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Way 2 Wealth Commodities Pvt. Ltd. Commodity Markets July 2010. making investing simpler, more understandable and profitable. Index Definition Commodity – As Asset Class Commodity – Uniqueness Classification of Commodities Indian Commodity Market Size Commodities Offered for Trading

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way 2 wealth commodities pvt ltd

Way2Wealth Commodities Pvt. Ltd.

Commodity Markets

July 2010

making investing simpler, more understandable and profitable

slide2

Index

  • Definition
  • Commodity – As Asset Class
  • Commodity – Uniqueness
  • Classification of Commodities
  • Indian Commodity Market Size
  • Commodities Offered for Trading
  • Why Commodities
  • How to Invest
  • Commodities @ Way2Wealth
slide3

Commodity - Definition

A commodity is any good or service produced by human labour and offered as a product for general sale on the market

- Karl Max

  • Characteristics
  • Commodity is anything movable (a good) that has following characteristics
  • Fungible, i.e. the same no matter who produces it
  • Derivatives, i.e. involves further processing into number of products
  • Economic cost, i.e. production of it involves some cost
slide4

Commodities – in Real Life

          • Wheat in your bread
          • Petrol in your vehicle
          • Coffee on your table
          • Sugar in your sweets
          • Chana in your chhole
          • Gold in your necklace
  • ……… and so on …….
  • Commodities are everywhere
slide5

Index

  • Definition
  • Commodity – As Asset Class
  • Commodity – Uniqueness
  • Classification of Commodities
  • Indian Commodity Market Size
  • Commodities Offered for Trading
  • Why Commodities
  • How to Invest
  • Commodities @ Way2Wealth
slide6

Commodity – As Asset Class

  • In financial parlance, assets are economic resources that is capable of being owned or controlled to produce value
  • Commodity too has gained importance currently as independent asset class
  • Commodity, being the natural goods are independent of other asset classes
  • Assets Classes
  • Equities : Performer during economic expansion & an out performer over very long term…
  • Fixed Income: Performs at the later stage of recession…
  • Real Estate : Performs during early expansion…
  • Commodities : Performance spread evenly over the economic cycle…
slide7

Index

  • Definition
  • Commodity – As Asset Class
  • Commodity – Uniqueness
  • Classification of Commodities
  • Indian Commodity Market Size
  • Commodities Offered for Trading
  • Why Commodities
  • How to Invest
  • Commodities @ Way2Wealth
slide8

Commodity – Unique points of diversification

1. Seasonality A major force in the commodities markets

2. Correlation Unlike other asset class, commodities are positively and negatively correlated within & outside the group which is unique to commodities only

Weather No other asset class are so much influenced by weather patterns

Hedge Provides natural hedge against war, inflation, other asset portfolios, recessions etc. example -GOLD

slide11

Contribution in global landscape

Global Vs. India

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

India

  • Commodity futures, though active since 19th century was banned later in 1970’s
  • Commodity volumes shoots up significantly after re-launch in 2003
  • MCX emerged as world’s Sixth largest exchange
  • Volumes on Indian exchanges are increasing at CAGR of 73.7 percent

Commodity Trading ( Value in Million USD)

2009

2008

Global

14831317

11712611

India

1469673

1067984

Source:FMC,Way2Wealth Research

slide12

Global growth in Commodities 2004-09

Share of Asia has jumped

more than 5 times

slide13

Global growth in Commodities 2008-09

Chinese exchanges

has seen

two fold increase

in volume

slide14

Index

  • Definition
  • Commodity – As Asset Class
  • Commodity – Uniqueness
  • Classification of Commodities
  • Indian Commodity Market Size
  • Commodities Offered for Trading
  • Why Commodities
  • How to Invest
  • Commodities @ Way2Wealth
slide16

Index

  • Definition
  • Commodity – As Asset Class
  • Commodity – Uniqueness
  • Classification of Commodities
  • Indian Commodity Market Size
  • Commodities Offered for Trading
  • Why Commodities
  • How to Invest
  • Commodities @ Way2Wealth
slide17

Commodity – Indian Structure

FMC – The Regulator

Commodity Exchanges

National Exchanges

Regional Exchanges

NCDEX

MCX

NMCE

NBOT

20 Other Regional Exchanges

Leadership position with >90% share

slide18

700

600

500

400

300

200

100

0

2004

2005

2006

2007

2008

2009

2010

MCX

NCDEX

TOTAL

Source:FMC,Way2Wealth Research

Indian Growth so far

Volume Growth in Indian Exchanges

Significant rise in volume since launch of exchanges in 2003

> 65% CAGR Growth

MCX

Leader in Metals & Energy

Segment wise % Share of Commodities

NCDEX

Leader in Agri

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

Bullion and other metals

31.5

36.1

57.9

64.6

56.7

40.8

Other than bullion metals

-

23.2

-

-

-

-

Agriculture

68.2

55.3

35.8

23.1

11.9

15.7

Energy

0.3

8.4

6.3

12.3

20.3

-

Others

0.0

0.1

0.0

0.0

31.4

0.0

Source:FMC,Way2Wealth Research

* 2008-09 other segment includes energy& other metals

slide21

Returns in Indian commodities

  • Almost 45 commodities are available for trading in both NCDEX & MCX
  • Though few have been de-listed during high inflation times, re-listing also has happened
  • Bullion, Base metals, energy & Agri are the major contributors in terms of volumes
slide22

Index

  • Definition
  • Commodity – As Asset Class
  • Commodity – Uniqueness
  • Classification of Commodities
  • Indian Commodity Market Size
  • Commodities Offered for Trading
  • Why Commodities
  • How to Invest
  • Commodities @ Way2Wealth
slide23

Why Invest in Commodities

  • Commodity provides true diversification in financial portfolio
  • Commodity act as hedge against risks involved in business
  • Rising income will ensure Inflation which in turn will ensure bull market in commodites
  • Explosion of population and shriking agricultural land would leave commodity scarce
  • Returns chasing funds & investors (traders, investor &HNI) will make it vibrant
  • Consumption / Spending in infrastructure / GDP growth will lead to depletion of metals
  • Secular bull market in commodities is likely to continue
slide24

Who Can Invest

  • Hedgers : Risk Management
    • Consumers – Refineries, food processing companies
    • Traders, exporters, importers
    • Producers – farmers, Integrated producers
  • Speculators: High Volatility Higher Leverage
    • Retail investors, Commodity spot trader
    • Institutional, Corporate & proprietary traders
  • Arbitrageurs : Safe Opportunist
    • Spot future arbitrage
    • Spread Strategies
    • Intra and inter market arbitrage
  • Investors: Portfolio diversifier
    • Individuals, Pension & Mutual Funds
    • Corporate bodies
slide25

Index

  • Definition
  • Commodity – As Asset Class
  • Commodity – Uniqueness
  • Classification of Commodities
  • Indian Commodity Market Size
  • Commodities Offered for Trading
  • Why Commodities
  • How to Invest
  • Commodities @ Way2Wealth
slide26

How to Invest

Procedure for Trading in Commodities

  • Open Demat & Trading A/C (Way2Wealth)
    • Filling KYC (Know Your Customer)
    • Documents required : Pan Card, Address Proof, Networth, Cancelled cheque (MICR), Photo etc
  • To get familiar with this asset class, start reading research reports and monitor advisory and execution
  • Acquire full knowledge of risk involved in futures
    • Mark to Market
    • Daily Pay-in & pay-out
    • Margin requirements
    • Contract expiry & rollover
    • Leverage, profit & loss etc
slide27

Index

  • Definition
  • Commodity – As Asset Class
  • Commodity – Uniqueness
  • Classification of Commodities
  • Indian Commodity Market Size
  • Commodities Offered for Trading
  • Why Commodities
  • How to Invest
  • Commodities @ Way2Wealth
slide28

Research @ Way2Wealth

  • Methodology - Analysis
    • Fundamental
      • Supply-n-demand, crop survey, climatic changes, policies, logistics, specifications, delivery stocks, physical market linkages, Cartel move, etc
    • Technical
      • Chart patterns, indicators etc
    • Derivative
      • Volume and Open Interest Change, Contract duration, rollover, Relative analysis with other markets etc
    • Statistical
      • Arima modelling, Correlation & regression study, Deviation, Time series, Seasonality, Ratio study etc.
slide29

Research Products @ Way2Wealth

  • Products
    • Strategies
      • Arbitrage / Spreads
      • Hedging – All commodities
      • Trading / Investment advisory
    • Reports
      • Daily
      • Weekly
      • Special
      • Events
      • Commodity Profiles
    • Special Support
      • Need based special coverage of non futures commodities like Coal, Chemicals, Naptha, Freight, Carbon credits etc. (on cost basis)
slide30

Products @ Way2Wealth

  • Trading Products
    • Based on Fundamental / Technical / Derivatives & Algorithm
      • Plain vanilla Trading
      • Customised Trading
  • Investing Products
    • Algorithm or statistical based
      • Trend chasing, Money management principle, premium brokerage
      • Strong execution skills
slide31

The People @ Way2Wealth

  • Sunil Ramrakhiani - COO
      • More than 15 years in industry. Founder member – NCDEX, Member of product committee, Regular speaker in various forum
  • Vinay Tiwary - Sales Head

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

  • Shantanu Bhardwaj - Head Business Analytics & Product Development

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

  • Brajendra Talesara - Head Dealing & Arbitrage desk

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

slide32

The People @ Way2Wealth

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

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

  • Krishna Reddy - Research Analyst

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

slide33

Thank you

Team Commodities