country instead of just the familiar neighbouring areas at minimal efforts and cost as against huge in-vestments they might have incurred in doing the same.

Multiple delivery modes Exchange traded forwards guarantee delivery of the underlying commodity as against the futures contracts which permit cash-settlement of trade without taking deliveries.

Moreover, it provides multiple options to give/take deliveries. A maize seller, for instance, by entering into exchange-traded forwards, can make deliveries in multiple consignments by using a uniform delivery mode for all deliveries for the contract as agreed at the time of trade. He can make delivery at rake point or truck point within 100 km of agreed location. Al-ternatively he can opt for direct delivery mode or sim-ply deliver at exchange-approved warehouses through COMTRACK, to track the movement of goods online. This helps in optimizing delivery and transportation costs. He can compare physical price and future price of a commodity and if the physical price is higher he

Exchange Traded Forwards Statistics as on June 30, 2015Total Turnover: Rs 8,247 lakh, Total volume: More than 18,000 tonnes,

No. Trades: Approaching 400, No. clients participated: more than 100

Membership: Existing NCDEX members and clients can participate in this new segment with their existing member-ship/client codes.

Alternatively, a special membership category, ‘Commodity Participant Members’, is also available for participating in forward segment.

Commodities Covered: No. of commodities available for trade – 26 agri. commodities. Maize, chana, coriander, sug-ar, castor seed, turmeric and jeera are major among others.

BY INVITE BY INVITE


STATISTICS

Lead, - 10.0%

Zinc,- 8.8%

Nickel, - 7.3%

Silver, - 6.5%

Copper, - 4.2%

Crude Oil,- 3.5%

Aluminum,- 3.2%

Cardamom, - 1.3%

Gold,- 0.7%

Cotton, - 0.7%

Natural Gas, 6.7%

Mentha Oil, 12.2%

Soybean, - 9.8%

Turmeric, - 8.0%

Jeera, - 6.0%

Soy Oil, - 4.5%

Barley, - 2.6%

Wheat, - 0.7%

Rm Seed, - 0.4%

June International Commodity Price TrendsJune 29,

2015May 29,

2015% Change 52 Week

High% Change from

52 Week High52 Week

Low% Change from

52 Week Low

LME Lead 3 Month ($/t) 1784.00 1950.00 -8.51% 2307.00 -22.67% 1676.50 6.41%

LME Zinc 3 Month ($/t) 2019.00 2188.00 -7.72% 2416.00 -16.43% 1981.00 1.92%

LME Nickel 3 Month ($/t) 11835.00 12620.00 -6.22% 19990.00 -40.80% 11730.00 0.90%

Comex Silver (S.oz) 15.66 16.70 -6.21% 21.53 -27.23% 14.10 11.09%

LME Copper 3 Month ($/t) 5790.00 6015.00 -3.74% 7212.00 -19.72% 5339.50 8.44%

Nymex Crude Oil (S/bbl) 58.33 60.30 -3.27% 106.09 -45.02% 42.03 38.78%

LME Aluminium 3 Month ($/t) 1701.00 1740.00 -2.24% 2119.50 -19.75% 1677.00 1.43%

ICE Sugar (cents/lb) 11.82 11.98 -1.34% 18.04 -34.48% 11.10 6.49%

Comex Gold (S/oz) 1179.00 1189.40 -0.87% 1346.80 -12.46% 1130.40 4.30%

CBOT Soy Oil (cents/lb) 33.05 33.33 -0.84% 40.13 -17.64% 29.32 12.72%

ICE Coffee (cents/lb) 130.80 126.15 3.69% 225.50 -42.00% 123.55 5.87%

ICE Cotton (cents/lb) 66.80 64.35 3.81% 80.78 -17.31% 57.05 17.09%

LIFFE Sugar (S/t) 363.70 349.10 4.18% 481.70 -24.50% 343.60 5.85%

Nymex Natural Gas ($/mmbtu) 2.81 2.64 6.17% 4.54 -38.27% 2.44 14.82%

CBOT Soybean (cents/bushel) 1002.50 934.00 7.33% 1448.00 -30.77% 904.00 10.90%

CBOT Corn (cents/bushel) 383.25 351.50 9.03% 443.75 -13.63% 318.25 20.42%

CBOT CORN 383.25 351.50 9.03% 225.50 69.96% 123.55 210.20%

CBOT Soy Meal ($/t) 341.90 305.70 11.84% 476.90 -28.31% 296.30 15.39%

CBOT Wheat (cents/bushel) 580.50 477.00 21.70% 677.00 -14.25% 460.00 26.20%

June Gainers and Losers (M/M%)MCX NCDEX

can sell the commodity on forward segment instead of giving delivery on the futures segment.

The fl exibility provided with regards to location and mode of delivery and the consignment size help traders to give and to take deliveries at locations that are not covered by existing delivery network under futures market. This allows more number of physical market players to participate in this market, widen their market reach and grow their business. It also help traders save expense on setting up their own de-livery infrastructure across the country.

Time-bound settlementExchange traded forwards have standard timelines set for different activities forming part of settlement process such as assaying, delivery of goods as well as payment, etc., which help streamline the settlement procedure by keeping track of all the transactions and guarantees the compliance of all trade commitments undertaken by the parties to each transaction.

Time-bound settlement procedure assures buy-ers and sellers of the receipt of goods and payment, thereby helping them in rational allocation of re-sources and planning business activities. It helps them in rational allocation of resources and planning business activities.

Flexible quality norms and reduced quality concernsExchange traded forwards, on one hand, enable trad-ing parties to customize quality specifi cations of the underlying commodity as per their needs using ‘Bid & offer’ parameters, while by stipulating ‘fi xed param-eters’ they also ensure that minimum quality standards are maintained. For instance, while entering into ‘Ex-change-Traded Forward Contracts’ for sugar a buyer and a seller can mutually decide upon the grade of sugar, packaging material, moisture level, ICUMSA value, and the crop year. Yet, with regard to polariza-tion, sulphur content and grain size, sellers are man-dated to fulfi ll NCDEX stipulated norms.

Exchange-traded forwards also offer an option of sampling and assaying of commodity to the buyer that helps reduce risks pertaining to quality, human error and manipulation. Provision of compensation guar-antee in case of default arising on account of quality mismatch also subsides quality concerns.

Better management of price risks Exchange-traded forwards help market participants

better manage their price risks. Unlike in traditional practices, exchange-traded contract enables traders to link trade price to the futures contract quoting at a pre-mium or discount, thereby facilitating a trader better manage unusual fl uctuations in commodity prices and optimize his returns.

Futures prices discovered on the exchange, at any point of time during the contract tenure, capture the prevailing demand-supply dynamics, and provide a fair picture of the price trend likely to emerge. Hence, a reference price-forward contract, settled at a price based on its futures market equivalent (counter-part), increases the possibility of receiving fair price by the trading parties.

Boost to overall commodity market growthExchange-traded forwards are effective marketing tool that provide single point access to all physical market activities including trading, storage, qual-ity assessment and institutional credit facilities. It a best blend of physical and futures trade. Once imple-mented on larger scale, the exchage-traded forwards have the potential to facilitate all participants in the food and agriculture value chain to tap a much larger pool of liquidity which in turn can provide a seamless ability to do business across the existing market seg-ments, viz. spot, forwards and futures.

The resulting synergies can provide more accurate refl ection of the actual supply/demand situation, pric-es and eliminate information asymmetries. This can promote more effi cient production, storage, marketing and agro-processing operations, and improved overall agriculture sector performance.

Exchange Traded Forwards –ONE STOP SOLUTION to accelerate ef�iciency and growth

BY INVITE


STATISTICS

Source: Bloomberg ; EC: European Union; IN: India; US: United States; CH: China; GE: Germany; UK: United Kingdom; JN: Japan

Economic Events In July 2015Date Time Region Event Period Surv(M) Prior

07/01/15 06:30 CH Manufacturing PMI Jun 50.4 50.2

07/01/15 06:30 CH Non-manufacturing PMI Jun -- 53.2

07/01/15 07:15 CH HSBC China Manufacturing PMI Jun F 49.6 49.6

07/01/15 13:25 GE Markit/BME Germany Manufacturing PMI Jun F 51.9 51.9

07/01/15 13:30 EC Markit Eurozone Manufacturing PMI Jun F 52.5 52.5

07/01/15 14:00 UK Markit UK PMI Manufacturing SA Jun 52.5 52

07/01/15 17:45 US ADP Employment Change Jun 215K 201K

07/01/15 19:30 US ISM Manufacturing Jun 53.1 52.8

07/02/15 14:30 EC PPI YoY May -2.00% -2.20%

07/02/15 18:00 US Change in Nonfarm Payrolls Jun 230K 280K

07/02/15 18:00 US Unemployment Rate Jun 5.40% 5.50%

07/02/15 19:30 US Factory Orders May -0.50% -0.40%

07/03/15 10:30 IN Markit India PMI Composite Jun -- 51.2

07/03/15 13:30 EC Markit Eurozone Services PMI Jun F 54.4 54.4

07/03/15 13:30 EC Markit Eurozone Composite PMI Jun F 54.1 54.1

07/05/15-07/10/15 UK Halifax House Prices MoM Jun -- -0.10%

07/06/15 11:30 GE Factory Orders MoM May -- 1.40%

07/06/15 19:30 US ISM Non-Manf. Composite Jun 56.2 55.7

07/07/15 11:30 GE Industrial Production SA MoM May -- 0.90%

07/07/15 14:00 UK Industrial Production MoM May -- 0.40%

07/08/15 05:20 JN Trade Balance BoP Basis May -- -Â¥146.2B

07/09/15 05:20 JN Machine Orders MoM May -- 3.80%

07/09/15 07:00 CH CPI YoY Jun -- 1.20%

07/09/15 07:00 CH PPI YoY Jun -- -4.60%

07/09/15 16:30 UK Bank of England Bank Rate Jul-09 0.50% 0.50%

07/10/15 05:20 JN PPI YoY Jun -- -2.10%

07/10/15 14:00 UK Trade Balance May -- -Â£1202

07/10/15 17:30 IN Industrial Production YoY May -- 4.10%

07/10/15-07/15/15 IN Trade Balance Jun -- -$10406.2M

07/13/15 10:00 JN Industrial Production MoM May F -- --

07/13/15 17:30 IN CPI YoY Jun -- 5.01%

07/13/15 CH Trade Balance Jun -- $59.49B

07/14/15 11:30 GE CPI YoY Jun F -- --

07/14/15 12:00 IN Wholesale Prices YoY Jun -- -2.36%

Date Time Region Event Period Surv(M) Prior

07/14/15 14:00 UK CPI YoY Jun -- 0.10%

07/14/15 14:30 EC Industrial Production SA MoM May -- 0.10%

07/14/15 14:30 EC Industrial Production WDA YoY May -- 0.80%

07/14/15 14:30 GE ZEW Survey Current Situation Jul -- 62.9

07/14/15 18:00 US Retail Sales Ex Auto and Gas Jun -- 0.70%

07/15/15 07:30 CH Industrial Production YoY Jun -- --

07/15/15 07:30 CH GDP YoY 2Q -- 7.00%

07/15/15 14:00 UK Average Weekly Earnings 3M/YoY May -- 2.70%

07/15/15 14:00 UK ILO Unemployment Rate 3Mths May -- 5.50%

07/15/15 18:00 US PPI Ex Food and Energy YoY Jun -- 0.60%

07/15/15 18:45 US Industrial Production MoM Jun -- -0.20%

07/15/15 18:45 US Capacity Utilization Jun -- 78.10%

07/15/15 JN Bank of Japan Monetary Policy Statement

07/16/15 17:15 EC ECB Main Refi nancing Rate Jul-16 -- 0.05%

07/16/15 17:15 EC ECB Deposit Facility Rate Jul-16 -- -0.20%

07/16/15 17:15 EC ECB Marginal Lending Facility Jul-16 -- 0.30%

07/17/15 18:00 US CPI MoM Jun -- 0.40%

07/17/15 18:00 US Housing Starts MoM Jun -- -11.10%

07/17/15 18:00 US Building Permits Jun -- 1275K

07/17/15 19:30 US U. of Mich. Sentiment Jul P -- 96.1

07/21/15 14:00 UK Public Sector Net Borrowing Jun -- 9.4B

07/22/15 19:30 US Existing Home Sales MoM Jun -- 5.10%

07/23/15 05:20 JN Trade Balance Jun -- -Â¥216.0B

07/24/15 19:30 US New Home Sales MoM Jun -- 2.20%

07/27/15 18:00 US Durable Goods Orders Jun -- -1.80%

07/28/15 14:00 UK GDP QoQ 2Q A -- --

07/28/15 19:30 US Consumer Confi dence Index Jul -- --

07/29/15 19:30 US Pending Home Sales MoM Jun -- --

07/29/15 23:30 US FOMC Rate Decision (Upper Bound) Jul-29 0.25% 0.25%

07/29/15 23:30 US FOMC Rate Decision (Lower Bound) Jul-29 -- 0.00%

07/30/15 18:00 US GDP Annualized QoQ 2Q A -- -0.20%

07/31/15 04:35 UK GfK Consumer Confi dence Jul -- --

07/31/15 05:00 JN Natl CPI YoY Jun -- 0.50%

07/31/15 10:30 JN Housing Starts YoY Jun -- --

07/31/15 16:00 IN Fiscal Defi cit INR Crore Jun -- --

Economic Events In July 2015 (Continued)

Source: Bloomberg ; EC: European Union; IN: India; US: United States; CH: China; GE: Germany; UK: United Kingdom; JN: Japan

STATISTICS


SUNAHARE PAL

Cross Word On Commodities - 4Fill this Cross Word and test your commodity knowledge

By - Zehra Fatima

Across1. Forwards have been introduced recently (4)

19. A state known for soybean (2)

35. Known for spices (6)

73. A major centre of a commodity where recently forwards have been launched (7)

83. A pricing policy through which Govt of India gives support to producers (3)

97. India purchases most of the non-agri commodities from other countries (6)

113. Indian economy still gets 25-30% contributed by this sector (4)

121. Guar centre (7)

130. There was a strong rumour that this country could be expelled from EU (6)

Down3. Gold quality is known in market on this agency name (4)

4. If a currency gets weaker (10)

6. Badami and scooter are varieties of a spice which is grown in Rajasthan and Gujarat (9)

8. Alwar and Jaipur are major centres of a commodity (7)

9. In India maximum rain occurs due to (16)

27. Centre of cocud in Maharshtra (5)

46. The leader in currency which rules the world (6)

49. India exports maximum of this segment of commodities (6)

60. Southeast Asian countries depend on this for their crop (7)

1 3 4 6 8

9

19

27

35

46

49

60

73

83

97

113

121

130

Answer of Sunahre Pal series 3.

F U T U R E S

M C S M

C O T T O N A

S U C R

T N D T

L O N G C E T

E F E D E X R

A C B O T P A

D A I D

T R A D E R E

P R O P Y

N Y M E X

Karvy Comtrade’s Invest & HarvestJuly 2015

RNI No.APENG/2008/24815

vague lining to july clouds - karvy corporate · “during the period from 1st june 2015 to 25th...

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