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COMMODITIES-THE NEXT BIG INVESTMENT BOOM

COMMODITIES-THE NEXT BIG INVESTMENT BOOM. Investors, Start Your Engines! An Overview of Commodities. Figuring out why you should invest in commodities Defining the commodities markets Identifying the major commodities. Figuring out why you should invest in commodities.

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COMMODITIES-THE NEXT BIG INVESTMENT BOOM

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  1. COMMODITIES-THE NEXT BIG INVESTMENT BOOM

  2. Investors, Start Your Engines! An Overview of Commodities Figuring out why you should invest in commodities Defining the commodities markets Identifying the major commodities

  3. Figuring out why you should invest in commodities • Both challenges and opportunities • Myths and fantasies • Physical Investment • Investing through futures markets • ETF’s • Investing through Equity markets

  4. First Things First Just what, exactly, are commodities? Commodities are the raw materials humans use to create a livable world. Humans have been exploiting the Earth’s natural resources since the beginning of time. They use agricultural products to feed themselves, metals to build weapons and tools, and energy to sustain themselves. These — energy, metals, and agricultural products — are the three classes of commodities, and they are the essential building blocks of the global economy.

  5. Commodity futures… • Agreement for buying or selling a commodity for a predetermined delivery price at a specific future time. • Standardized contracts that are traded on organized futures exchanges. • The major function of futures markets is to transfer price risk from hedgers to speculators.

  6. Example….. Suppose a farmer is expecting his crop of wheat to be ready in two months time, butis worried that the price of wheat may decline in this period. In order to minimizehis risk, he can enter into a futures contract to sell his crop in two months· time at a price determined now. This way he is able to hedge his risk arising from a possible adverse change in the price of his commodity.

  7. Major Commodities

  8. You Can’t Argue with Success

  9. Comparison of Reuters/ Jefferies CRB Index with Dow Jones from 1998 to 2007.

  10. It’s All about Me! Why Commodities Are Unique

  11. Inelasticity Elasticity quantifies how much supply and demand will change for every incremental change in price. Elasticity -high correlation between price and Demand-Supply Inelasticity – low correlation between price and Demand-Supply

  12. Example…… If the price of ice cream were to increase by 25 percent, chances are you’re going to stop buying ice cream. Why? Because it’s not a necessity, but more of a luxury. However, when the price of Petrol at the pump increases by 25 percent, you’re definitely not happy about the price increase, but you still go out there and fill up your tank. The reason? Petrol is a necessity — you need to fill up your car in order to go to work and so on.

  13. Hedge-hogging galore! Commodities as a hedge against inflation

  14. Commodities as a Diversifying Asset Class “Holding commodities offers protection against the ups and downs of stocks and bonds.” Commodities are “the most diversifying asset class in the portfolio.” -Jack Meyer, the former head of Harvard University’s -

  15. Spot Gold $ v/s Dow/ Sensex /Nifty

  16. Structure of the market

  17. Market Participants Hedgers, Speculators, Investors, Arbitragers, (same as Equity markets) Producers – Farmers Consumers – refiners, food processing companies, jewelers, textile mills, exporters & importers Institutional proprietary trades – currently disallowed

  18. Contract Specifications (MCX)

  19. Contract Specifications (NCDEX)

  20. Conversion Basics (Gold/Silver/Crude oil) One dollar movement in Gold price has impact of Rs. 15/=(approx) per 10 gram in INR One cent movement in silver price has impact of Rs. 15/= (approx) per kg in INR One dollar movement in Crude price has impact equal to Exchange Rate itself i.e. if Exchange rate is 46.60 then price of 1 barrel is equivalent to price in dollar multiplied by exchange rate

  21. Parity calculation (Base metals) LME Copper : LME Price/1000* INR Zinc : LME Price/1000* INR Lead : LME Price/1000* INR Nickel : LME Price/1000* INR Aluminum : LME Price/1000* INR COMEX Copper: (COMEX Price*2.204623*INR)/100

  22. Margining System Initial Margin – Is the money deposited by trader of futures contracts to initiate a Position. Exposure Margin – Margin Money charged by the Exchange to ensure that initial margin does not go below a particular level. Ad-Hoc Margin – Special Margin to control extreme volatility. Normally levied near expiry date to reduce counter party risk. Delivery Margins – Margin applicable when delivery is marked for.

  23. The Power of “2” Fundamental analysis 2. Technical analysis

  24. Fundamental Analysis in the Commodity Markets Focuses simply on the factors that dictate price movements in the physical and futures markets Formulating a strategy that looks at supply and demand factors Focusing on crop reports, inventory reports, weather, news, and a magnitude of other Variables Stay updated on factors that can affect the short- term and intermediate prospects for commodities.

  25. Fundamental factors Demand & Supply Weather. Economic News/Data’s/Reports Geopolitical Tensions

  26. Top market Indicators Consumer Price Index Consumer Confidence Index ISM (Institute for Supply Management) Manufacturing Index Trade Balance Federal Funds Rate Gross Domestic Product Non-farm Payrolls Purchasing Managers Index Durable Goods Housing Starts Existing Home Sales Industrial Production

  27. Oil Specific Indicators EIA Inventory Reports OPEC monthly oil report EIA Oil report Natural Gas Inventory Report Other Indicators London Gold Fix Reuters/Jefferies CRB Index US Dollar

  28. MOTILAL OSWAL COMMODITIES BROKER PVT. LTD An Insight……..

  29. Motilal Oswal Commodities- A Unique Experience • Solid Research:  Client at Motilal Oswal Commodities Broker Pvt. Ltd (MOCBPL) gets access to the best of research in the form of Daily Fundamental and Technical Research Reports on highly traded commodities. • One Stop Shop:  MOCBPL provides end-to-end advice for all the commodities to all our prestigious individual investors. Privileged customers also get exclusive & customized advice. • Dual Membership:  MOCBPL has membership to MCX and NCDEX exchanges which gives the clients advantage of the dual exchange trading facility. • Personalized Service:  We provide personalized service through dedicated relationship managers for quick and efficient execution of transactions .

  30. Services Offered • Centralised Advisory desk • Channel wise advisory service (Retail, Franchisee and E-broking). • Quality Advisory team. • Chat service , Calls and Updates on Trading Terminal. • Query handling and Back office support. • SMS , Emails & Personalized Services for Investment, Trading Ideas, Research Notes, Market Views etc. • Research • Commodities Specific Fundamental research • Intraday Technical calls • Positional Calls (Fundamental and Technical calls) • Other strategies • Common Research for Institution & Retail Clients • E-broking • Online trading terminal. • Real time calls and updates on trading terminal.

  31. Idea Generation Dissemination Clients Dissemination of Research Ideas Centralized Advisory HNI / Corporates Local Dealers Research Meet Franchisee Advisory Mass SMS Mailers Chat

  32. Other Services • ONLINE BACK OFFICE • DEDICATED ADVISORY DESK • MORNING EVENING ADVISORY SHIFTS • E-BROKING TERMINAL ( ORION LITE ) • E-CONTRACT NOTES • FAST CONTROL ID • COMPETETIVE BROKERAGE STRUCTURES

  33. Awards and Accolades 'Outstanding Commodity Broking House - 2007' Award 09/01/2007 Motilal Oswal Commodities Broker Pvt Ltd (MOCBPL) bagged Globoil India's prestigious 'Outstanding Commodity Broking House - 2007' Award

  34. Strong Satisfaction…. Truly Personified • 67% of the people who try MOSLs service become regular users • Versus • 39% for Sharekhan • 38% for Kotak • 42% for Angel Broking • 42% for India Infoline • 50% for Reliance Money • 54% for ICICI Direct • 33% for Edelweiss

  35. Top 10 Rules of Successful Trading OVERTRADING Your Greatest Enemy When In Doubt Get Out! Never Average a Loss! Money Management Is The KEY The Trend Is Your Friend Never Let a Profit Turn Into a Loss! NEVER anticipate. IF the Market Is Not Confirming Your Opinion, Lose Your Opinion & Listen to the Market Stop loss is a must Risk Reward Ratio

  36. The price of a commodity will never go to zero. When you invest in commodities futures, you’re not buying a piece of paper that says you own an intangible piece of company that can go bankrupt. —Jim Rogers

  37. THANK YOU

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