1 / 34

Why Invest in Commodity Markets?

Commodities market, commodities trading, commodity futures. . . These terms are not very commonly understood by many. However, commodity markets offer as much an opportunity to investors as does the stock market.

dhanashriacademy
Download Presentation

Why Invest in Commodity Markets?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. COMMODITY MARKETS

  2. Commodity Markets defined • Commodity: Any tangible item that can be bought and sold. • SPOT MARKET-Mandis • FUTURES MARKET-Exchanges

  3. Global Scenario

  4. Inflation adjusted returns in the developed markets U.S. • Returns greater than bonds and almost equivalent to stocks • Risk is lower than investing in stocks U.K. U.S.

  5. Major International Exchanges Goldman Sachs Commodity Index Fertilizer.Dairy,etc Agricultural: corn, soybean, oats, wheat etc Metals :gold,silver COMMEX Gold,Silver Precious Metals and Energy Base Metals,Plastics

  6. INDIAN SCENARIO

  7. Indian Scenario • More than 100 years old market • Regional exchanges - Bombay Cottons Exchange - India Pepper and Spice Trade Association - National Board of Trade etc. • Year 2003 - Landmark year - Organized Trading at National Level

  8. Premier Exchanges • Organized National level exchanges • Professionally managed • Demutualised setup

  9. More than 70 commodities listed in a short span of 2 years • Record Volume seen in many commodities

  10. Average volumes of commodities traded

  11. The Potential-AGRO ECONOMY • Constitutes 22% of GDP • Provides food to 1Billion people • Sustains 65% of the population : helps alleviate poverty • Produces 51 major Crops • Provides Raw Material to Industries • Contributes to 1/6th of the export earnings.

  12. The Commodity Hedger • Risks faced by Commodity Users and Producers • Price Volatility • Types of Hedges • Corporates currently benefitting from the market

  13. Risks faced by Commodity Users and Producers Commodity enterprises faces two types of Risks • PRICE RISK • QUANTITY RISK(eg from weather) HEDGING REDUCES PRICE RISK

  14. Price Volatility - Prices of commodities volatile due to - Demand Supply mismatch - Erratic Monsoon - Import – Export restrictions - Spoilage during storage - Substitute demand etc. 12% Rise 13% Fall 23.66 % Rise

  15. Types of Hedges Long hedge Hedge against increase in cotton prices(e.g. Textile companies) Short hedge Hedge against decrease in prices(e.g.Steel ,Rubber,Oil producers)

  16. Commodity – Tool of Hedging Wheat Physical Stock 200 Tons @ 750/qtl 200 tons sold in Futures @ 800/qtl Price down to 680/qtl Settlement at 680qtl Loss of Rs. 70/qtl Profit of Rs. 120qtl Profit of Rs 50 qtl

  17. Corporates currently benefitting from the market

  18. Portfolio Diversification • Diversification reduces risk • Downside risk is limited -Residual Value

  19. Types of Arbitrage Calendar Spread Arbitrage Inter exchange Spread Arbitrage International Spread Arbitrage Spot Future Arbitrage

  20. Calendar Spread Arbitrage Exploiting the convergence of price between two contract. Example - Chana 20 Dec05 1900 1901 Chana 20 Jan05 1954 1955 Spread between the two contract months is 53 On expiry - Chana 20 Dec05 1910 1911 Chana 20 Jan05 1912 1913 Spread between the two contract months is 2

  21. International Spread Arbitrage Prices in India are derived from International prices. Exploiting the mismatch in parity NYMEX Crude 60.35 INR 46.23 Fair Value (Rs.) 2790 MCX Crude (Rs.) 2820 Difference 30

  22. Spot – Future arbitrage Steps in Arbitrage Process 1)Spot Purchase and spontaneous future sale 2)Goods warehoused within 4 to 5 days and payment to Supplier towards spot purchase 3)Goods certified in next 5 days 4)Goods dematerlization in next 2 days 5)Delivery on the expiry of Future Contract 6)Release of Client fund along with his profit.

  23. Obligation of Client No taxation obligation (Sales Tax etc.) is being done on part of client. We have our sales tax registration at every state in name of Navratan Comdex Pvt Ltd. So whatever are the taxation formalities, we will complete on behalf of client. Risk Parameter No risk is involved in spot future arbitrage since profit in the arbitrage sauda is locked at its initiation itself. There might be a slight diversion of Annualized Approximate Return due to uncontrolled upward move of commodity prices since we have to call MTM Loss Money for the time prices come down again. But the absolute amount of profit will not be changed anyhow.

  24. Formalities If a client wants to do arbitrage, client has to open a Trading Account and a Demat Account with us. Trading Account is required to initiate futures sauda and Demat Account is necessary to get demat goods in client account. Except this no other obligation is due on client part. Investment Client has to pay his purchase cost of goods along with all expenses (warehousing charges, spot commission, our commission, we will incur on his behalf. The client will pay further, specified margin for the future sale sauda.

  25. Milestones achieved • NCDEX unveils India's first agriculture index. • NCDEX peak daily turnover of 4271cr. • MCX clocks record volume in Crude Oil contracts. Peak Daily Volume of 9,26,500 Barrels • MCX registered 602kgs of physical deliveries of GOLD february contract

  26. Sample Contract Specification

  27. Client Registration Form (CRF) • Non –Individual --Company/ Firms/ Trust Documents Required • Certified true copy of Board Resolution • Certified true copy of Audited Final A/cs for the latest year. • Copy of IT Return, if possible • Certified true copy of MOA/ AOA / Partnership Deed / Trust Deed • Details of 2 key persons * Photo with signature across * Name, Address, Tel. No. * Birth Date & Designation * Copy of any one of the specified documents * Signature of key person. • Individual / HUF Documents Required • Photo with signature across. • Name , Address, Tel. No. • Birth Date & Occupation. • Bank A/c details • IT PAN No. or 49A / Form 60 • Introducer’s Name & Signature • Signature of Client • Manager (Person in charge) Signature

  28. The Edge • Early movers in the commodities business • Integrated wealth management solutions across global financial markets • Propriety Global economic and investment strategy research • Sophisticated asset allocation and risk modeling processes • Seasoned team of professionals • Local strength –Underpinned by network of national offices • Multiple dealing terminals for better Client servicing

  29. Thank You For More Information Visit Our Website ….

More Related