Final Project

EXECUTIVE SUMMARY
My endeavour is to find out the status of commodity Derivatives as they stand in the
overall economical, social and demographic picture of our system. The impact in economical
system is very much clear and beyond any dispute as Commodities are themselves economical
propositions.
But commodities are also subject matter of our social fabrication. Any society contains
two set of people: Traders and farmers. Commodities have a huge impact on lives of both set of
people. Their business practices and strategies are rapidly changing and commodity market is
very much influencing it. I have studied that impact. It is noteworthy that the new world
economic order is of convergence. All sectors, economies and trades are being interrelated.
Whether we like it or not, our businesses are no more ours. Total world economy is involved into
it. The same applies to commodities. Whether one participates into it or keeps himself aloof, he,
in no ways can escape its effects
. Commodities Derivative market has emerged as a new avenue for investors to create
wealth. Today, Commodities have evolved as the next best option after stocks and bonds for
diversifying the portfolio. Based on the fundamentals of demand and supply, Commodities form
a separate asset class offering investors, arbitrageurs and speculators immense potential to earn
returns
However, it has to be kept in mind that as an asset class and even as a tool of risk
minimization (for Traders, Farmers and businesses); it is a very new and nascent proposition in
India. Even though Commodity futures have their long history in this country, periodical bans
and derogatory government policies have hindered their prospects to develop as a tool for
hedgers (risk minimization), leave alone the matter of their development as an investment
avenue. Their primary goal of true price discovery is also much waited.
In this project I have tried to cover the information about settling and clearing and
settlement of NCDEX. Also my objective behind this project is to study various pricing pattern
of two commodities i.e SUGAR AND WHEAT and also to study the various pricing graphs of
the both commodities.
COMMODITY MARKET
Commodity markets are markets where raw or primary products are exchanged. It covers
physical product (food, metals, and electricity) markets but not the ways that services, including
those of governments, nor investment nor debt, can be seen as a commodity.
HISTORY OF COMMODITY MARKET
 Modern Commodity Market have their roots in the trading of agricultural products.
 Wheat and corn, cattle and pigs, were widely tradedusing standard instruments in the
19th century in theUnited States.
 Historically, in ancient times Sumerian use of sheepor goats, or other peoples using pigs,
rare seashells, orother items as commodity money, have tradedcontracts in the delivery of
such items, to render tradeitself more smooth and predictable.
STRUCTURE OF COMMODITY MARKET
Ministry of
Consumer Affairs
FMC (Forwards Market Commission)
Commodity
Exchange
National Exchange Regional Exchange
NCDEX MCX NMCE NBOT 20 other regional

exchanges
LEADING COMMODITY MARKETS OF INDIA
The government has now allowed national commodity exchanges, similar to the BSE &
NSE, to come up and let them deal in commodity derivatives in an electronic trading
environment. These exchanges are expected to offer a nation-wide anonymous, order driven;
screen based trading system for trading. The Forward Markets Commission (FMC) will regulate
these exchanges. Consequently four commodity exchanges have been approved to commence
business in this regard. They are:
S.NO. Commodity Market in India
Multi Commodity Exchange (MCX),

1
Mumbai
National Commodity and Derivatives

2
Exchange Ltd (NCDEX), Mumbai
National Board of Trade (NBOT),

3
Indore
National Multi Commodity Exchange

4
(NMCE), Ahmadabad
SIZE OF THE MARKET

 The trading of commodities includes physical tradingof food items, Energy and Metals,
etc. and trading ofderivatives.
 In the five years up to 2007, the values of global physical exports of commodities
increased by 17% while the notional value outstanding of commodity. OTC derivatives
increased more than 500% andcommodity derivative trading on exchanges morethan
200%.
 Agricultural contracts trading grew by 32% in 2007, energy 29% and industrial metals by
30%.
 Precious metals trading grew by 3%, with higher volume in New York being partially
offset by declining volume in Tokyo.
 OTC trading accounts for the majority of trading in gold and silver.
LIST OF TRADED COMMODITY
 Agricultural (Grains, and Food and Fiber)

 Livestock & Meat
 Energy
 Precious metals
 Industrial metals
Agricultural Products
Corn, Oats, Rough Rice, Soybeans, Rapeseed, Soybean Meal, Soybean Oil,
Wheat, Cocoa, Coffee , Sugar
Livestock and meat

Lean Hogs, Frozen Pork Bellies, Live Cattle, Feeder Cattle.
Energy
WTI Crude Oil, Brent Crude, Ethanol, Natural Gas, Heating Oil, Gulf Coast Gasoline, RBOB
Gasoline, Propane, Uranium.
Precious Metal
Gold, Platinum, Palladium, Silver.
Industrial Metals
Copper, Lead, Zinc, Tin, Aluminum, aluminum alloy, Nickel, aluminum
alloy, Recycled steel.
COMMODITY EXCHANGES
 Abuja Securities and Commodities Exchange

 Bhatinda Om & Oil Exchange Bhatinda
 Brazilian Mercantile and Futures Exchange
 Chicago Board of Trade
 Chicago Mercantile Exchange
 Commodity Exchange Bratislava, JSC
 Dalian Commodity Exchange
 Dubai Mercantile Exchange
 Intercontinental Exchange
 Minneapolis Grain Exchange
 Multi Commodity Exchange
 National Commodity and Derivatives Exchange
 National Multi-Commodity Exchange of India Ltd
 New York Mercantile Exchange
 New York Board of Trade
 London Metal Exchange
 Winnipeg Commodity Exchange
Basics of Futures Trading
Perhaps the biggest advantage to trading futures contracts is the leverage provided by the
exchange. However, controlling large contracts with relatively low amounts of capital can create
high levels of volatility. As a result, many traders will argue that leverage is actually a
disadvantage. Regardless of your opinion on leverage and margin requirements, it is important
that you fully understand the concepts.
Before a customer can establish a position he is required to make a minimum “good faith
deposit,” or margin, to assure the performance of his obligations. A margin deposit is, in essence,
a performance bond, which is usually between 5% and 10% of the underlying contract value. A
good faith deposit indicates the buyer or seller’s willingness and capability to compensate the
opposite party to a transaction
Because margin requirements are low, hedgers are given the ability to lock in pricing of
cash market goods without tying up a lot of capital. It would be counterproductive for a hedger
who handles large quantities to put up 100% of the value of the hedged commodity. The
exchange grants margin discounts to those that are deemed to be “benefited” hedgers, due to the
fact that the underlying cash position is seen as collateral to secure the capital risked in the
futures market.
Low margins make speculation in the futures markets very attractive, without the
advantage of leverage the rate of return on most commodities would be marginal. The exchanges
are responsible for setting margin requirements, but brokerage firms have discretion to require
higher deposits. Generally, the initial margin is sufficient to cover the maximum daily price
fluctuations. It is not uncommon for margin requirements to fluctuate with the volatility of the
market. A maintenance level is established below the initial margin, usually 75% of the initial
margin. Once a trader's good faith deposit falls below this threshold additional funds must be
deposited or positions must be liquidated. This is known as a margin call.
Orders
There are several types of orders that can be placed. In order to maximize efficiency and
profitability, traders must be comfortable in executing each of the following options.
Market Order: The purpose of a market order is to execute a trade immediately at the best
possible price. Such orders give traders the ability to enter or exit a trade quickly, but do not
guarantee a favorable price. This order should be used when time is more valuable than price.
Limit Order: Limit orders are used to buy or sell at a specified price or better, and will only be
filled at the state price or one that is more favorable. For a sell limit order “better” means higher,
for buy limit orders “better” means lower.
Stop Order: This type of order is usually placed to close a position; its name is derived from the
fact that, if placed properly, it will “stop loss” should the market go against a trader’s position.
Most traders chose to place a stop order at the time that they enter a position. By definition, a sell
stop will be placed below the market while a buy stop will be placed above. All orders are day
orders unless specified otherwise and are canceled at the end of the trading day. By entering the
order GTC (good ‘til canceled), the order will be working in each trading session until canceled
by the trader.
Execution
Many beginning traders are unaware of the mechanics of executing a futures trade. When
you call your broker, an order ticket is completed and time stamped in order to keep accurate
track of the time and specifics of each order. The broker then transmits the order to his firm’s
trading desk located on the floor of the exchange either by a computerized trading platform or by
phone. The order clerk then fills out an order card; time stamps it, and hands it to a runner who
will take it directly to a broker in the pit. The pit broker will execute the order by open outcry
and record the execution on the card before it is given back to the runner. The runner takes the
executed order back to the desk where the order clerk time stamps the card one more time before
the fill is reported to your broker
THE FIELD
I. BACKGROUND OF THE INDUSTRY
THE NCDEX PLATFORM
National Commodity and Derivatives Exchange Ltd (NCDEX) is a technology driven

commodity exchange. It is a public limited company registered under the Companies Act, 1956
with the Registrar of Companies, Maharashtra in Mumbai on April 23, 2003. It has an
independent Board of Directors and professionals not having any vested interest in commodity
markets. It has been launched to provide a world-class commodity exchange platform for market
participants to trade in a wide spectrum of commodity derivatives driven by best global
practices, professionalism and transparency.
NCDEX is regulated by Forward Markets Commission in respect of futures trading in

commodities. Besides, NCDEX is subjected to various laws of the land like the Companies Act,
Stamp Act, Contracts Act, Forward Commission (Regulation) Act and various other legislations,
which impinge on its working. It is located in Mumbai and offers facilities to its members in
about 91 cities throughout India at the moment. NCDEX currently facilitates trading of ten
commodities - gold, silver, soy bean, soy bean oil, rapeseed-mustard seed, expeller rapeseed-
mustard seed oil, and RBD palmolein, crude Palm oil and cotton, Medium and long staple
varieties, At subsequent phases trading in more commodities would be facilitated.
STRUCTURE OF NCDEX
NCDEX has been formed with the following objectives:
 To create a world class commodity exchange platform for the market participants.
 To bring professionalism and transparency into commodity trading.
 To inculcate best international practices like de. Modularization, technology platforms,

low cost
 Solutions and information dissemination without noise etc. into the trade.
 To provide nationwide reach and consistent offering.
 To bring together the entities that the market can trust
PROMOTERS
NCDEX is promoted by a consortium of institutions. These include the ICICI Bank

Limited (ICICI Bank), Life Insurance Corporation of India (LIC), National Bank for Agriculture
and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE).
NCDEX is the only commodity exchange in the country promoted by national level institutions.
This unique parentage enables it to offer a variety of benefits which are currently in short supply
in the commodity markets. The four institutional promoters of NCDEX are prominent players in
their respective fields and bring with them institution building experience, trust, nationwide
reach, technology and risk management skills.
GOVERNANCE
NCDEX is run by an independent Board of Directors. Promoters do not participate in the

day to day activities of the exchange. The directors are appointed in accordance with the
provisions of the Articles of Association of the company. The board is responsible for managing
and regulating all the operations of the exchange and commodities transactions. It formulates the
rules and regulations related to the operations of the exchange. Board appoints an executive
committee and other committees for the purpose of managing activities of the exchange.
The executive committee consists of Managing Director of the exchange who would be acting as
the Chief Executive of the exchange, and also other members appointed by the board.
Apart from the executive committee the board has constitute committee like Membership
committee, Audit Committee, Risk Committee, Nomination Committee, Compensation
Committee and Business Strategy Committee, which, help the Board in policy formulation.
CAPITAL REQUIREMENTS
NCDEX has specified capital requirements for its members. On approval as a member of
NCDEX, the member has to deposit Base Minimum Capital (BMC) with the exchange. Base
Minimum Capital comprises of the following:
1. Interest free cash security deposit

2. Collateral security deposit
All Members have to comply with the security deposit requirement before the activation of their
trading terminal
􀀀 Cash: This can be deposited by issuing a cheque/ demand draft payable at Mumbai in favour
of National Commodity & Derivatives Exchange Limited.
􀀀 Bank guarantee: Bank guarantee in favour of NCDEX as per the specified format from
approved banks. The minimum term of the bank guarantee should be 12 months.
􀀀 Fixed deposit receipt: Fixed deposit receipts (FDRs) issued by approved banks are accepted.
The FDR should be issued for a minimum period of 36 months from any of the approved banks.
􀀀 Government of India securities: National Securities Clearing Corporation Limited (NSCCL) is

the approved custodian for acceptance of Government of India securities. The securities are
valued on a daily basis and a haircut of 25% is levied.
Members are required to maintain minimum level of security deposit i.e. Rs.15 Lakh in
case of TCM and Rs.25 Lakh in case of PCM at any point of time. If the security deposit falls
below the minimum required level, NCDEX may initiate suitable action including withdrawal of
trading facilities as given below:
􀀀If the security deposit shortage is equal to or greater than Rs. 5 Lakhs the trading facility would
be withdrawn with immediate effect.
􀀀If the security deposit shortage is less than Rs.5 Lakhs the member would be given one
calendar weeks' time to replenish the shortages and if the same is not done within the specified
time the trading facility would be withdrawn.
􀀀Members who wish to increase their limit can do so by bringing in additional capital in the
form of cash, bank guarantee, fixed deposit receipts or Government of India securities.
THE NCDEX SYSTEM
As we saw in the first chapter, every market transaction consists of three components:
 Trading
 clearing
 Settlement
This section provides a brief overview of how transactions happen on the NCDEX's market.
TRADING
The trading system on the NCDEX provides a fully automated screen. Based trading for
futures on commodities on a nationwide basis as well as an online monitoring and surveillance
mechanism. It supports an order driven market and provides complete transparency of trading
operations. The trade timings of the NCDEX are 10.00 a.m. to 5.00 p.m. After hours trading has
also been proposed for implementation at a later stage.
The NCDEX system supports an order driven market, where orders match
automatically. Order matching is essentially on the basis of commodity, its price, time and
quantity. All quantity fields are in units and price in rupees. The exchange specifies the unit of
trading and the delivery unit for futures contracts on various commodities. The exchange notifies
the regular lot size and tick size for each of the contracts traded from time to time. When any
order enters the trading system, it is an active order. It tries to find a match on the other side of
the book. If it finds a match, a trade is generated. If it does not find a match, the order becomes
passive and gets queued in the respective outstanding order book in the system. Time stamping is
done for each trade and provides the possibility for a complete audit trail if required.
NCDEX trades commodity futures contracts having one Month, two Month and three
month expiry cycles. All contracts expire on the 20th of the expiry month. Thus a January
expiration contract would expire on the 20th of January and a February expiry contract would
cease trading on the 20th of February. If the 20th of the expiry month is a trading holiday, the
contracts shall expire on the previous trading day. New contracts will be introduced on the
trading day following the expiry of the near month contract.
CLEARING
National Securities Clearing Corporation Limited (NSCCL) undertakes clearing of trades

executed on the NCDEX. The settlement guarantee fund is maintained and managed by NCDEX.
Only clearing members including professional clearing members (PCMs) only are entitled to
clear and settle contracts through the clearing house.
At NCDEX, after the trading hours on the expiry date, based on the available
information, the matching for deliveries takes place firstly, on the basis of locations and then
randomly, keeping in view the factors such as available capacity of the vault/ warehouse,
commodities already deposited and dematerialized and offered for delivery etc., Matching done
by this process is binding on the clearing members. After completion of the matching process,
clearing members are informed of the deliverable/ receivable positions and the unmatched
positions. Unmatched positions have to be settled in cash. The cash settlement is only for the
incremental gain/ loss as determined on the basis of final settlement price.
SETTLEMENT
Futures contracts have two types of settlements, the MTM settlement which happens on a
continuous basis at the end of each day, and the final settlement which happens on the last
trading day of the futures contract. On the NCDEX, daily MTM settlement and final MTM
settlement in respect of admitted deals in futures contracts are cash settled by debiting/ crediting
the clearing accounts of CMs with the respective clearing bank. All positions of a CM, either
brought forward, created during the day or closed out during the day, are market to market at the
daily settlement price or the final settlement price at the close of trading hours on a day. On the
date of expiry, the final settlement price is the spot price on the expiry day. The Responsibility of
settlement is on a trading cum clearing member for all trades done on his own account and his
client's trades. A professional clearing member is responsible for settling all the participants’
trades which he has confirmed to the exchange.
On the expiry date of a futures contract, members submit delivery information through
delivery request window on the trader workstations provided by NCDEX for all open positions
for a commodity for all constituents individually. NCDEX on receipt of such information
matches the information and arrives at a delivery position for a member for a commodity.
The seller intending to make delivery takes the commodities to the designated warehouse.
These commodities have to be assayed by the exchange specified assayer. The commodities have
to meet the contract specifications with allowed variances. If the commodities meet the
specifications, the warehouse accepts them. Warehouse then ensures that the receipts get update
in the depository system giving a credit in the depositor's electronic account. The seller then
gives the invoice to his clearing member, who would courier the same to the buyer's clearing
member. On an appointed date, the buyer goes to the warehouse and takes physical possession of
the commodities.
COMMODITIES TRADED ON THE NCDEXPLATFORM
 In December 2003, the National Commodity and Derivatives Exchange Ltd (NCDEX)
launched futures trading in nine major commodities.
 To begin with contracts in gold, silver, cotton, soybean, soya oil, rape/ mustard seed,
rapeseed oil, crude palm oil and RBD palmolein are being offered.
We have a brief look at the various commodities that trade on the NCDEX and look at some
commodity specific issues. The commodity markets can be classified as markets trading the
following types of commodities.
1. Agricultural products
2. Precious metal
3. Other metals
4. Energy
THE STUDY
I. OBJECTIVES OF THE STUDY
PRIMARY OBJECTIVE
1) To understand realistically the pattern of fluctuations of price indices

of two agricultural commodities and the factors behind that
SECONDARY OBJECTIVE
2) To study the operation of commodity trading in India and assess its

importance
3) To provide a trend analysis of the current MCX & NCDEX indices
II. SCOPE OF THE STUDY
Organized commodity derivatives in India started as early as 1875, barely about a decade
after they started in Chicago. However, many feared that derivatives fuelled unnecessary
speculation and were detrimental to the healthy functioning of the markets for the underlying
commodities. As a result, after independence, commodity options trading and cash settlement of
commodity futures were banned in 1952. A further blow came in 1960s when, following several
years of severe draughts that forced many farmers to default on forward contracts (and even
caused some suicides), forward trading was banned in many commodities considered primary or
essential. Consequently, the commodities derivative markets dismantled and remained dormant
for about four decades until the new millennium when the Government, in a complete change in
policy, started actively encouraging the commodity derivatives market. Since 2002, the
commodities futures market in India has experienced an unprecedented boom in terms of the
number of modern exchanges, number of commodities allowed for derivatives trading as well as
the value of futures trading in commodities, which might cross the $ 1 Trillion mark in 2006.
However, there are several impediments to be overcome and issues to be decided for
sustainable development of the market. This paper attempts to answer questions such as:
 How do price indices fluctuate so easily and how to understand them?

 Is this progress sustainable and what are the obstacles that need urgent attention if the
market is to realize its full potential?
 Why are commodity derivatives important and what could other emerging economies
learn from the Indian mistakes and experience?
ANGEL BROKING LTD.
Corporate & Registered Office

G-1, Akruti Trade Center, Road No -7, MIDC,
Andheri (E), Mumbai - 400 093.
Tel: (022) 2835 8800 / 3083 7700
Marketing Office
612, Acme Plaza, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.
Tel: (022) 4000 3600
Angel Group
 Angel Broking Ltd.

 Angel Commodities Broking Ltd.
 Angel Securities Ltd.
Our Moto
Our CRM Policy : Customer is King
“A Customer is the most Important Visitor on our premises. He is not dependent on us, but we
are dependent on him. He is not an interruption in our work. He is the purpose of it. He is not
an outsider in our business. He is part of it. We are not doing him a favour by serving him. He
is doing us a favour by giving us an opportunity to do so.”
To have complete harmony between quality-in-process and continuous improvement to

deliver exceptional service that will delight our Customers and Clients.
HISTORY & DEVELOPMENT :-
“Angel Broking” is the retail broking arm of SSKI, an organization with more than eight decades
of trust & credibility in the stock market. It is India’s leading retail financial Services Company.
We have over 250 share shops across 115 cities in India. While our size and strong balance sheet
allow us to provide you with varied products and services at very attractive prices, our over750
Client Relationship Managers are dedicated to serving your unique needs. Angel Broking is lead
by a highly regarded management team that has invested crores of rupees into a world class
Infrastructure that provides our clients with real-time service & 24/7 access to all information
and products.
Our flagship Angel Broking Professional Network offers real-time prices, detailed data
and news, intelligent analytics, and electronic trading capabilities, right at your fingertips. This
powerful technology complemented by our knowledgeable and customer focused Relationship
Manager’s. We are creating a world of Smart Investor. Angel Broking offers a full range of
financial services and products ranging from Equities to Derivatives enhance your wealth and
hence, achieve your financial goals. Angel Broking Client Relationship Managers are available
to you to help with your financial planning and investment needs. To provide the highest
possible quality of service, Angel Broking provides full access to all our products and services
through multi-channels.
In a shot span of 22 years since inception, the Angel Group has emerged as one of the top
five retail stock broking houses in India, having membership of BSE, NSE and the two leading
Commodity Exchanges in the country i.e. NCDEX & MCX. Angel Broking is also registered as
a Depository Participant with CDSL.
Company Information
Angel Brokings tryst with excellence in customer relations began in 1987. Today, Angel has
emerged as one of the most respected Stock-Broking and Wealth Management Companies in
India. With its unique retail-focused stock trading business model, Angel is committed to
providing Real Value for Money to all its clients.
The group is promoted by Mr. Dinesh Thakkar, who started this business as a sub-broker in
1987with a team of 3. Today the angel group is managed by a team of 1937 direct employees
and has a nation wide network comprising of 21 Regional hubs, 124 branches and 6810 sub
brokers & business associates. Angel is 100% focused on retail stock broking business unlike
any other larger national broking house. The group currently services more than 5.9 thousand
retail clients.
Angel Booking¶s meeting with excellence in customer relations began more than 20 years ago.
Angel Group has emerged as one of the top 3 retail broking houses in India and incorporated
in 1987.
It has memberships on BSE, NSE and the leading commodity exchanges in India NCDEX &
MCX.
Angel is also registered as a depository participant with CDSL
ANGEL’S PRESENCE:-
 Nation- wide network of 21 regional hubs

 Presence 124 cities
 6800 + sub brokers & business associates
 5.9 lakh + clients
PRODUCTS AND SERVICES OF THE COMPANY

 Equity
 Derivatives
 Commodities
 Life Insurance
 Mutual Funds
 Depository services
 PMS
 Currency trading
MANAGEMENT OF COMPANY
Sr. No. NAME DESIGNATION AND
DEPARTMENT
1 Mr. Dinesh Thakkar Founder Chairman & Managing
Director
2 Mr. Lalit Thakkar Director-Research
3 Mr. Amit Majumdar Executive Director - Strategy and

Finance
4 Mr. Sachinn Joshi Executive Director & CFO
5 Mr. Vinay Agrawal Executive Director ± Equity

Broking
6 Mr. Nikhil Daxini Executive Director - Sales and

Marketing
7 Mr. Mudit Kulshreshtha Executive Director -
Business Intelligence
& Analytics
8 Mr. Santanu Syam Executive Director
– Operations
9 Mr. Ketan Shah Associate Director -Information

Technology
10 Ms. Pinky Kothari Associate Director -Sales &

Marketing
11 Mr. Naveen Mathur Associate Director -Commodities

& Currencies
MILESTONES
Sr. Month & year Development & achievement of company
No.
1. December,1997 Angel Broking Ltd. Incorporated
2. November,1998 Angel Capital and Debt Market Ltd. Incorporated
3. March,2002 Developed web-enabled back office software
4. November,2002 Angel’s first investor seminar
5. April,2004 Initiated Commodities Broking division
6. September,2004 Launched Online Trading Platform
7. October,2005 Major Volume Driver award for 2005
8. July,2006 Launched the PMS function
9. September,2006 Launched Mutual Fund and IPO business
10. October,2006 Major Volume Driver award for 2006
11. December,2006 Created 2500 business associates
12. November,2007 Major Volume Driver for 2007
13. August,2008 Crossed 500000 trading accounts
14. May,2009 Wins Award for Broking House with Largest Distribution
Network & Best Retail Broking House
15. October,2009 Major Volume Driver Award by BSE for 2008-09
RESEARCH METHODOLOGY
DEFINITION
Research is an organized, systematic, data-based, critical, scientific inquiry into a specific

problem that needs a solution. Scientific research has the goal of solving problems and
establishing a step-by-step logical, organized, and rigorous method to identify problems, gathers
data, analyses the data, and draw valid conclusions there from.
1. TYPE OF RESEARCH USED
The research undertaken in this problem is descriptive in nature. Descriptive study attempts to
obtain a complete and accurate descriptive of situation, formal design is required to ensure that
the description covers all phases desired. Precise statement at problem indicates what than be
designed provides for collection of this information under the study.
2. NEED OF THE STUDY
The empirical analysis shows that cycles in economic activity are major
determinants of the short-run behavior of shipping freight rates in the year 1850
and World War I. Consistent with the economic theory, there is a striking
asymmetry between the peaks and troughs of shipping cycles. However, there is
a close timing relationship between the upper turning points of the business
cycle, commodity prices and freight rates which is particularly shown in the
peak years 1875,1889,1900,1912. So this study on commodity indices and
prices, to an extent would not only help us in understanding the economy of the
country, the growth driving commodities favoring EXIM trade but also for better
understanding the freight market changes and behavior for the future.
3. SOURCES OF DATA
The data was collected through
SECONDARY DATA
Company records, magazines, journals and websites were made use to collect secondary data
regarding indices, operations of commodity market and growth patterns
A) STATISTICAL TOOLS:
The statistical tool that was used for the study is as follows:
1. Technical analysis
TECHNICAL ANALYSIS:
It is important to note that the Technical Analysis Overview provided does not attempt to
be a comprehensive treatment of Charting or Technical Analysis methods. There are numerous,
well- written books on Chart Interpretation and Technical Analysis. Brief and simplistic reviews
of some basic charting concepts are provided for reference or to stimulate further study. Please
contact your broker for a recommended reading list on Charting and Technical Analysis.
Technical Analysis makes the assumption that history repeats itself. Any
trading method or system that works well on a broad sample of historical data may have validity
when applied to future trading environments. One should keep in mind that the markets are
dynamic. The forces that motivate price movement are dynamic, and the participants are
dynamic. Therefore any system which has performed well on past historic data may decline in
value as the evolving dynamics of the markets change over time.
The assumption is made that trading results can be improved when trading skills are
improved. This requires practice! Surely any time spent learning to trade on past historical data
will not be wasted when it comes to preparing to trade for the future.
B ) LIMITATIONS OF THE STUDY
1) The research holds validity for the particular period only.

2) The research is extended to particular commodities only.
ANALYSIS AND INTERPRETATION OF DATA
To understand realistically the pattern of fluctuations of price

indices of two agricultural commodities and the factors behind that
SUGAR
A sweet white (or brownish yellow) crystalline substance, of a sandy or granular consistency,
obtained by crystallizing the evaporated juice of certain plants, as the sugar cane, sorghum, beet
root, sugar maple, etc. It is used for seasoning and preserving many kinds of food and drink.
Ordinary sugar is essentially sucrose.
Varieties of Sugar
 White, refined sugar

 Caster sugar
 Icing sugar
 Icing mixture
 Brown sugar
 Dark brown sugar
 Raw sugar
 Golden demerara
 Golden syrup
 Treacle
 Molasses
 Caramel
Decoration and specialty sugars
Majority of the sugarcane produced in India is of the following hybrid varieties: S Sinense, S.
Barberi, CO-213, CO 223, CO 312, CO 313, CO 419, CO 1148, CO 740 and COS 767
Sugar producing areas in India

In India the major sugar cane producing areas are Andhra Pradesh, Assam, Bihar, Gujarat,
Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Orissa, Punjab, Rajasthan,
Tamilnadu, Uttar Pradesh and West Bengal.
INDIA’S SUGAR AND SUGARCANE PRODUCTION
400
350
300
250
200
cane in million tons
150 Sugar in million tons
100
50
0
6 8 1 5 0 2 5 6 8 9 0
5 -8 7 -8 0 -9 4 -9 9 -0 1 -0 4 -0 5 -0 7 -0 8 -0 9 -1
1 98 1 98 1 99 1 99 1 99 2 00 2 00 2 00 2 00 2 00 2 00
SUGAR PRICES IN DELHI MARKET
sugar price in rupees / metric tons

25000
20000
15000 sugar price in rupees / metric

tons
10000
5000
0
jan'06 july'06 Jan'07 july'07 jan'08 july'08 jan'09
FACTORS INFLUENCING SUGAR MARKETS
 Price
 Refinery activity
 Consumer income
 Candy and confectionery sales
 Changing eating habits
 Sugars use in new technologies, such as ethanol production for automobile fuel.
IMPORTANT WORLD SUGAR MARKETS
 Brazil
 Australia
 U.S
 Cuba
 Philippines
 China
 Bangladesh
 Iran
INTERNATIONAL TRADE
Over the past fifty years, especially, the international trade in sugar has changed dramatically.
Since it is either imported or exported by every country on earth, sugar has become an integral
component of the economic relationships among nations. Because of that unique position, the
trade in sugar has both reflected-and been affected by-a wide range of divergent forces, including
global politics, health consciousness, the emergence of developing nations as suppliers and
consumers, and many others.
Perhaps the greatest change in the international sugar trade has been the trend toward
price stabilization. Historically at the mercy of everything from war to weather, the price of
sugar has always been extremely volatile. The International Sugar Trade contains the most
essential and up-to-date information currently available. It includes numerous tables and graphs
describing production, consumption, and trade for nearly every country.
U.S cents /
Kg
SUGAR PRICES 2005

Technical analysis
Jan- Mar:
Support
A horizontal floor where interest in buying a commodity is strong enough to overcome the
pressure to sell. Therefore a decrease in price is reversed and prices rise once again. Typically,
support can be identified on a chart by a previous set of lows
Apr – Jun:
Resistance
A horizontal ceiling where the pressure to sell is greater than the pressure to buy. Therefore, an
increase in price is reversed and prices revert downward. Typically resistance can be located on
a chart by a previous set of high
July - Sep
Support
A horizontal floor where interest in buying a commodity is strong enough to overcome the
pressure to sell. Therefore a decrease in price is reversed and prices rise once again. Typically,
support can be identified on a chart by a previous set of lows
Oct – Dec
Inclining
The inclining channel is a formation with parallel price barriers along both the price ceiling and
floor. Unlike the sideways channel the inclining channel has an increase in both the price ceiling
and price floor.
SUGAR PRICES 2006
Technical analysis
Jan- Mar:
Breakaway Gaps
Occur when prices gap higher or lower out of a congestion pattern in the direction of the
prevailing trend
Apr – Jun:
Measuring or Running Gaps
Difficult to identify, but usually occur at the midpoint in a price rally or decline.
July – Sep
Falling or Declining
This formation occurs when the slope of price bar highs and lows join at a point forming an
declining wedge. The slope of both lines is down with the upper line being steeper than the
lower one. To trade this formation, place an order on a break up and out of the wedge or a sell
order on a break down and out the wedge. Falling wedges, with a prior uptrend, are anticipated
to break up and out, rather than down and out
Oct – Dec
Triple Bottom
Anticipates a change in trend from down to up.
SUGAR PRICES 2007

Jan- Mar:
Declining
The declining channel is a formation with parallel price barriers along both the price ceiling and
floor. Unlike the sideways channel the declining channel has a decrease in both the price ceiling
and price floor.
Apr – Jun:
Ascending Triangle
A formation in which the slope of price highs and lows come together at a point outlining the
pattern of a Right Triangle. The hypotenuse in an Ascending Triangle should be sloping from
lower to higher and from left to right. To trade this formation, place a buy order on a break up
and out of the triangle or a sell order on a break down and out of the triangle. Ascending
triangles, with a prior downtrend, are anticipated to break
down and out, rather than up and out.
July – Sep
Pennants
Similar to a Symmetrical Triangle but generally stubbier or not as elongated. A formation in
which the slope of price bar highs and lows are converging to a point so as to outline the pattern
in a symmetrical triangle. To trade this formation, you can place orders at both the break up and
out of the pennant and break
down and out of the pennant.
Oct – Dec
Triple Bottom
Anticipates a change in trend from down to up
SUGAR PRICES 2008
Jan- Mar:

Apr – Jun:
Pennants
out of the pennant and break
down and out of the pennant.
July – Sep
Descending Triangle
pattern of a Right Triangle. The hypotenuse in an Descending Triangle should be sloping from
higher to lower and left to right. To trade this formation, place a buy order on a break up and out
of the triangle or a sell order on a breakdown and out of the triangle. Descending triangles, with
a prior uptrend, are anticipated to break up and out, rather than down and out.
Oct – Dec
Declining
The declining channel is a formation with parallel price barriers along both the price ceiling and
floor. Unlike the sideways channel the declining channel has a decrease in both the price ceiling
and price floor.
SUGAR PRICES 2009

Jan- Mar
Horizontal or Sideways
A horizontal or sideways is a formation that features both resistance and support. Support forms
the low price bar, while resistance provides the price ceiling
Apr – Jun
Resistance
July – Sep
Ascending Triangle
triangles, with a prior downtrend, are anticipated to break down and out, rather than up and out.
Oct – Dec
Head and Shoulders Bottom

Anticipates a rise in prices on a break above the Neckline
CONCLUSION
Despite the economic recession world over, sugar consumption growth was less impacted and
remained positive. The supply-demand disequilibrium has been caused essentially by the strident
slippage in Indian production, exacerbated by the decline in EU and other Asian countries.
The correction after surging surplus for two years in a row has come as good relief to sugar
producer’s world over. Such tightness in supply is sure to be witnessed during 2009-10 as well.
Brazil’s share in world export is expected to overshoot the half way mark to 53% this year as
against 29% a decade ago.
New York raw sugar futures as on 20th November 2009
Delivery month Close price US c/lb
Jan 2010 22.20
Mar 2010 22.74
May 2010 21.86
July 2010 20.43
Mar 2011 19.33
Mar 2012 16.63
World production is now expected to be 4.274 mln tons lower than world consumption as
against 3.626 mln tons projected in November. Consequently, the statistical outlook for the
market till the end of the season in September 2009 remains constructive and supportive to the
market values. The ISO puts world export availability for 2008/09 at 49.608 mln tons raw value,
as against 46.25 mln tons in the previous crop cycle Smaller output in importing countries and in
India, in particular, is expected to trigger additional import demand which is expected to reach
49.621 mln tons, up 3.673 mln tons
WHEAT
Wheat is a cereal grain that belongs to the grass family of the genus ‘Triticum’. A dry,
one seeded fruit named kernel is obtained from this spiky grass like grain, which is ground to
make flour and is consumed throughout the world as one of the most important staple food. It is
the second largest cereal grain consumed on earth and that is why it is widely cultivated in more
than 30000 varieties.
Wheat is important especially for making breads and other bakery products as it has got
the maximum number of glutens as compared to any other grain. This crop is also grown as a
forage crop for the livestock
Overview
Wheat is a very important edible cereal grain crop. As already mentioned, it is the second
largest grain crop consumed after rice. The cultivation of wheat has its own advantages like it
has a very good yield per unit area, has a relatively short growing duration period and the
production of wheat is comparatively easier than the other grain crops as it grows well in the
temperate regions. That is why it serves as a very good cash crop and proves its dominance in the
world commerce. Gluten, which is a primary constituent in raised bread, is found in wheat and
that is why most of the bakery products are made from wheat only.
The world production of wheat figures over 585 million tons annually. The largest
producer of wheat in the world is the European Union followed by China, India and United
States of America. The total wheat production of the world is slightly concentrated is clear
from the fact that these four producers contribute to around 60% of the total production. The
consumption of wheat in the world is a huge 580 million tons but is successfully kept satisfied
with an equally high production figures. Consumption has been constantly increasing during
the last 10 years with the increase in population, and alarmingly, the consumption is prepared
to shoot up further and is expected to reach up to 775 million tons in 2020. Wheat is consumed
all through the globe and the leading countries in this list are European Union, China ,India,
Russia, United States of America ,Pakistan
The above list makes it clear that the largest producers of wheat in the world are also the
largest consumers of the world, which means, most of the wheat production is consumed at the
place of production. The export market of wheat is getting competitive with the new entrants like
India into it and the export figures hover around 200 million tons. The major exporting countries
of this crop are: -
 United States of America
 Australia
 Canada
 European Union
 Argentina
The imports of wheat are done by the countries, which have a high domestic demand and a
fluctuating production level. That is why the countries shuffle in the list of highest wheat
importing countries. The world import figures sum up to 100 million tons and are currently done
by more than 100 countries. The major countries are
 European Union
 China
 Egypt
 Japan
 Brazil
 Mexico
 Indonesia
 Algeria
 Philippines
 Iraq
Cultivation pattern
Wheat was one of the first crops that were cultivated in the world thanks to its
adaptability to wider range of climatic conditions and soils making it a very easy to produce crop
in that time when man didn’t even know the basics of living. Wheat requires a cooler weather
and a good level of moisture in the early plantation period and once the grain is formed, it needs
warmer weather to dry up. That is why the best-suited climate needed for the wheat crop to
prosper is the temperate climate.
In USA, the wheat seeds are sown in the months of September and October. After
February, when the snow in those areas starts to melt, the wheat crop starts to shoot up and
during summers it is left to develop and finally it is harvested in the months of June, July and
September. In India, wheat is cultivated as a Rabi crop and it is planted in the month of October.
It is harvested in the months April and May.
Wheat producing countries
The world production of wheat sums up to over 585 million tons annually. As mentioned
above, the production of wheat is slightly concentrated in the hands of a few countries as the top
four producers of the world contribute around 60% of the world’s total production. The
production-wise list of the major producers of wheat is given below
 European Union
 China
 India
 United States of America
 Russia
 Canada
 Australia
 Pakistan
 Turkey
 Argentina
 Iran
The largest producer of wheat in the world is European Union that contributes to around
1/4th share to the world’s total production. As it is said that the demand of wheat increases with
the increase in population, the nations having the largest population in the world i.e. China and
India stand at the 2nd and 3rd position in the largest wheat producing nations’ list in order to
satisfy the domestic consumption demand. These two countries contribute 14 % and 12%
respectively in the world’s total production. India has shown a high rise in production of wheat
after the green revolution and taken a lead from USA in recent times.
Wheat is produced on approximately 2.5 million square kilometers of the world. The
maximum area in the total cultivated area of wheat is constituted by India at around 13%. The
other major countries that have a significant impact on the total area contributed for wheat
production are
 European Union
 Russia
 China
 USA
 Australia
 Canada
 Kazakhstan
Production of wheat in India
The following areas in India are the major wheat producing areas in the country and
contribute to around 92% of the total production in the country
 Uttar Pradesh
 Haryana
 Punjab
 Rajasthan
 Madhya Pradesh
 Gujarat
 Bihar
India produces around 75 million tons of wheat every year and stands at the third position in
the list of the major wheat producers in the world. India also stands at the top in the world in
terms of area covered in production of wheat. Uttar Pradesh is the leading producer state in India
followed by Punjab and Haryana. Wheat occupies a major share of 35% production in the total
production of crops cultivated and 65% of total cropped area in the country. This share in
production and area covered of the crop has increased since independence and is also constantly
rising. The yield of wheat in kilograms per hectare has also risen significantly from 522 kg/ha in
1950/51 to 1620kg/ha in 1998/99
Indian wheat market
India is the third largest producer of the wheat crop. It has been successfully fulfilling its
large domestic consumption demand in the past few years and has been exporting the surpluses
to give the major exporters of the world a good competition. India produces an average of 75
million tons wheat each year but the production of this crop is generally fluctuating due to the
uncertainty of the rainfall. The state of Uttar Pradesh leads the production in the country. For
self-consumption purposes, the farmers retain around 48% of their production and hence it is not
entered into the total production figures of the country.
Indian wheat is generally medium hard bread wheat. It is a staple food of this country.
That is why almost all of the wheat produced is consumed. India holds the third position in the
major wheat consumer’s list after European Union and China consuming around 72 million tons
of wheat. The demand-supply flows with in the country are largely interfered by the government
of the country so as to make sure that the grain supplies be stable and prices do not get affected.
With the introduction of the new technologies in the agricultural sector, there has been a
constant increase in the productivity of wheat produced and hence there has been a growth in the
surplus level of the country and consequently a rising trend in the wheat export. World market
sees a dependable supplier of wheat in the form of India. The major exporters of the world
namely US and Australia have lost their share in the world’s export with the coming of India in
the exporting scenario. The export figures of India in 2003-04 were 5 million tons.
The major importers of Indian wheat are the southeastern Asian countries and the gulf
countries. India was an importer of wheat in the 90s as it the domestic demand was too high but
now this situation has been overcame and overturned.
Market influencing factors
 Weather conditions
 Government policies and regulations
 Prices fluctuations of the competitive and substitute products
 Season of harvesting and peak season
 Technological improvements
 Crop size
 World demand for wheat
Varieties of Wheat
The three principal types of wheat used in modern food production are:
 Triticumvulgare - it provides the bulk of the wheat used to produce flour for bread
making and for cakes and biscuits (cookies).
 Triticum durum - Durum is the hardest of all wheat. Its density, combined with its high
protein content and gluten strength, make durum the wheat of choice for producing
premium pasta products
 Triticumcompactum
The basics of wheat economics

When supplies of a commodity are excessive, prices decline. When demand for the commodity
increases, so does the price. Typically, companies invest from 5% to 7% of their gross revenues
to product promotion.
Individually, wheat farmers have little impact on demand, but putting all the heads together can
make a significant difference in product demand and market price. And that leads to the ultimate
goal of the improved income for wheat producers.
WHEAT PRICES 2007
Technical analysis
Jan- Mar:
Horizontal or Sideways
A horizontal or sideways is a formation that features both resistance and support. Support forms
the low price bar, while resistance provides the price ceiling
Apr – Jun:
Resistance
July – Sep
Non-Symmetrical
A formation in which the slope of price highs and lows are converging to a point so as to
outline the pattern in a non- symmetrical triangle. To trade this formation, place a buy order on a
break up and out of the triangle or a sell order on a break down and out of the triangle
Oct – Dec
Ascending Triangle
triangles, with a prior downtrend, are anticipated to break
down and out, rather than up and out.
WHEAT PRICES 2008
Technical analysis
Jan- Mar:
Rising or Inclining
This formation occurs when the slope of price bar highs and lows join at a point forming an
inclining wedge. The slope of both lines is up with the lower line being steeper than the higher
one. To trade this formation, place an order on a break up and out of the wedge or a sell order on
a break down and out the wedge. Rising wedges, with a prior downtrend are anticipated to break
down and out, rather than up and out
Apr – Jun:
Symmetrical
A formation in which the slope of price highs and lows are converging to a point so as to outline
the pattern in a symmetrical triangle. To trade this formation place a buy order on a break up and
out of the triangle or a sell order on a break down and out of the triangle.
July – Sep
Pennants

out of the pennant and break down and out of the pennant.
Oct – Dec
Bull Flag
A formation consisting of a small number of price bars where the slope of price bar highs and
lows are parallel and declining. Bull Flags are identified by their characteristic pattern and by
the context of the prior trend. In the case of a Bull Flag the trend leading to the formation of the
Bull Flag is up. To trade this formation, place orders on the break up and break down points,
leaving your unfilled order as your stop loss
WHEAT PRICES 2009
Technical analysis
Jan- Mar:
1-2-3 (A-B-C) Bottom
Anticipates a change in trend from down to up on a break above the number 2 point
Apr – Jun:

July – Sep
Descending Triangle
pattern of a Right Triangle. The hypotenuse in an Descending Triangle should be sloping from
higher to lower and left to right. To trade this formation, place a buy order on a break up and out
of the triangle or a sell order on a break down and out of the triangle. Descending triangles, with
a prior uptrend, are anticipated to break up and out, rather than down and out
Oct – Dec
Triple Top
Anticipates a change in trend from up to down
WHEAT PRICES 2010
Jan- Apr:
1-2-3 (A-B-C) Top
Anticipates a change in trend from up to down on a break below the number 2 point.
Global Scenario
 The world wheat production in the recent years has been observed to be hovering
between 560-580 million tons a year.
 The biggest cultivators of wheat are EU-25, China, India, America, Russia, Australia,
Canada, Pakistan, Turkey and Argentina. India, EU-25, China, India and US, the four
largest producers account for around 58% of the total global production.
 World wheat consumption is consistently growing with growth in population, as it is one

of the major staple foods across the world. The major consuming countries of wheat are
EU, China, India, Russia, USA and Pakistan.
 Around 16-19% of the world wheat production is traded annually between countries. The
annual world trade in wheat is to the extent of 102-106 million tons. America, Australia,
Canada, EU-25 and Argentina are the five largest exporters of wheat in the world.
 Major importing countries that tops in the figures are European Union, China, Egypt,
Japan, Brazil and European Union. Other importing nations are Mexico, Indonesia,
Algeria, Philippines, and Iraq. However the import amount varies year to year depending
upon the domestic production.
CONCLUSION
India has the largest area in the world under wheat. However, in terms of production, we
are only the third largest behind EU-25 and China. India produces about 65-75 million
tons of wheat a year, which is about 35% of India's total food grain production of 210-
212 million tons. Since wheat and rice are grown in separate seasons, they do not
compete for area. The major wheat producing states of India are Uttar Pradesh, Punjab,
Haryana, Madhya Pradesh, Rajasthan and Bihar. Which together account for around 93%
of total production. Wheat is sown during November to January and harvested during
March to April. The wheat-marketing season in India is assumed to begin from April
every year.
Indian wheat is largely soft/medium hard, medium protein, bread wheat. India also
produces around 1.5 million tons of durum wheat, mostly in central and western India,
which is not segregated and marketed separately .Government, announces Minimum
Support Prices (MSP), which is the minimum price at which procurement has to be
carried. The total procurement of wheat by Government agencies ranges from 8 to 20
million tons, accounting for only 15-20% of the total production. The support price
operation and the Public Distribution Systems (PDS) play a significant role in
maintaining reasonable and stable food grain prices in the country for both the producers
and consumers. India consumes around 70-72 million tons of wheat a year. Most
domestic wheat consumption is in the form of homemade chapatti or roti’s using custom
milled Atta, although usage of branded packaged atta marketed by large companies is
increasing in cities. There are around 200 large flourmills in India, with a milling
capacity of around 15 million tons.
India exported around 7 million tons subsidized by Govt in 2007-08, as a result of surplus
stock. However, current Govt. policies are not in favour of exports. Southeast Asia and
Gulf countries are major importers of Indian wheat.
2) To study the operation of commodity trading in India and assess its

importance
Introduction
The Indian economy is witnessing a mini revolution in commodity derivatives and risk
management. Commodity options trading and cash settlement of commodity futures had been
banned since 1952 and until 2002 commodity derivatives market was virtually non-existent,
except some negligible activity on an OTC basis. Now in September 2005, the country has 3
national level electronic exchanges and 21 regional exchanges for trading commodity
derivatives. As many as eighty (80) commodities have been allowed for derivatives trading. The
value of trading has been booming and is likely to cross the $ 1 Trillion mark in 2006 and, if all
goes well, seems to be set to touch $5 Trillion in a few years.
History
The history of organized commodity derivatives in India goes back to the nineteenth
century when the Cotton Trade Association started futures trading in 1875, barely about a decade
after the commodity derivatives started in Chicago. Over time the derivatives market developed
in several other commodities in India. Following cotton, derivatives trading started in oilseeds in
Bombay (1900), raw jute and jute goods in Calcutta (1912), wheat in Hapur (1913) and in
Bullion in Bombay (1920).
However, many feared that derivatives fuelled unnecessary speculation in
essential commodities, and were detrimental to the healthy functioning of the markets for the
underlying commodities, and hence to the farmers. With a view to restricting speculative activity
in cotton market, the Government of Bombay prohibited options business in cotton in 1939.
Later in 1943, forward trading was prohibited in oilseeds and some other commodities including
food-grains, spices, vegetable oils, sugar and cloth.
After Independence, the Parliament passed Forward Contracts (Regulation) Act, 1952 which
regulated forward contracts in commodities all over India. The Act applies to goods, which are
defined as any movable property other than security, currency and actionable claims. The Act
prohibited options trading in goods along with cash settlements of forward trades, rendering a
crushing blow to the commodity derivatives market.
Under the Act, only those associations/exchanges, which are granted recognition by the
Government, are allowed to organize forward trading in regulated commodities. The Act
envisages three-tier regulation: (i) The Exchange which organizes forward trading in
commodities can regulate trading on a day-to-day basis; (ii) the Forward Markets Commission
provides regulatory oversight under the powers delegated to it by the central Government, and
(iii) the Central Government - Department of Consumer Affairs, Ministry of Consumer Affairs,
Food and Public Distribution - is the ultimate regulatory authority.
The already shaken commodity derivatives market got a crushing blow
when in 1960s, following several years of severe draughts that forced many farmers to default on
forward contracts (and even caused some suicides), forward trading was banned in many
commodities considered primary or essential. As a result, commodities derivative markets
dismantled and went underground where to some extent they continued as OTC contracts at
negligible volumes. Much later, in 1970s and 1980s the Government relaxed forward trading
rules for some commodities, but the market could never regain the lost volumes.
Change in Government Policy
After the Indian economy embarked upon the process of liberalization and globalization
in 1990, the Government set up a Committee in 1993 to examine the role of futures trading. The
Committee (headed by Prof. K.N. Kabra) recommended allowing futures trading in 17
commodity groups. It also recommended strengthening of the Forward Markets Commission,
and certain amendments to Forward Contracts (Regulation) Act 1952, particularly allowing
options trading in goods and registration of brokers with Forward Markets Commission. The
Government accepted most of these recommendations and futures trading were permitted in all
recommended commodities.
Commodity futures trading in India remained in a state of hibernation for nearly four
decades, mainly due to doubts about the benefits of derivatives. Finally a realization that
derivatives do perform a role in risk management led the government to change its stance. The
policy changes favoring commodity derivatives were also facilitated by the enhanced role
assigned to free market forces under the new liberalization policy of the Government. Indeed, it
was a timely decision too, since internationally the commodity cycle is on the upswing and the
next decade is being touted as the decade of commodities.
Why are Commodity Derivatives Required?
India is among the top-5 producers of most of the commodities, in addition to being a
major consumer of bullion and energy products. Agriculture contributes about 22% to the GDP
of the Indian economy. It employees around 57% of the labor force on a total of 163 million
hectares of land. Agriculture sector is an important factor in achieving a GDP growth of 8-10%.
All this indicates that India can be promoted as a major center for trading of commodity
derivatives.
It is unfortunate that the policies of FMC during the most of 1950s to 1980s suppressed
the very markets it was supposed to encourage and nurture to grow with times. It was a mistake
other emerging economies of the world would want to avoid. However, it is not in India alone
that derivatives were suspected of creating too much speculation that would be to the detriment
of the healthy growth of the markets and the farmers. Such suspicions might normally arise due
to a misunderstanding of the characteristics and role of derivative product.
It is important to understand why commodity derivatives are required and the role they
can play in risk management. It is common knowledge that prices of commodities, metals, shares
and currencies fluctuate over time. The possibility of adverse price changes in future creates risk
for businesses. Derivatives are used to reduce or eliminate price risk arising from unforeseen
price changes. A derivative is a financial contract whose price depends on, or is derived from,
the price of another asset.
Two important derivatives are futures and options.
(i) Commodity Futures Contracts: A futures contract is an agreement for buying or selling
a commodity for a predetermined delivery price at a specific future time. Futures are
standardized contracts that are traded on organized futures exchanges that ensure performance of
the contracts and thus remove the default risk. The commodity futures have existed since the
Chicago Board of Trade (CBOT, www.cbot.com) was established in 1848 to bring farmers and
merchants together. The major function of futures markets is to transfer price risk from hedgers
to speculators. For example, suppose a farmer is expecting his crop of wheat to be ready in two
months’ time, but is worried that the price of wheat may decline in this period. In order to
minimize his 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.
(ii) Commodity Options contracts: Like futures, options are also financial instruments used
for hedging and speculation. The commodity option holder has the right, but not the obligation,
to buy (or sell) a specific quantity of a commodity at a specified price on or before a specified
date. Option contracts involve two parties – the seller of the option writes the option in favour of
the buyer (holder) who pays a certain premium to the seller as a price for the option. There are
two types of commodity options: a ‘call’ option gives the holder a right to buy a commodity at an
agreed price, while a ‘put’ option gives the holder a right to sell a commodity at an agreed price
on or before a specified date (called expiry date).
The option holder will exercise the option only if it is beneficial to him; otherwise he
will let the option lapse. For example, suppose a farmer buys a put option to sell 100 Quintals of
wheat at a price of $25 per quintal and pays a ‘premium’ of $0.5 per quintal (or a total of $50). If
the price of wheat declines to say $20 before expiry, the farmer will exercise his option and sell
his wheat at the agreed price of $25 per quintal. However, if the market price of wheat increases
to say $30 per quintal, it would be advantageous for the farmer to sell it directly in the open
market at the spot price, rather than exercise his option to sell at $25 per quintal.
Futures and options trading therefore helps in hedging the price risk and also provide
investment opportunity to speculators who are willing to assume risk for a possible return.
Further, futures trading and the ensuing discovery of price can help farmers in deciding which
crops to grow. They can also help in building a competitive edge and enable businesses to
smoothen their earnings because non-hedging of the risk would increase the volatility of their
quarterly earnings. Thus futures and options markets perform important functions that can not be
ignored in modern business environment. At the same time, it is true that too much speculative
activity in essential commodities would destabilize the markets and therefore, these markets are
normally regulated as per the laws of the country.
Modern Commodity Exchanges
To make up for the loss of growth and development during the four decades of restrictive
government policies, FMC and the Government encouraged setting up of the commodity
exchanges using the most modern systems and practices in the world. Some of the main
regulatory measures imposed by the FMC include daily mark to market system of margins,
creation of trade guarantee fund, back-office computerization for the existing single commodity
Exchanges, online trading for the new Exchanges, demutualization for the new Exchanges, and
one-third representation of independent Directors on the Boards of existing Exchanges etc.
Responding positively to the favorable policy changes, several Nation-wide Multi-Commodity
Exchanges (NMCE) have been set up since 2002, using modern practices such as electronic
trading and clearing. Selected Information about the two most important commodity exchanges
in India [Multi-Commodity Exchange of India Limited (MCX), and National Multi-Commodity
& Derivatives Exchange of India Limited (NCDEX)] is given in Exhibit-1 and Exhibit-2.
MULTI-COMMODITY EXCHANGE OF INDIA LIMITED (MCX)
MCX an independent and de-mutualized multi commodity exchange has permanent

recognition from Government of India for facilitating online trading, clearing and settlement
operations for commodity futures markets across the country. Key shareholders of MCX are
Financial Technologies (India) Ltd., State Bank of India, NABARD, NSE, HDFC Bank, State
Bank of Indore, State Bank of Hyderabad, State Bank of Saurashtra, SBI Life Insurance Co. Ltd.,
Union Bank of India, Bank Of India, Bank Of Baroda, Canara Bank, Corporation Bank.
Headquartered in Mumbai, MCX is led by an expert management team with deep domain
knowledge of the commodity futures markets. Through the integration of dedicated resources,
robust technology and scalable infrastructure, since inception MCX has recorded many first to its
credit.
Inaugurated in November 2003 by Shri Mukesh Ambani, Chairman & Managing
Director, Reliance Industries Ltd, MCX offers futures trading in the following commodity
categories: Agro Commodities, Bullion, Metals- Ferrous & Non-ferrous, Pulses, Oils & Oilseeds,
Energy, Plantations, Spices and other soft commodities. MCX has built strategic alliances with
some of the largest players in commodities eco-system, namely, Bombay Bullion Association,
Bombay Metal Exchange, Solvent Extractors' Association of India, Pulses Importers
Association, ShetkariSanghatana, United Planters Association of India and India Pepper and
Spice Trade Association.
Today MCX is offering spectacular growth opportunities and advantages to a large cross
section of the participants including Producers / Processors, Traders, Corporate, Regional
Trading Centers, Importers, Exporters, Cooperatives, Industry Associations, amongst others
MCX being nation-wide commodity exchange, offering multiple commodities for trading with
wide reach and penetration and robust infrastructure, is well placed to tap this vast potential.
National Commodity & Derivatives Exchange Limited (NCDEX)
National Commodity & Derivatives Exchange Limited (NCDEX) is a professionally

managed online multi commodity exchange promoted by ICICI Bank Limited (ICICI Bank),
Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural
Development (NABARD) and National Stock Exchange of India Limited (NSE). Punjab
National Bank (PNB), CRISIL Limited (formerly the Credit Rating Information Services of
India Limited), Indian Farmers Fertilizer Cooperative Limited (IFFCO) and Canara Bank by
subscribing to the equity shares have joined the initial promoters as shareholders of the
Exchange. NCDEX is the only commodity exchange in the country promoted by national level
institutions. This unique parentage enables it to offer a bouquet of benefits, which are currently
in short supply in the commodity markets. The institutional promoters of NCDEX are prominent
players in their respective fields and bring with them institutional building experience, trust,
nationwide reach, technology and risk management skills
.
NCDEX is a public limited company incorporated on April 23, 2003 under the Companies Act,
1956. It obtained its Certificate for Commencement of Business on May 9, 2003. It has
commenced its operations on December 15, 2003. NCDEX is a nation-level, technology driven
de-mutualized on-line commodity exchange with an independent Board of Directors and
professionals not having any vested interest in commodity markets. It is committed to provide a
world-class commodity exchange platform for market participants to trade in a wide spectrum of
commodity derivatives driven by best global practices, professionalism and transparency.
NCDEX is regulated by Forward Market Commission in respect of futures trading in
commodities. Besides, NCDEX is subjected to various laws of the land like the Companies Act,
Stamp Act, Contracts Act, Forward Commission (Regulation) Act and various other legislations,
which impinge on its working
NCDEX is located in Mumbai and offers facilities to its members in more than 390
centers throughout India. The reach will gradually be expanded to more centers. NCDEX
currently facilitates trading of thirty six commodities - Cashew, Castor Seed, Chana, Chilli,
Coffee, Cotton, Cotton Seed Oilcake, Crude Palm Oil, Expeller Mustard Oil, Gold, Guar gum,
Guar Seeds, Gur, Jeera, Jute sacking bags, Mild Steel Ingot, Mulberry Green Cocoons, Pepper,
Rapeseed - Mustard Seed ,Raw Jute, RBD Palmolein, Refined Soy Oil, Rice, Rubber, Sesame
Seeds, Silk, Silver, Soy Bean, Sugar, Tur, Turmeric, Urad (Black Matpe), Wheat, Yellow Peas,
Yellow Red Maize & Yellow Soybean Meal. At subsequent phases trading in more commodities
would be facilitated.
Booming Business: US$ 1 Trillion and Beyond
Since 2002 when the first national level commodity derivatives exchange started, the
exchanges have conducted brisk business in commodities futures trading. In the last three years,
there has been a great revival of the commodities futures trading in India, both in terms of the
number of commodities allowed for futures trading as well as the value of trading. While in year
2000, futures trading were allowed in only 8 commodities, the number jumped to 80
commodities in June 2004. The value of trading in local currency saw a quantum jump from
about INR 350 billion in 2001-02 to INR 1.3 Trillion in 2003-04. The data in Exhibit-3 indicates
that the value of commodity derivatives in India could cross the US$ 1 Trillion mark in 2006.
The market regulator Forward Markets Commission (FMC) disseminates fortnightly trading data
for each of the 3 national & 21 regional exchanges that have been set up in recent years to carry
on the futures trading in commodities in the country. Exhibit-3 presents comparative trading data
for three fortnightly periods in March, June and September 2008 and brings up some interesting
facts.
Sr. no Name of the exchange 16 Mar 08 16 Jun 08 16 Sep 08

to 31 Mar 08 to 30 Jun 08 to 30 Sep 08
1 Multi-Commodity Exchange of $m4,603.69 $m5123.76 $m11,042.25
India Limited, Mumbai
2 National Multi-Commodity $m235.74 $m143.34 $m 106.85

Exchange of India Limited,
Ahmedabad
3 National Commodity &Derivatives $m7360.45 $m8740.49 $m10,694.29
Exchange Limited, Mumbai
4 Total of three exchanges $m12199.88 $m14007.59 $m21,843.39
Note: The original data in local currency Indian Rupee (INR) was obtained from the website of
Forward Markets Commission (www.fmc.gov.in). The INR figures were translated into USD
using the monthly average exchange rates prevailing in the respective months, as obtained from
www.xrates.com. These exchange rates were: March 2008: INR 43.5861 per USD, June 2008:
INR 43.5245 per USD, and Sept 2008: INR 43.8445 per USD.
A comparison of the trading data for the three two-weekly periods above shows that the
market for commodity derivatives more than doubled over a six-month period between second
half of March 2008 and the second half of September 2008. It also shows that the total
commodity futures turnover for the three national level exchanges added up to $21.84 billion for
a fortnight in September 2008 or $546 billion for a year (assuming 25 working fortnights a year).
This rising trend gives a strong indication that, if the commodity futures market continues to
expand at the present rate, it is likely to cross the $ 1 Trillion mark in 2006 and has jumped to
$4-6 Trillion in another 2-3 years.
UNRESOLVED ISSUES AND FUTURE PROSPECTS
Even though the commodity derivatives market has made good progress in the last few
years, the real issues facing the future of the market have not been resolved. Agreed, the number
of commodities allowed for derivative trading have increased, the volume and the value of
business has zoomed, but the objectives of setting up commodity derivative exchanges may not
be achieved and the growth rates witnessed may not be sustainable unless these real issues are
sorted out as soon as possible. Some of the main unresolved issues are discussed below.
a. Commodity Options: Trading in commodity options contracts has been banned since 1952.
The market for commodity derivatives cannot be called complete without the presence of this
Important derivative. Both futures and options are necessary for the healthy growth of the
market.
While futures contracts help a participant (say a farmer) to hedge against downside price
movements, it does not allow him to reap the benefits of an increase in prices. No doubt there is
an immediate need to bring about the necessary legal and regulatory changes to introduce
commodity options trading in the country. The matter is said to be under the active consideration
of the Government and the options trading may be introduced in the near future.
b. The Warehousing and Standardization: For commodity derivatives market to work

efficiently, it is necessary to have a sophisticated, cost-effective, reliable and convenient
warehousing system in the country. The Habibullah (2003) task force admitted, “A sophisticated
warehousing industry has yet to come about”. Further, independent labs or quality testing centers
should be set up in each region to certify the quality, grade and quantity of commodities so that
they are appropriately standardized and there are no shocks waiting for the ultimate buyer who
takes the physical delivery. Warehouses also need to be conveniently located.
Central Warehousing Corporation of India (CWC: www.fieo.com) is operating 500 Warehouses
across the country with a storage capacity of 10.4 million tons. This is obviously not adequate for
a vast country. To resolve the problem, a Gramin Bhandaran Yojana (Rural Warehousing Plan)
has been introduced to construct new and expand the existing rural godowns. Large scale
privatization of state warehouses is also being examined.
c. Cash versus Physical Settlement: It is probably due to the inefficiencies in the present
warehousing system that only about 1% to 5% of the total commodity derivatives trades in the
country are settled in physical delivery. Therefore the warehousing problem obviously has to be
handled on a war footing, as a good delivery system is the backbone of any commodity trade. A
particularly difficult problem in cash settlement of commodity derivative contracts is that at
present, under the Forward Contracts (Regulation) Act 1952, cash settlement of outstanding
contracts at maturity is not allowed. In other words, all outstanding contracts at maturity should
be settled in physical delivery. To avoid this, participants square off their positions before
maturity. So, in practice, most contracts are settled in cash but before maturity. There is a need
to modify the law to bring it closer to the widespread practice and save the participants from
unnecessary hassles.
d. The Regulator: As the market activity pick-up and the volumes rise, the market will
definitely need a strong and independent regular; similar to the Securities and Exchange Board of
India (SEBI) that regulates the securities markets. Unlike SEBI which is an independent body,
the Forwards Markets Commission (FMC) is under the Department of Consumer Affairs
(Ministry of Consumer Affairs, Food and Public Distribution) and depends on it for funds. It is
imperative that the Government should grant more powers to the FMC to ensure an orderly
development of the commodity markets. The SEBI and FMC also need to work closely with each
other due to the inter-relationship between the two markets.
e. Lack of Economy of Scale: There are too many (3 national level and 21 regional) commodity
exchanges. Though over 80 commodities are allowed for derivatives trading, in practice
derivatives are popular for only a few commodities. Again, most of the trade takes place only on
a few exchanges. All this splits volumes and makes some exchanges unviable. This problem can
possibly be addressed by consolidating some exchanges. Also, the question of convergence of
securities and commodities derivatives markets has been debated for a long time now. The
Government of India has announced its intention to integrate the two markets. It is felt that
convergence of these derivative markets would bring in economies of scale and scope without
having to duplicate the efforts, thereby giving a boost to the growth of commodity derivatives
market. It would also help in resolving some of the issues concerning regulation of the derivative
markets. However, this would necessitate complete coordination among various regulating
authorities such as Reserve Bank of India, Forward Markets commission, the Securities and
Exchange Board of India, and the Department of Company affairs etc.
f. Tax and Legal bottlenecks: There are at present restrictions on the movement of certain
goods from one state to another. These need to be removed so that a truly national market could
develop for commodities and derivatives. Also, regulatory changes are required to bring about
uniformity in octroi and sales taxes etc. VAT has been introduced in the country in 2005, but has
not yet been uniformly implemented by all states.
Conclusion
India is one of the top producers of a large number of commodities, and also has a long history of
trading in commodities and related derivatives. The commodities derivatives market has seen ups
and downs, but seem to have finally arrived now. The market has made enormous progress in
terms of technology, transparency and the trading activity. Interestingly, this has happened only
after the Government protection was removed from a number of commodities, and market forces
were allowed to play their role. This should act as a major lesson for the policy makers in
developing countries, that pricing and price risk management should be left to the market forces
rather than trying to achieve these through administered price mechanisms. The management of
price risk is going to assume even greater importance in future with the promotion of free trade
and removal of trade barriers in the world. All this augurs well for the commodity derivatives
markets.
3) To provide a trend analysis of the current MCX & NCDEX indices
TREND OF METALS IN MULTI COMMODITY EXCHANGE OF INDIA (MCX) AND

NATIONAL COMMODITY & DERIVATIVES EXCHANGE (NCDEX) (FOR 10TH
MAY 2010)
Commodity Expiry date Current Yesterday’s Present Rate at Date

name Closing Closing Trend which when the
the trend trend
changed changed
Aluminium 5/28/2010 94.65 94.5 Down
(May) 105.6 4/20/2010
Aluminium 6/30/2010 95.6 95.55 Down
(June) 106.9 4/20/2010
Aluminium 7/30/2010 96.25 96.85 Down
(July) - -
Copper (June) 6/30/2010 317.3 316.9 Down 352.35 4/10/2010
Copper 8/31/2010 319.3 318.7 Down
(August) 354.05 4/10/2010
Gold (June0 6/5/2010 17940 17940 Up 16805 4/24/2010
Gold (August) 8/5/2010 18021 18031 Up 16875 4/24/2010
Gold (Oct) 10/5/2010 18085 18085 Up 17316 5/4/2010
Silver (July) 7/5/2010 28572 28646 Down 28646 5/7/2010
Silver (Sept) 9/4/2010 28747 28803 Down 28803 5/7/2010
Silver (Dec) 12/4/2010 28952 28960 Down - -
Zinc (May) 5/28/2010 95.3 95.05 Down 104.9 4/27/2010
Zinc (June) 6/30/2010 95.95 95.5 Down 107.95 4/21/2010
Zinc (July) 7/30/2010 96.7 96.2 Down - -
Nickel (May) 5/28/2010 1017.2 1019.8 Down 1145.6 4/27/2010
Nickel (June) 6/30/2010 1018.5 1021.8 Down 1147 4/27/2010
N gas (May) 5/25/2010 182.4 181.2 Down 176 4/30/2010
N gas (June) 6/25/2010 188.2 187 Down 182.4 4/30/2010
N gas (July) 7/27/2010 193.3 193.4 Down - -
METAL COMMODITIES TRADED AT NCDEX
Commodity name Expiry Current Yesterday' Present Date when the Rate at
date Closing s Closing Trend trend changed which the
trend
changed
Brent crude (May) 5/14/201 3638.5 3636.5 Down 5/6/2010 3636.5
0
Brent crude (June) 6/15/201 3652 3650 Down 5/6/2010 3650
0
Brent crude (July) 7/16/201 3665.5 3663.5 Down 5/6/2010 3663.5
0
Silver (May) 5/20/201 27765 27350 Up 4/26/2010 27835
0
Silver (June) 6/18/201 27864 27645 Up 4/26/2010 27937
0
Silver (July) 7/20/201 27973 27754 Up 4/26/2010 28050
0
Trend of Commodities in National Commodity & Derivatives Exchange (for 10th May
2010)
Commodity Expiry Today' Yesterday' Trend Date when Rate at
name date s s closing the trend which the
closing changed trend
changed
Channa (May) 5/20/2010 2096 2088 Down 4/6/2010 2352

Channa (June) 6/18/2010 2192 2190 Down 4/7/2010 2436
Channa (July) 7/20/2010 2260 2255 Down 4/7/2010 2491
Chana (august) 8/20/2010 2328 2320 Down 4/8/2010 2514
Channa (Sept) 9/20/2010 2383 2372 Down 4/20/2010 2520
Castorseed 5/20/2010 3100 3109.5 Up 5/8/2010 3100
(May)
Castorseed 6/18/2010 530.9 Down 3/19/2008 546.3
(June)
Castorseed 7/20/2010 3242.5 3214.5 Up 5/7/2010 3242.5
(July)
Castorseed 8/20/2010 3309 3261.5 Up 5/7/2010 3309
(August)
Chilli (June) 6/18/2010 4452 4448 Down 4/17/2010 4808
Chilli (July) 7/20/2010 4600 4580 Down 4/14/2010 5073
Chilli (August) 8/20/2010 4744 4693 Down - -
Guarseed 5/20/2010 2386 2377 Down 5/3/2010 2368
(May)
Guarseed 6/18/2010 2399 2392 Down 5/3/2010 2381
(June)
Guarseed 7/20/2010 2419 2403 Down 5/3/2010 2396
(July)
Guarseed(aug) 8/20/2010 2441 2440 Down 5/3/2010 2436
GuarGum 5/20/2010 4650 4615 Up 4/6/2010 1192
(May)
GuarGum 6/18/2010 5200 5157 Up 5/7/2010 1239
(June)
GuarGum 7/20/2010 5267 5224 Up 5/7/2010 5224
(July)
GuarGum 8/20/2010 5291 5332 Down 5/3/2010 5054
(August)
Gur (July) 7/20/2010 961 958.2 Up 5/8/2010 961
Gur (Sept) 9/20/2010 930 928.8 Down 5/6/2010 935.8
Jeera (May) 5/20/2010 12529 12480 Down 5/8/2010 12529
Jeera (June) 6/18/2010 12735 12685 Up 4/22/2010 11921
Jeera (July) 7/20/2010 13002 12950 Up 4/21/2010 12319
Maize (May) 5/20/2010 880.5 879.5 Down 5/3/2010 877
Maize (June) 6/18/2010 904 900.5 Down 5/3/2010 897
Maize (July) 7/20/2010 916 921 Down 5/3/2010 918.5
Maize 8/20/2010 924 925.5 Down 4/20/2010 946.5
(August)
Mentha (May) 5/31/2010 772.4 775.5 Down 5/3/2010 792.8
Mentha (June) 6/30/2010 775.2 778.4 Down 5/3/2010 795.7
Mentha (July) 7/30/2010 778.1 781.2 Down 5/3/2010 798.7
Mentha 8/31/2010 781.1 784.3 Down 5/3/2010 801.9
(August)
Pepper (May) 5/20/2010 15479 15111 Down - 15479
Pepper (June) 6/18/2010 16540 16359 Up 4/23/2010 15929
Pepper (July) 7/20/2010 16803 16614 Up 4/23/2010 16070
Pepper 8/20/2010 16952 16806 Up 4/23/2010 16252
(August)
Pepper (Sept) 9/20/2010 17363 17279 Up 4/23/2010 16461
Pepper (Oct) 10/20/201 17525 17491 Up 4/24/2010 16930
0
Ref Soy (May) 5/20/2010 586 591.25 Up 12/15/2007 547.35
Ref Soy (June) 6/18/2010 450.8 449.05 Down 5/4/2010 445.55
Ref Soy (July) 7/20/2010 452.4 450.35 Down 5/4/2010 446.6
Sugar (May) 5/20/2010 3526 3517 Up - 3526
Sugar (June) 6/18/2010 2892 2866 Down 9/26/2009 2895
Sugar (July) 7/20/2010 2892 2866 Down 9/26/2009 2895
Sugar (August) 8/20/2010 2892 2866 Down 9/26/2009 2895
Turmeric 5/20/2010 15121 14824 Up 4/26/2010 13343
(May)
Turmeric 6/18/2010 14989 14695 Up 4/27/2010 13694
(June)
Turmeric 7/20/2010 14903 14610 Up 4/27/2010 13499
(July)
Conclusion:
There is significant relation between the indices value of various commodities to the current and
future prices of those commodities
ANALYSIS AND INTERPRETATION OF DATA
1. What are Investor’s preferences?

1. Share market 3. Commodity
2. Bank F.D 4. Other
Investor’s Frequency Percentage

preferences
Share market 22 44
Bank fd 13 26
Commodity 7 14
Other 8 16
Q-1
Share market Bank fd Commodity Other
16%
14% 44%
26%
Interpretation:
Most of the people are interested in investing in share market when compared to
commodity market and the real estate the risk involving in above markets are comparatively
higher than share market. And also people want to reduce their risk in investing bank fixed
deposits here customers are mainly focusing on their return in short interval time.
2. Why do you prefer to invest in commodities than other investment tool?

1. Bad past experience in other investment opportunities
2. Liquidity
3. More options
4. More returns
Reason to invest in Frequency Percentage
commodities
Bad past experience in other 08 16
investment opportunities
Liquidity 17 34
More options 10 20
More returns 15 30
Q-2
Bad past experience Liquidity More returns More options
20% 16%
30% 34%
Interpretation:
When the question regarding their switching to commodity market was asked to different
commodity investors, it was found that about 35% investors believes that their will be increase in
their liquidity by switching o commodity market and near about 30% investors believes that
there will be more earning is possible by switching to commodity market and due to avalibility
of more option about 20% investors were switched for commodity market and very few believes
that bad past experience is the reason for choosing the commodity market.
3. People’s knowledge about Commodity Market: -
1. Know
2. Don’t know
Knowledge about Frequency Percentage

Commodity
Know 13 26
Don’t know 37 74
Q-3
Know Don’t know
26%
74%
Interpretation:
When the data regarding knowledge about commodity market was collected it was found
that, Very few people heard of commodity market. Vast majority of people are unaware about
Commodity Market
4. What is your past experience in the commodity market in terms of return on

your investment?
1. Positive
2. Negative
3. Neutral
Past experience in the Frequency Percentage

commodity market
Positive 22 44
Negative 09 18
Neutral 19 38
Q-4
Positive Negative Neutral
38% 44%
18%
Interpretation:
From the above stats we can see that, return on investment on the past invested money in
the commodity market is positive is the consideration of the most of the investors i.e. about 44%
and very less investors are believing that there will be negative return on commodity investment.
5. Do you have any information about hedging?

1. Yes
2. No
Information about Frequency Percentage

hedging
Yes 17 34
No 33 66
Q-5
Yes No
34%
66%
Interpretation:
When the question regarding hedging was asked to different investors data collected is
really surprising because about really 67% investors are aware about hedging which is very new
phenomenon and only about 33% investors are there who don’t know about hedging.
6. What is objective behind trading in commodity market?
1. Hedging
2. Investment
3. Making huge profit
Objective Frequency Percentage

Hedging 07 14
Investment 12 24
Making huge profit 31 62
Q-6
Hedging Investment Making huge profit
14%
24%
62%
Interpretation:
Above statistical data suggested that most of the investors(61%) entering into commodity
market with the objective of earning huge profit in short period of time and very less investors
entering into market to protect their losses through hedging.
7. From how long you are trading in commodities?
1. 1 - 5 months
2. 5 - 12months
3. 1 - 2years
4. More than 2years
Trading duration Frequency Percentage

1 - 5 months 05 10
5 - 12months 14 28
1 - 2years 13 26
More than 2years 18 36
Q-7
1 - 5 months 5 - 12months
1 - 2years More than 2years
10%
36%
28%
26%
Interpretation:
About all of investors which I surveyed, about 36% are trading in commodity market for
more than 2 years. This indicates that they having sufficient knowledge about commodity
market. And there are only 10% investors are there who deals in the market for less than 5
months.
8. What is your perception about Commodity Market?
1. Very risky
2. Risky
3. Less risky
Perception Frequency Percentage

Very risky 25 50
Risky 14 28
Less risky 11 22
Q-8
Very risky Risky Less risky
22%
50%
28%
Interpretation:
Analysis of data shows that majority of people who are aware about commodity market;
feel that investment in commodity market is very risky. So efforts should be done to minimize
the risk in commodity investment and make peoples about minimum risk incommodity
investment.
9. Which segment of commodity do you prefer?

1. Agri
2. Bullions
3. Basemetals
4. Energy
Segment Frequency Percentage

Agri 06 12
Bullions 21 42
Basemetals 12 24
Energy 11 22
Q-9
Agri Bullions Basemetals Energy
22% 12%
24% 42%
Interpretation:
Above data revels that majority of commodity investors like to invest in Bullion (Gold &
Silver).
10. According to you which type of commodity gives you better return?
1. Agri
2. Bullions
3. Basemetals
4. Energy
Segment Frequency Percentage

Agri 10 20
Bullions 27 54
Basemetals 09 18
Energy 04 08
Q-10
Agri Bullions Basemetals Energy
18% 8% 20%
54%
Interpretation:
Here also the answer of most of the investors is related to bullions means according to
them bullions can give better return among all the commodities.
11. What is the type of positions mostly taken by you in commodity market?
1. Short positions
2. Long positions
3. Both
Type of positions Frequency Percentage

Short positions 12 24
Long positions 21 42
Both 17 34
Q-11
Short positions Long positions Both
34% 24%
42%
Interpretation:
As the most common trend, data suggest that about 41% traders are only interested in
creating long positions in commodity market and very few means only 25% traders are interested
in create shorts in the market whereas about 34% traders are interested in both long and short
positions.
12. Does your broker offer you different commodity strategies?
1. Yes
2. No
Strategies offered by Frequency Percentage

broker
Yes 31 62
No 19 38
Q-12
Yes N0
38%
62%
Interpretation:
This the most common question which is always included in the survey and the chart
suggesting about 62% investors agreed to the point that their broker is always giving them
various commodity strategies whereas only 38% investors are not agreed to this point.
13. What do you expect from your broker?
1. Better services
2. Good research calls
3. Minimum brokerage
4. All the above
Expectation from Frequency Percentage

broker
Better services 11 22
Good research calls 18 36
Minimum brokerage 14 28
All the above 07 14
Q-13
Better services Good research calls
Minimum brokerage All the above
14% 22%
28%
36%
Interpretation:
Above pie chart giving information of surveyed investors regarding expectation from
their broker and the data found as, 21% are expecting better services from their broker. 28% are
expecting minimum brokerage from broker, 37% are expecting good research calls from broker
whereas 14% are expecting all the three mentioned things from their broker.
FINDINGS OF THE STUDY
 India is one of the top producers of a large number of commodities, and also has a long
history of trading in commodities and related derivatives. The market has made enormous
progress in terms of technology, transparency and the trading activity. Interestingly, this
has happened only after the Government protection was removed from a number of
commodities, and market forces were allowed to play their role.
 The management of price risk is going to assume even greater importance in future with
the promotion of free trade and removal of trade barriers in the world.
 Even though the commodity derivatives market has made good progress in the last few
years, the real issues facing the future of the market have not been resolved. The
objectives of setting up commodity derivative exchanges may not be achieved and the
growth rates witnessed may not be sustainable unless these real issues are sorted out as
soon as possible.
 Sugar prices in India are therefore influenced by various demand supply factors operating
within the country, international sugar beet and sugarcane prices, demand for refined
sugar from abroad, Candy and confectionery sales , prices of sugarcane and the other
sugar sources, are less likely to have any major impact on sugar prices in India.
 The international trade in sugar has changed dramatically. Perhaps the greatest change in
the international sugar trade has been the trend toward price stabilization. Historically at
the mercy of everything from war to weather, the price of sugar still has always been
extremely volatile.
 Despite the economic recession world over, sugar consumption growth was less impacted
and remained positive. The supply-demand disequilibrium has been caused essentially by
the strident slippage in Indian production, exacerbated by the decline in EU and other
Asian countries.
 The statistical outlook for the market till the end of the season in September 2009 for
sugar remains constructive and supportive to the market values.
 Wheat farmers have little impact on demand, but putting all the heads together can make
a significant difference in product demand and market price. And that leads to the
ultimate goal of the improved income for wheat producers.
 World wheat consumption is consistently growing with growth in population, as it is one

of the major staple foods across the world.There exists a clear trough and crest in the
seasonality of wheat production, indicating a typical seasonality in the production cycle.
 Factors that influence price are Supply demand scenario of wheat and its competing crops
like maize, barley etc., in the global market apart from other staple foods such as grains
 Wheat anticipates a change in trend from up to down on a break from the month of May
2010.
SUGGESTIONS AND RECOMMENDATIONS
 The Govt should take all possible steps to solve the unresolved issues such as
o Commodity Options
o The Warehousing and Standardization
o Cash versus Physical Settlement
o The Regulator
o Lack of Economy of Scale
o Tax and Legal bottlenecks
 More training should be carried out periodically to enhance the skills of the persons
involved in commodity trading
 Implementation aspects of margining and risk management at NCDEX must be monitored
continuously
 To impart knowledge on Commodity Market and their uses to Business Management

Students by revising courses taking into consideration the increasing importance of
Commodity Market in India as an investment avenue.
 More simpler analytical techniques must be developed for analysis and interpretation of
commodity futures charts and data.
CONCLUSION
Did the prices of a
While almost all agricultural product prices increased at least in nominal terms, the rate
of increase varied significantly from one commodity to another. In particular, international prices
of basic foods, such as cereals, oilseeds and dairy products, increased far more dramatically than
the prices of tropical products, such as coffee and cocoa, and raw materials, such as cotton or
rubber.
Therefore, developing countries dependent on exports of these latter products found that
while their export earnings might have been increasing this was at a slower rate than the cost of
their food imports. As many developing countries are net food importers, this imposed a serious
balance of payments problem. The leap in food prices was in sharp contrast to the secular
downward trend and the prolonged slump in commodity prices from 1995 to 2002, which even
prompted calls for the revival of international commodity agreements.
For some analysts, the increases or signaled the end of the long-term decline in real
agricultural commodity prices, with The Economist (2007) announcing “the end of cheap food”.
It is an interesting question whether these sharp increases are fundamentally different from
earlier price spikes and whether the long-term decline in real prices could have come to a halt,
signaling a fundamental change in agricultural commodity market behavior. High-price events,
like low ice low-price events, are not rare occurrences in agricultural markets, although high
prices often tend to be short-lived compared with low prices, which persist for longer periods.
What has distinguished this episode was the concurrence of the hike in world
prices of not just a few but of nearly all major food and feed commodities and the possibility that
the prices may remain high after the effects of short- term shocks dissipate In the first four
months of 2008, volatility in wheat and rice prices approached record highs (volatility in wheat
prices was twice the level of the previous year while rice price volatility was five times higher).
The increase in volatility was not confined to cereals – vegetable oils, livestock products and
sugar all witnessed much larger price swings than in the recent past. High volatility means
uncertainty, which complicates decision-making for buyers and sellers.
Greater uncertainty limits opportunities for producers to access credit markets and tends
to result in the adoption of low-risk production technologies at the expense of innovation and
entrepreneurship. In addition, the wider and more unpredictable the price changes in a
commodity are, the greater is the possibility of realizing large gains by speculating on future
price movements of that commodity.
BIBLIOGRAPHY
Magazines
 ISO February outlook 2009
Internet
Charts:
 www.barcharts.com
 www.chartsrus.com
 www.mongabay.com
 www.djindexes.com
 Dow Jones Industrial Average Historical Prices / Charts
Trend and other information:
 www.crnindia.com
 www.indiamart.com
 www.ncdex.com
 www.fmc.gov.in
BOOKS
 Futures, options and swaps by Robert W. Kolb.
 Derivative markets in India 2003 edited by Susan Thomas.
 Options, futures and other derivatives by John Hull.
 Thomas Susan (2003): Agricultural Commodity Markets in India; Policy Issues for
Growth, Indira Gandhi Institute for Development Research, Mumbai.

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EXECUTIVE SUMMARY

HISTORY OF COMMODITY MARKET

FMC (Forwards Market Commission)

National Exchange Regional Exchange

NCDEX MCX NMCE NBOT 20 other regional

S.NO. Commodity Market in India

Multi Commodity Exchange (MCX),

National Commodity and Derivatives

National Board of Trade (NBOT),

National Multi Commodity Exchange

SIZE OF THE MARKET

LIST OF TRADED COMMODITY

 Agricultural (Grains, and Food and Fiber)

Livestock and meat

 Abuja Securities and Commodities Exchange

I. BACKGROUND OF THE INDUSTRY

THE NCDEX PLATFORM

National Commodity and Derivatives Exchange Ltd (NCDEX) is a technology driven

NCDEX is regulated by Forward Markets Commission in respect of futures trading in

NCDEX has been formed with the following objectives:

 To bring professionalism and transparency into commodity trading.

 To inculcate best international practices like de. Modularization, technology platforms,

 To provide nationwide reach and consistent offering.

 To bring together the entities that the market can trust

NCDEX is promoted by a consortium of institutions. These include the ICICI Bank

NCDEX is run by an independent Board of Directors. Promoters do not participate in the

1. Interest free cash security deposit

􀀀 Government of India securities: National Securities Clearing Corporation Limited (NSCCL) is

THE NCDEX SYSTEM

National Securities Clearing Corporation Limited (NSCCL) undertakes clearing of trades

COMMODITIES TRADED ON THE NCDEXPLATFORM

I. OBJECTIVES OF THE STUDY

1) To understand realistically the pattern of fluctuations of price indices

2) To study the operation of commodity trading in India and assess its

3) To provide a trend analysis of the current MCX & NCDEX indices

II. SCOPE OF THE STUDY

 How do price indices fluctuate so easily and how to understand them?

Corporate & Registered Office

 Angel Broking Ltd.

To have complete harmony between quality-in-process and continuous improvement to

 Nation- wide network of 21 regional hubs

PRODUCTS AND SERVICES OF THE COMPANY

2 Mr. Lalit Thakkar Director-Research

3 Mr. Amit Majumdar Executive Director - Strategy and

4 Mr. Sachinn Joshi Executive Director & CFO

5 Mr. Vinay Agrawal Executive Director ± Equity

6 Mr. Nikhil Daxini Executive Director - Sales and

9 Mr. Ketan Shah Associate Director -Information

10 Ms. Pinky Kothari Associate Director -Sales &

11 Mr. Naveen Mathur Associate Director -Commodities

2. November,1998 Angel Capital and Debt Market Ltd. Incorporated

3. March,2002 Developed web-enabled back office software

4. November,2002 Angel’s first investor seminar

5. April,2004 Initiated Commodities Broking division

6. September,2004 Launched Online Trading Platform

7. October,2005 Major Volume Driver award for 2005

8. July,2006 Launched the PMS function

9. September,2006 Launched Mutual Fund and IPO business

10. October,2006 Major Volume Driver award for 2006

11. December,2006 Created 2500 business associates

12. November,2007 Major Volume Driver for 2007

13. August,2008 Crossed 500000 trading accounts

15. October,2009 Major Volume Driver Award by BSE for 2008-09