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A

Research Project

On

IMPACT OF COMMODITY FUTURE TRADING ON COMMODITY SPOT

PRICES WITH SPECIAL REFERENCE TO SUGAR,CHANNA&TURMERIC

ON NCDEX(1Jan. 1,2009- Dec. 31, 2009)

SUBMITTED TO:

KURUKSHETRA UNIVERSITY, KURUKSHETRA,

IN THE FULFILLMENT OF DEGREE OF

MASTER OF BUSINESS ADMINISTRATION (MBA)

SESSION (2008-10)

SUBMITTED BY:

Shelly Singhal

D/o Sh Vijay Kumar Singhal

Class:- MBA (Final)

Class Roll No.:-1125/08

Univ. Regi. No- 05-MY-1142

Univ. Roll No.

UNDER THE GUIDANCE OF:

Miss Poonam Bakshi

Faculty MBA

TIMT, YNR

Tilak Raj Chadha Institute of Management & Technology (TIMT)

(Affiliated to Kurukshetra University, Kurukshetra and Approved By AICTE)

MLN College Educational Complex, Yamuna Nagar- 135001 (Haryana)

Ph. 01732-220103, 234110. Fax:+91-1732-220103

E-mail:info@timt.ac.in, Web Site: www.timt.ac.in

mailto:info@timt.ac.inmailto:info@timt.ac.inmailto:info@timt.ac.inhttp://www.timt.ac.in/mailto:info@timt.ac.inhttp://www.timt.ac.in/

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DECLARATION

I Shelly Singhal, Roll No.1125/08, MBA (4th Semester) student of the Tilak Raj Chadha

Institute of Management and Technology, Yamunanagar hereby declare that the Research

Report entitledImpact of commodity future trading on commodity spot prices with special

reference to sugar,channa&turmeric on ncdex(1 Jan. 1,2009- Dec. 31, 2009) is an original

work and the same has not been submitted to any other Institute for the award of any other

degree.

(Shelly Singhal)

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ACKNOWLEDGEMENT

The present report is an amalgamation of hard work and contribution of experience of eminent

personality. This work is synergistic product of many minds. I am grateful for the inspiration of

many thinkers and for the hang together sources & roots of this wisdom. This project report has

been made possible through the direct & indirect co- operation of various people whom I wish to

express my thanks and gratitudes.

First of all I would like to thank the supreme power, the Almighty GOD who is obviously the

one who has always directed me to work on the right path of my life. With his grace this project

could become a reality.

Then I express my sincere gratitude and thanks to Dr. Vikas Daryal (Director) and Mrs.

Vandana Madaan( HOD-MBA Deptt., TIMT) for their inspiration and helpful attitude.

I am also deeply thankful to Ms. Poonam Bakshi (Faculty, TIMT YNR.) for her guidance,

regular counseling, keen interest and constant encouragement. Without her guidance, this project

would not have a successful end.

I owe my sincerely thanks to all my faculty members and the associated staff for their support

given to me time to time. Also, I would like to thank all my friends and family members for their

support given to me time to time.

Finally, with blessings of my parents who are a source of strength and inspiration for me in this

endeavor.

(Shelly Singhal)

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PREFACE

Theoretical knowledge without the practical exposure is of little value. Theoretical

studies in classroom are not sufficient to understand the functioning and nature of research.Therefore it becomes necessary to undergo research project work. Practical project supplements

the theoretical studies i.e. it covers what is left uncovered in the classroom. It exposes a student

to invaluable pleasure of experiences.

My study topic deals with Analysis of productivity and operational efficiency of public sector

banks..

This dissertation deals with the application of theory to studythe operational and productivity

efficiency on the basis of CAR, total income, interest earned, business per employee and profit

per employee. I would learn a lot of new things which could never been learned from the theory

classes. This dissertation report is a presentation of my work.

The main objective of dissertation and project i.e. familiarization with the necessary theoretical

input and to gain sufficient practical exposure to establish a distant linkage between the

conceptual knowledge acquired at the institute and practicing these concepts. .

Prior to making reference to working of the dissertation prepared the analysis, feasibility and all

other aspects were taken into consideration. In the forthcoming pages attempt has been made to

present a comprehensive report concerning different aspects of my research. The overall gain to

me will be reflected in the report itself.

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EXECUTIVE SUMMARY

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Contents

Page No

1. INTRODUCTION2. COMPANY OR INDUSTRY PROFILE3. TOPIC4. THEORETICAL FRAMEWORK

-CONSTRUCT-DEPENDENT & INDEPENDENT VARIABLE

5. LITERATURE REVIEW6. RESEARCH OBJECTIVE

7. RESEARCH METHODOLOGY

i. RESEARCH DESIGN

TYPE OF RESEARCH DESIGN

TIME HORIZON

STUDY SETTING

MEASUREMENT AND SCALING

FLOW CHART FOR SELECTION OF STATISTICALTOOLS

ii. HYPOTHESIS DEVELOPMENT AND TESTINGiii. SAMPLE & SAMPLING DESIGNiv. DATA COLLECTIONv. ANALYTIVAL TOOLS

vi. STATISTICAL TOOLS8. DATA ANALYSIS9. RESULTS & FINDINGS10. POLICY IMPLICATIONS11.SUGGESTIONS12.BIBLIOGRAPHY13.ANNEXURES

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INTRODUCTION

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What is commodity?

A commodity may be as an article, a product or material that is bought and sold. It can be

classified as every kind of movable property, except actionable claims, money and securities.

Commodities actually offer immense potential to become a separate asset class for market savvyinvestors, arbitrageurs and speculators. Retail investors, who claim to understand the equity

markets, may find commodities an unfavorable market. But commodities are easy to understand

as for as fundamentals of demand and supply are concerned. Retail investors should understand

the risk and advantages of trading in commodities futures before keeping a leap. Historically,

pricing in commodities futures has been less volatile compared with equity and bonds that

provides an efficient portfolio diversification option.

Meaning of commodity market: Commodity markets are market where raw or primary products

are exchanged. The raw commodities are traded on regulated commodities exchanges, in which

they are bought and sold in standardized contracts.

This article focuses on the history and current debates regarding global commodity markets. It

covers physical product (food, metals, and electricity) markets but not the ways that services,

including those of government, nor investment, nor investment, nor debt can be seen as

commodity. Article on reinsurance markets, stock markets, bond markets and currency markets

cover those concerns separately and in more depth. On focus of this article is the relationship

between simple commodity money and the more complex instruments offered in the commodity

markets.

Commodity market is an important constituent of the financial markets of any country. it is the

market where a wide range of products precious metals, base metals, crude oil, energy and soft

commodities like oil, coffee etc. are traded. It is important to develop a vibrant, active and liquid

commodity market. This would help investors hedge their commodity risk, take speculative

positions in commodities and exploit arbitrage opportunities in the market.

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FUTURE CONTRACT:

In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or

sell a certainunderlying instrumentat a certain date in the future, at a pre-set price. The

future date is called the delivery date or final settlement date. The pre-set price is called thefutures price. The price of the underlying asset on the delivery date is called the settlement

price. The settlement price, normally, converges towards the futures price on the delivery

date.

BASIC FEATURES OF FUTURE CONTRACT:

1.Standardization:

Futures contracts ensure theirliquidity by being highly standardized, usually by specifying:

The underlying. This can be anything from a barrel of sweet crude oil to a short term

interest rate.

The type of settlement, either cash settlement or physical settlement.

The amount and units of the underlying asset per contract. This can be the notional

amount of bonds, a fixed number of barrels of oil, units of foreign currency, the notional

amount of the deposit over which the short term interest rate is traded, etc. The currency in which the futures contract is quoted.

The delivery month.

The last trading date.

Other details such as the tick, the minimum permissible price fluctuation.

2.Margin:

Although the value of a contract at time of trading should be zero, its price constantly

fluctuates. This renders the owner liable to adverse changes in value, and creates a credit riskto

the exchange, who always acts as counterparty. To minimize this risk, the exchange demands

that contract owners post a form of collateral, commonly known as Margin requirements are

waived or reduced in some cases for hedgers who have physical ownership of the covered

commodity orspread traders who have offsetting contracts balancing the position.

http://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Contracthttp://en.wikipedia.org/wiki/Futures_exchangehttp://en.wikipedia.org/wiki/Futures_exchangehttp://en.wikipedia.org/wiki/Underlyinghttp://en.wikipedia.org/wiki/Underlyinghttp://en.wikipedia.org/wiki/Financial_instrumenthttp://en.wikipedia.org/wiki/Financial_instrumenthttp://en.wikipedia.org/wiki/Market_liquidityhttp://en.wikipedia.org/wiki/Underlyinghttp://en.wikipedia.org/wiki/Underlyinghttp://en.wikipedia.org/wiki/Sweet_crude_oilhttp://en.wikipedia.org/wiki/Underlyinghttp://en.wikipedia.org/wiki/Notional_amounthttp://en.wikipedia.org/wiki/Notional_amounthttp://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Delivery_monthhttp://en.wikipedia.org/wiki/Credit_riskhttp://en.wikipedia.org/wiki/Credit_riskhttp://en.wikipedia.org/wiki/Collateralhttp://en.wikipedia.org/wiki/Hedginghttp://en.wikipedia.org/wiki/Spread_traderhttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Contracthttp://en.wikipedia.org/wiki/Futures_exchangehttp://en.wikipedia.org/wiki/Underlyinghttp://en.wikipedia.org/wiki/Financial_instrumenthttp://en.wikipedia.org/wiki/Market_liquidityhttp://en.wikipedia.org/wiki/Underlyinghttp://en.wikipedia.org/wiki/Sweet_crude_oilhttp://en.wikipedia.org/wiki/Underlyinghttp://en.wikipedia.org/wiki/Notional_amounthttp://en.wikipedia.org/wiki/Notional_amounthttp://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Delivery_monthhttp://en.wikipedia.org/wiki/Credit_riskhttp://en.wikipedia.org/wiki/Collateralhttp://en.wikipedia.org/wiki/Hedginghttp://en.wikipedia.org/wiki/Spread_trader

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Initial margin: is paid by both buyer and seller. It represents the loss on that contract, as

determined by historical price changes, which is not likely to be exceeded on a usual day's

trading. It may be 5% or 10% of total contract price.

Mark to market Margin: Because a series of adverse price changes may exhaust the initial

margin, a further margin, usually called variation or maintenance margin, is required by the

exchange. This is calculated by the futures contract, i.e. agreeing on a price at the end of each

day, called the "settlement" ormark-to-market price of the contract.

To understand the original practice, consider that a futures trader, when taking a position,

deposits money with the exchange, called a "margin". This is intended to protect the exchange

against loss. At the end of every trading day, the contract is marked to its present market value. If

the trader is on the winning side of a deal, his contract has increased in value that day, and the

exchange pays this profit into his account. On the other hand, if he is on the losing side, the

exchange will debit his account. If he cannot pay, then the margin is used as the collateral from

which the loss is paid.

3.Settlement

Settlement is the act of consummating the contract, and can be done in one of two ways, as

specified per type of futures contract:

'Physical delivery' - the amount specified of the underlying asset of the contract is

delivered by the seller of the contract to the exchange, and by the exchange to the buyers

of the contract. Physical delivery is common with commodities and bonds. In practice, it

occurs only on a minority of contracts. Most are cancelled out by purchasing a covering

position - that is, buying a contract to cancel out an earlier sale (covering a short), or

selling a contract to liquidate an earlier purchase (covering a long). The Nymex crude

futures contract uses this method of settlement upon expiration.

Cash settlement - a cash payment is made based on the underlying reference rate, such

as a short term interest rate index such as Euribor, or the closing value of a stock market

index. A futures contract might also opt to settle against an index based on trade in a

related spot market.

http://en.wikipedia.org/wiki/Mark-to-markethttp://en.wikipedia.org/wiki/Margin_(finance)http://en.wikipedia.org/w/index.php?title=Physical_delivery&action=edithttp://en.wikipedia.org/w/index.php?title=Physical_delivery&action=edithttp://en.wikipedia.org/wiki/Reference_ratehttp://en.wikipedia.org/wiki/Euriborhttp://en.wikipedia.org/wiki/Stock_market_indexhttp://en.wikipedia.org/wiki/Stock_market_indexhttp://en.wikipedia.org/wiki/Mark-to-markethttp://en.wikipedia.org/wiki/Margin_(finance)http://en.wikipedia.org/w/index.php?title=Physical_delivery&action=edithttp://en.wikipedia.org/wiki/Reference_ratehttp://en.wikipedia.org/wiki/Euriborhttp://en.wikipedia.org/wiki/Stock_market_indexhttp://en.wikipedia.org/wiki/Stock_market_index

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Expiry is the time when the final prices of the future are determined. For many equity

index and interest rate futures contracts (as well as for most equity options), this happens

on the Last Thrusday of certain trading month. On this day the t+2 futures contract

becomes the tforward contract. For example, for most

How do Futures Work?

Futures are standardized contracts among buyers and sellers of commodities that specify

the amount of a commodity, grade / quality and delivery location. Commodity trading

with futures contracts takes place at a futures exchange and, like the stock market, is

entirely anonymous.

For example: the buyer might be an end-user like Kelloggs. They need to buy corn to

make cereal. The seller would most likely be a farmer, who needs to sell his corn crop.

They create a contract of December Corn futures at the current market price. A contract

of corn at the CBOT consists of 5,000 bushels. Therefore, the farmer would have to

deliver 5,000 bushels of corn to Kelloggs in December at a designated location.

Making Money in Futures

A speculator is someone who invests in a business with the goal of turning a profit. In the

case of commodities, speculators are traders who try to buy futures low and sell them

high to make money. The reason why speculators can do so with futures is that traders

arent required to hold the futures contracts for the duration of the contract; they can buy

or sell anytime they want. So, to use the Kelloggs example above, a speculator could buy

the corn contract from the farmer at a certain price, then wait for the price of corn to go

up before selling the contract to Kelloggs, even if the contract wont come due for

another couple of months, turning a profit in the process.

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Players Involved in Commodities Trading

There are three different types of players in the commodity markets:

1. Commercials: The entities involved in the production, processing or merchandising of acommodity. For example, both the corn farmer and Kelloggs from the example above

are commercials. Commercials account for most of the trading in commodity markets.

2. Large Speculators: A group of investors that pool their money together to reduce risk

and increase gain. Like mutual funds in the stock market, large speculators have money

managers that make investment decisions for the investors as a whole.

3. Small Speculators: Individual commodity traders who trade on their own accounts or

through a commodity broker. Both small and large speculators are known for their ability

to shake up the commodities market.

How to Start Trading Commodities

In order to trade commodities, you should educate yourself on the futures contract

specifications for each commodity and of course learn about trading strategies.

Commodities have the same premise as any other investment you want to buy low and

sell high. The difference with commodities is that they are highly leveraged and they

trade in contract sizes instead of shares. Remember that you can buy and sell positions

whenever the markets are open, so rest assured that you dont have to take delivery of a

truckload of soybeans.

What Does Commodity Futures ContractMean?

An agreement to buy or sell a set amount of a commodity at a predetermined price and

date. Buyers use these to avoid the risks associated with the price fluctuations of the

product or raw material, while sellers try to lock in a price for their products. Like in all

financial markets, others use such contracts to gamble on price movements

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Pricing of future contract

Futures

In a futures contract, for no arbitrage to be possible, the price paid on delivery (the forward

price) must be the same as the cost (including interest) of buying and storing the asset. In other

words, the rational forward price represents the expected future value of the underlying

discounted at the risk free rate. Thus, for a simple, non-dividend paying asset, the value of the

future/forward, , will be found by discounting the present value at time to maturity

by the rate of risk-free return .

This relationship may be modified for storage costs, dividends, dividend yields, and convenience

yields; see futures contract pricing.

Any deviation from this equality allows for arbitrage as follows.

In the case where the forward price is higher:

1. The arbitrageur sells the futures contract and buys the underlying today (on the spot

market) with borrowed money.

2. On the delivery date, the arbitrageur hands over the underlying, and receives the agreed

forward price.

3. He then repays the lender the borrowed amount plus interest.

4. The difference between the two amounts is the arbitrage profit.

In the case where the forward price is lower:

1. The arbitrageur buys the futures contract and sells the underlying today (on the spot

market); he invests the proceeds.

http://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Forward_pricehttp://en.wikipedia.org/wiki/Forward_pricehttp://en.wikipedia.org/wiki/Future_valuehttp://en.wikipedia.org/wiki/Future_valuehttp://en.wikipedia.org/wiki/Underlyinghttp://en.wikipedia.org/wiki/Futures_contract#Pricinghttp://en.wikipedia.org/wiki/Futures_contract#Pricinghttp://en.wikipedia.org/wiki/Spothttp://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Forward_pricehttp://en.wikipedia.org/wiki/Forward_pricehttp://en.wikipedia.org/wiki/Future_valuehttp://en.wikipedia.org/wiki/Underlyinghttp://en.wikipedia.org/wiki/Futures_contract#Pricinghttp://en.wikipedia.org/wiki/Spot

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2. On the delivery date, he cashes in the matured investment, which has appreciated at the

risk free rate.

3. He then receives the underlying and pays the agreed forward price using the matured

investment. [If he was short the underlying, he returns it now.]

4. The difference between the two amounts is the arbitrage profit.

Overall growth

During 2005-06, the total value of commodity futures trade was Rs. 21.34 lakh crore as

compared to Rs. 5.71 lakh crore during 2004-05 showing an increase of 274%. The volume of

trade has also gone up to 6685 lakh tonnes during 2005-06 as compared to 1942 lakh tonnesduring 2004-05. The trade volume has also gone up by 244% during 2005-2006.

The trading volume and value have increased manifold after the three national level Exchanges

were set up. Department of Consumer Affairs granted recognition to these Exchanges as

indicated below:National Multi-Commodity Exchange of India, Ahmedabad (NMCE), started

trading in November 2002 and the other two national Exchanges viz. Multi Commodity

Exchange of India Ltd., Mumbai (MCX) and National Commodity and Derivatives Exchange

Ltd., Mumbai (NCDEX) started trading in November 2003. The following table shows the

increase in volume and value of trading in commodity futures since the setting up of these

national Exchanges.

Commodity Futures Trading Value and Volume since 2001-02

2002-03 2003-04 2004-05 2005-06

Volume of

Trading (in lakh

tonnes)

314.4

(44.4)*

492.9

(57.7)*

1,942.1

(294)*

6,685.09

(244)*

Value oftrading (Rs. incrore)

66,530(92.8)*

1,29,363(94.4)*

5,71,759(341.9)*

21,34,471(274)*

*Figures in parenthesis are % change over previous year.

http://en.wikipedia.org/wiki/Short_sellinghttp://en.wikipedia.org/wiki/Short_selling

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Benefits to industry from future trading:

Hedging the price risk associated with future contractual commitments.

Spaced out purchases possible rather than large cash purchased and its storage.

Efficient price discovery prevents seasonal price volatility

Greater flexibility, certainty and transparency in procuring commodities would

aid bank lending.

Facilitate informal lending

Hedged position of producers and processors would reduce the risk of default

faced by banks.

Lending for agriculture sector would go up with greater transparency in pricing

and storage.

Commodity exchanges to act as distribution network to retail agri-finance from

bank to rural households.

Providing trading limit finance to traders in commodities exchanges.

Future prospect

Future prospect of commodity derivative trading is upbeat. Futures market size (both

commodities and securities) relative to Gross Domestic Product (GDP at current prices) in the

US is about 90%, in China about 85%, and in Brazil about 200%. Commodities derivatives trade

value relative to GDP (at current price) in India was 5.81 % in 2003-04, 20.14% in 2004-05 and

it has gone up to 66 % during 2005-06. The commodity futures trade has taken a big leap in the

past two years. Likely participation of Banks, Mutual Funds and Foreign Institutional Investors

along with introduction of options trading after amendments to FCR Act, 1952, will boost the

commodity futures trading further in the coming years.

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Meaning of commodities exchanges:

A Commodity Exchange is defined as a market where multiple buyers and sellers trade

commodity linked contracts on the basis of terms and conditions laid down by the

exchange(UNCTAD 2007).Since the commodity exchange provide a forum for trading

commodity linked contracts, they reduce the transaction cost associated with finding a buyer or

seller. Further, most importantly, the hedging and price discovery functions of future markets

promote more efficient production planning, storage, marketing, rationalization of transaction

cost and better margin for producers.

Its evolution in India:

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Commodity exchange in India

In India there are about 25 authorized commodities out of which Multi Commodity Exchange of

India Ltd (MCX), National Commodity & Derivatives Exchange Ltd (NCDEX) and National

Multi Commodity Exchange of India Ltd (NMCE) are the three big exchanges handling very

high proportion of volumes. Headquartered in Mumbai MCX, is promoted by SBI group and

many other financial institutions including the Financial Technologies (India) Ltd. MCX started

trading in November 2003 and has edge in non agricultural commodities. Another Mumbai based

NCDEX commenced operations on December 15, 2003. This commodity exchange was

promoted by national institutions such as NABARD, NSE, LIC and ICICI Bank Ltd. Etc. it is a

well managed online multi commodity exchange that has edge in agricultural commodities.

NMCE started its operation in November 26, 2002. It was supported by Central Warehousing

Corporation Ltd., Gujarat State Agricultural Marketing Board and Neptune Overseas Limited.

As per the date released by Forward Market Commission (FMC), commodity exchanges in the

country recorded a total business of Rs 210,276 crore in futures segment during the first fifteen

days of 2008 which was 43% higher as compared to the same period last year. Out of it the

turnover of MCX stood at Rs 169572.92 crore, while the NCDEX clocked a turnover of Rs

32682.39 crore during the period and Ahmadabad-based NMCE registered a turnover of Rs

633.72 crore. Presently, about 90 agricultural commodities or their variants are traded in futuremarkets in India. Pepper (International), turmeric, gur, casterseed, hessian, jute, sacking, cotton,

potato, castor oil (international), soybean (oil and cake), kapas, palmolein, sugar and tea are the

important agricultural commodities traded in such markets

Leading commodity markets of India

The government has allowed national commodity exchanges, similar to the BSE & NSE

to come up and let them deal in commodity derivatives in an electronic trading

environment.

Multi commodity exchange (MCX) located at Mumbai

National commodity and derivatives exchange ltd (NCDEX) located at

Mumbai

National multi commodity exchange (NMCE) located at Ahmadabad

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INDIAN COMMODITY EXCHANGES

MARKET SHARES

NMCE, 4%

Other

regional

exchanges,

3%NCDEX,

34%MCX, 59%

NMCE

Other regionalexchanges

NCDEX

MCX

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About NCDEX

National Commodity & Derivatives Exchange Limited (NCDEX) is a

professionally managed on-line multi commodity exchange. The shareholders

of NCDEX comprises of large national level institutions, large public sector

bank and companies.

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 shortsupply in the commodity markets. The institutional promoters and shareholders 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 commenced

its operations on December 15, 2003.

NCDEX is a nation-level, technology driven de-mutualised on-line commodity exchange with an

independent Board of Directors and professional management - both 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 Markets Commission. NCDEX is subjected to various laws of

the land like the Forward Contracts (Regulation) Act, Companies Act, Stamp Act, Contract Act

and various other legislations.

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NCDEX headquarters are located in Mumbai and offers facilities to its members from the centres

located throughout India.

The Exchange, as on May 21, 2009 when Wheat Contracts were re-launched on the Exchange

platform, offered contracts in 59 commodities - comprising 39 agricultural commodities, 5 base

metals, 6 precious metals, 4 energy, 3 polymers, 1 ferrous metal, and CER. The top 5

commodities, in terms of volume traded at the Exchange, were Rape/Mustard Seed, Gaur Seed,

Soyabean Seeds, Turmeric and Jeera.

Share Capital details as on December 31, 2009

Authorized Capital Rs. 70,00,00,000/-, comprising :

6,00,00,000 equity shares of Rs. 10/- each, aggregating Rs.60,00,00,000/-

1,00,00,000 preference shares of Rs. 10/- each, aggregatingRs. 10,00,00,000/-

Issued, Subscribed and Paid-upCapital

3,00,00,000 equity shares of Rs. 10/- each, aggregating Rs.30,00,00,000/-

1,00,00,000 preference shares of Rs. 10/- each, aggregatingRs. 10,00,00,000

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SHARE OF VARIOUS COMMODITIES ON NCDEX :-

Commodity groups

Bullion

Agriculture

Energy

Others

Total

2004-05

1.8

3.9

0.02

0

5.72

2005-06

7.79

11..92

1.82

0.02

21.55

2006-07

21.29

13.17

2.31

0.001

36.77

2007-08

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Commodity wise trends in volume traded

COMMODITY 2005Share% 2006

Share% 2007

Share%

SUGAR 206398 13.6 1045573 30.9 204261 22.6

CHANNA 144288 9.5 137372 4.1 87181 9.6

TUR 280935 18.5 635647 18.8 182363 20.1

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Sugar

At approximately twenty thousand B.C., people in the islands of the S. Pacific were the first to

find the sugar in the canes of sugar that grew naturally in their area. Anyhow, the country of

India was the 1st country to extract natural cane juice to make the first crude sugar. They called

it "gur",loosely translated as "sweet tasting", in five hundred B.C. From there, the knowledge of

making sugar spread toward the west, into the Arabic nations, and then to Europe by the

Crusaders.

For 100s of years, sugar was a highly valued and costly "spice" that was used only in the homes

of high society and royalty. Christopher Columbus took the cane to plant in the Caribbean,

leading to the blossoming of sugar in the New World. In the mid-1700's, a German scientistdeveloped an substitute to sugar, through the use of sugar beets. Since then, the sugar beet has

become the main source of sugar in Europe.

Sugar as a product

Sugar performs a array of functions in edible products, in addition to providing a sweet essence

and flavor. Sugar is used as a conservative, as is the case in jams and jellies, where sugar

reserves the growth of micro organisms. Sugar is used in baked goods, like cakes, to hold

moisture and prevent the staleness that we notice in these foods after time.. In canned fruit and

many vegetables, sugar enhances consistency and their colors. Sugar is also used to prevent large

ice crystals from forming in frozen sweet mixtures, like ice cream, and to support fermentation in

products containing yeast, such as bread. In these roles and others, sugar is an important and

versatile food ingredient.

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Supply

There are two main types of sugar grown in the world: cane and beet. Both produce the

identical refined sugar product. Sugar cane is a bamboo-like grass grown in semi-topical

regions. It accounts for about 70% of world production. Beet sugar comes from the sugar beet

plant, which grows in temperate climates and accounts for the balance of world production.

Intemperate weather, disease, insects, soil quality and cultivation affect both cane and beet

production, as do trade agreements and price support programs.

India, Brazil, China, Thailand, Cuba and Mexico are among the leading sugar cane producers.

European Union nations, the Russian Federation and Ukraine produce the majority of all

sugar beets. The European Union, Brazil, Thailand, Australia, Cuba and Ukraine are leading

sugar exporters.

U.S. sugar cane is grown in Florida, Louisiana, Hawaii, Texas and Puerto Rico. Beet sugar is

grown in 14 states, with Minnesota, Idaho, North Dakota and California leading production.

The sugar industry closely monitors the level of sugar stocks relative to sugar consumption as

a measure of available supply. In the past, small changes in the ratio have led to large sugar

futures price movements in the opposite direction.

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Demand

Industrialized nations account for most sugar consumption. The European Union, Russian

Federation, United States, China and Japan are among the worlds largest sugar importers.

An imbalance between world consumption and production in 1980 again sent sugar futures

prices skyward - from around 15 cents per pound at the beginning of the year to about 45

cents per pound in the fall. By 1982, however, sugar futures prices had fallen back to their

1977-79 range, averaging over 8 cents per pound for the year. Ample supplies and an evolving

geo-political scene have led to prices in the 2 cents/pound to 16 cents/pound range since then.

Beyond price, other factors influencing sugar demand include: refinery activity; consumer

income; candy and confectionery sales; changing eating habits; and sugars use in new

technologies, such as ethanol production for automobile fuel. Many South American countries

use sugar and corn based ethanol in their unleaded gasoline and diesel engines. An unexpected

increase in demand can lead to much higher sugar futures prices.

The Role of the Exchange

Since all sugar futures and options contracts are standardized (with delivery months and

locations, quantity and grade constant), only price is negotiable. These prices are determined

by "open outcry" trading on the exchange floor. With open outcry, all market participants are

afforded the opportunity to buy or sell at the best available current price.

All trading activity is closely monitored by the Exchange according to guidelines established

by the CFTC. The Exchange is committed to maintaining markets of the highest quality. To

help fulfill this self- regulatory mandate, the ICE employs advanced technological systems to

perform a variety of surveillance and compliance procedures.

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Trading Sugar Options

In 1982, the CSCE introduced options on world (#11) sugar futures - the nation's first

exchange -traded option on commodity futures. Because options strategies are numerous and

can be tailored to meet a wide array of risk profiles, time horizons and cost considerations,

hedgers and investors have increasingly realized the vast potential of sugar futures options.

Buyers

Option buyers obtain the right, but not the obligation, to enter the underlying sugar futures

market at a predetermined price within a specific period of time. A "call" option confers the

right to buy (go long) sugar futures, while a "put" options confers the right to sell (go short)

sugar futures. The predetermined price is known as the "strike" or "exercised" price, and the

last day when an option may be exercised is the "expiration Date". Buyers pay sellers a

premium for their rights.

Because an option holder is under no obligation to enter the sugar futures market, losses are

limited to the premium paid. There are no margin calls. If the underlying sugar futures market

moves against an options position, the holder can simply let the option for the sugar futures

expire worthless. After all, the holder of an option to buy sugar at 13.00 cents per pound (calloption) probably won't be interested in exercising the option if the then-current market price is

10.00 cents per pound. On the other side, potential gains are unlimited, net of the premium

cost.

Being able to participate in the market at a known cost with essentially unlimited profit

potential has made the purchase of straight call and put options popular among sugar futures

investors. The same features allow hedgers to guard against adverse price movements at a

known cost without foregoing the benefits of favorable price movements. In an options hedge,

gains are only reduced by the premium paid - unlike a sugar futures hedge, where gains in the

cash market are more wholly offset by sugar futures market losses.

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Option holders can exit their position in one of three ways: exercise the option and enter the

futures market; sell the options back in the market (at a profit or loss depending on the

difference between purchase and sell price); or let the option expire worthless.

Sellers

Option sellers, or "writers", receive a premium for granting option rights to buyers. In

exchange for the premium, writers assume the risk of being assigned a position opposite that

of the buyer in the underlying sugar futures market at any time prior to expiration. Writers of

call options must be prepared to assume short positions at the option's strike price at the

option holder's discretion, while put option writers may be assigned long sugar futures

positions.

Writing put and call options can serve as a source of additional income during relatively flat

market periods. Because option writers must be prepared to enter the sugar futures market at

any time upon exercise, they are required to maintain a margin account similar to that for

sugar futures positions. Sellers can offset their positions by buying back their options in the

market.

Strike Prices

Traders agree on premiums in an open outcry auction similar to that for sugar futures

contracts. The Exchange generally lists several strike prices for each option month: one at or

near the sugar futures price and a series above and below. As sugar futures prices rise or fall,

higher or lower strike prices are introduced according to a present formula.

Premiums

A number of factors impact premium levels in the market. Intrinsic value is the dollars and

cents difference between the option strike price and the current sugar futures price. An option

with intrinsic value has a strike price making it profitable to exercise and is said to be "in-the-

money" (strikes below futures price for calls, above for puts). An option not profitable to

exercise is "out-of-the-money" (strikes above sugar futures price for calls, below for puts).

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"At-the-money" options have strike prices at or very near sugar futures prices. In general, an

option's premium is at least equal to intrinsic value (the amount by which it is "in-the-money")

"Time value" is the sum of money buyers are willing to pay for an option over and above any

intrinsic value the option may presently have. Time value reflects a buyer's anticipation that,

at some point prior to expiration, a change in the futures price will result in an increase in the

options value. The premium for an "out-of-the-money" option is entirely a reflection of its

time value.

Premiums are also affected by volatility in the underlying sugar futures market. Because high

levels of volatility increase the probability an option will become valuable to exercise, sellers

command larger premiums when markets are more volatile. Finally, premiums are affected by

supply and demand forces and interest rates relative to alternative investments.

Option Months

Regular options trade on sugar futures contracts having March, May, July and October

delivery periods as well as a January expiration option which is based upon the March sugar

futures contract. Serial options are short-life options contracts providing additional option

expirations on existing sugar futures contracts.

In general, the last trading day for sugar options is the second Friday of the month proceeding

the stated futures month.

Example: Buying a Sugar Call

Buying a call can be employed to profit from, or achieve protection against, an increase in the

price of sugar. Except for the cost of the option, the profit potential is similar to having a long

position in the underlying sugar futures contract. Moreover, this strategy may provide greater"staying power" in the event of a temporary price setback than having an outright long sugar

futures position - there are no margin calls because one cannot lose more than the premium

paid for the option.

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For example, assume that in August an investor expects sugar futures prices to increase by

late winter. With March futures trading at 12.00 cents/pound, the investor decides to purchase

a March 12.00 call (an at-the-money option) for 0.75 cents/pound. Since each contract

represents 112,000 pounds of sugar, the total premium paid is $840.

The maximum loss the holder of a long call can incur is the premium paid, regardless of how

far the underlying sugar futures prices fall. The potential profit is unlimited, however, since

the option holder gains dollar-for-dollar in the rise of the underlying sugar futures price minus

the cost of the premium. Out-of-the-money options do not gain dollar-for-dollar on the rise of

the sugar futures price.

Call options can be purchased for price protection as well as for the pursuit of trading profits.

Commercial firms buying call options effectively establish a maximum purchase cost equal to

the exercise price of the option plus the option premium. Employed in this way, options offer

hedgers price "insurance", while at the same time allowing them to benefit from price declines

since they can allow the option to expire unexercised.

Example: Buying a Sugar Put

Whereas buyers of calls can profit from rising prices, buyers of put options - rights to sell

sugar futures contracts at the option exercise price - can profit from price declines. Except for

this difference the properties of puts and calls are the same.

To realize a profit at expiration, the underlying sugar futures price must be below the option

exercise price by an amount greater than the premium paid for the option. If it is higher, a

portion or the entire premium will be lost. In no case, however, can losses exceed the

premium paid.

For example, the sugar futures investor in May expecting depressed sugar prices at autumn's

onset can purchase October puts. With October sugar futures trading at 12.00 cents/pound, the

investor purchases an October 12.00 put for 0.65 cent/pound (0.65 cent x 112,000 pounds =

total of $728/contract).

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The sugar futures investor can lose no more than the premium paid, plus commissions and

fees no matter how high sugar futures prices climb. On the other hand, if prices decline, the

investor can realize substantial gains. A sugar futures sale at the strike price would have

similar profit opportunities in a falling market - plus the premium paid to obtain the option.

Losses from a short sugar futures position, however, would be unlimited in a rising market.

Commercial firms can purchase put options against inventory as "insurance" against price

decreases. The firm may choose the cost or "deductible" for the insurance by selecting either

in-the-money, at-the-money, or out-of the- money puts. For example, say an October 10.00

put would cost 0.08 cent/pound and an October 11.00 put cost 0.27 cent/pound

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Chana

Chana is considered one of the chief pulses; it carries great significance especially for Indian

market. Chana (chickpeas) is consumed in various forms. Major use of chana consist of making

flour- popularly known as besan, around 60% of total chana consumption is in the form of

besan. Around 15-20% of chana (chickpeas) is used for seeding purpose, and the balance is

consumed in raw form or used as chana dal. Fourth Quarter considered as prime months for

Besan consumption, as majority sweet consumption takes places during these month on account

of festive season.

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Trading system NCDEX Trading System

Ticker symbol CHARJDDEL

Basis Desi ex-warehouse Delhi inclusive of all taxes and levies

Unit of trading 10 MT

Delivery Unit 10 MT

Quotation/Base Value Rs. Per Quintal

Tick size Re 1

Quality specification

Desi Chana

The material should be free of Mathara and Khesari andlive infestation

Foreign Matter (Other than Varietaladmixture) 1% basis

Green (Cotyledon colour), Immature,Shrunken, Shriveled Seeds

3% basis

Brokens, Splits; 2% basis

Damaged and Weeviled3% basis (Weeviled2% max)

Moisture 10% basis

Varietal admixture 3% Max

Kantawalla Chana

The material should be free of Mathara and Khesari andlive infestation

Foreign Matter (Other than Varietaladmixture)

1% basis

Green (Cotyledon colour), Immature,Shrunken, Shriveled Seeds

3% basis

Broken, Splits 3% basis

Damaged and Weeviled 3% basis (Weeviledmax 2%)

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Chana was looking fundamentally very strong on the back of demand-supply scenario, but this

equation changed when Rajasthan Government imposed the stock limit in pulses on 10th August

2009. States like Punjab, Haryana and Maharashtra too followed the suit. Stock limit was mainly

imposed due to soaring prices of pulses (other than chana), and there was a huge pressure from

the Central Government to do so. This development led to a downside trigger in Chana spot

prices, and prices fell from the levels of Rs. 2500/quintal to Rs. 2200/quintal within a months

time. NCDEX August contract too plunged till Rs. 2001/quintal which was trading at Rs 2450-

2500/quintal during first week of

August. Looking ahead

If prices still continue to trade at Rs. 2200- 2250/quintal levels, we expect a huge buying

coming in Spot market especially from the millers, as demand for chana is expected to be double

during last quarter of the year, and moreover Rs 2200/quintal is a price which normally prevails

during the months of Feb-May as when the arrivals are at its peak in those months.

As it has started raining off lately, but this monsoon has got nothing to do with fall or rise in

chana prices during the current phase, people have a tendency to relate rainfall with agricultural

crop, but current rainfall will impact on next years chana production and its price, as chana

being a rabi crop and its sowing begins during Dec-Jan

We have witnessed a surge in prices for all the pulses except for chana, thereby reducing the

probability of implementation of stock limit in chana by Madhya Pradesh State Government.

This development make us believe that even though stock limit is implemented in chana and

prices fall further, these lower prices would not be sustainable for a longer period as there will be

good demand from millers on account of festive

and marriage season coming ahead, as demand for besan is at its peak during the last quarter

Current years production of kharif pulses is expected to decline by 30-40% due to below

average rainfalls. Moreover if this current rainfall would hardly provide any relief to any of the

kharif pulses; as soon, the harvesting of kharif pulses will kickoff and any rainfall during

harvesting and pre harvesting season will further hamper the output as well the quality

Varietal admixture 3% Max

Quantity Variation +/-5%.

Delivery centreDesi Chana to be delivered at Delhi (up to the radius of 50kms from the municipal limits )

Also deliverable

Kantawalla Chana to be delivered only at Indore (up to theradius of 50 kms from the municipal limits)

Desi Chana can also be delivered at Bikaner (up to theradius of 50 Kms from municipal limit)

Hours of Trading

As per directions of the Forward Markets Commission fromtime to time, currently -

Mondays through Fridays: 10:00 a.m. to 5:00 p.m.Saturdays: 10.00 a.m. to 2.00 p.m.

The Exchange may vary the above timing with due notice.

Delivery specification

Upon expiry of the contract all outstanding positions willresult in delivery.The penalty structure for failure to meet delivery obligations

will be as per circular no. NCDEX/TRADING-086/2008/216 dated September 16, 2008.

Delivery Logic Compulsory delivery

No. of active contracts As per launch calendar

Opening of contracts

Trading in any contract month will open on the 10th day ofthe month.If 10th day of the month happens to be a non-trading day,contracts would open on the next trading day

Due date/Expiry date

20th day of the delivery month

If 20th happens to be a holiday, a Saturday or a Sunday thenthe due date shall be the immediately preceding trading dayof the Exchange, which is other than a Saturday

Closing of contractUpon the expiry of a contract all outstanding open positionswould result in compulsory delivery

Price band

Daily price fluctuation limit is (+/-) 3%. If the trade hits theprescribed daily price limit there will be a cooling off periodfor 15 minutes. Trade will be allowed during this cooling offperiod within the price band. Thereafter the price band

would be raised by another (+ / -) 1%.If the price again hits the revised price band (4%) during theday, trade will only be allowed within the revised priceband. No trade / order shall be permitted during the daybeyond the revised limit of (+ / -) 4%

Position limits

Member-wise: 40,000 MT for all contracts or 15% of themarket-wide open position, whichever is higher.Client-Wise : 10,000 MT

The above limits will not apply to bona fide hedgers. Forbona fide hedgers, the Exchange will, on a case to case

basis, decide the hedge limits. Please refer to Circular No.NCDEX/TRADING-100/2005/219 dated October 20,2005

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Chana which we are importing currently is from Tanzania at 475$ (Roughly Rs.2375-

2400/quintal), this price doesnt include the freight charges of Rs.180-220/quintal from port to

mandis. So at mandis these chana will be introduced at price of Rs.2550-2600/quintal, which is

at premium of Rs. 250/quintal than current spot price, moreover the quality of chana that we

import from Tanzania are among the inferior ones, as around 78-82 kg of

Chana dal is extracted after processing 100 kg of chana and it also contains dust to a great extent,

whereas Indian Chana provides an output of around 84-86 kg chana dal after processing 100kgs

of Chana

Outlook

The outlook for Chana looks bullish as the current stock available in the country is around 16-17

lakh tonnes and demand gainst is around 21-22 lakh tonnes for the remaining quarter and year.

This development states that we are well short of supply of around 4-5 lakh tonnes of chana.

Despite of government intervention we feel over current quarter prices of Chana may move up.

We recommend to go long in October Chana contract between 2250-2300/quintal in October

contract as such decline would not be sustainable for a longer period of time as fundamentals are

favoring bulls in the current scenario. October contract may touch Rs.2500/quintal

The following limits would be applicable from one monthprior to expiry date of a contract

Member: Maximum of 8,000 MT or 15% of the market-wide near month open position, whichever is higher.Client: Maximum of 2,000 MT

Other deliverables at Premium/Discount

Quality Premium/Discount

Desi Chana

Foreign matter

Chana with Foreign Matter more than 1% acceptable but upto 2% maximum on 1:1 discount which shall be applied tosuch content above 1% rounded off to the higher 0.5%

Green (Cotyledon colour), Immature, Shriveled Seeds

Chana with Green (Cotyledon colour), Immature, ShriveledSeeds more than 3% acceptable but up to 4% maximum on2:1 discount which shall be applied to such content above

3% rounded off to the higher 0.5%

Chana with Green (Cotyledon colour), Immature, ShriveledSeeds more than 4% rejected

Brokens, Splits

Chana with Brokens, Splits more than 2% acceptable but upto 3% on 2:1 discount which shall be applied to such contentabove 2% rounded off to the higher 0.5%

Chana with Brokens, Splits more than 3% rejected

Moisture

Chana with Moisture more than 10% acceptable but up to12% on 1:1 rebate which shall be applied to such contentabove 10% rounded off to the higher 0.5%

Chana with Moisture more than 12% rejected

Damaged, Weeviled Seeds

Chana with Damaged, Weeviled Seeds more than 3% (withWeeviled not more than 2%) acceptable but up to 10%maximum (with Weeviled not more than 2% ) at a discountof 2:1 which shall be applied to such content above 3%rounded off to the higher 1%

Chana with Damaged, Weeviled Seeds more than 10%rejected

Kantawalla Chana

Foreign matter

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TURMERIC

A yellow spice with a warm and mellow flavor, turmeric is related to ginger. Turmeric is used in

prepared mustard and curry powder, and it's a popular ingredient in Middle Eastern cooking.

Turmeric is a spice derived from a rhizome (a type of root) native to India and Southeast Asia.

Turmeric was prized as a dye for centuries, thanks to its power to tint fabric--or food--a brilliant

yellow-gold. The dried, powdered rhizome is used in curry powder, some types of pickles, and

prepared mustard, and is used as a natural food coloring, in cheese, for instance. Turmeric is

sometimes substituted for saffron (which is far more expensive); but aside from their color, the

two spices have little in common. Turmeric's flavor has been described as peppery and somewhat

bitter, so it's important to be judicious when adding this spice to foods.

Top exporters

India (largest exporter of spices)

Thailand and other Southeast Asian countries

Various Pacific islands

Central and Latin American countries

Taiwan

up to 2% maximum on 1:1 discount which shall be appliedto such content above 1% rounded off to the higher 0.5%

Green (Cotyledon colour), Immature, Shriveled Seeds

Chana with Green (Cotyledon colour), Immature, ShriveledSeeds more than 3% acceptable up to 4% maximum on 2:1discount which shall be applied to such content above 3%rounded off to the higher 0.5%

Chana with Green (Cotyledon colour), Immature, ShriveledSeeds more than 4% rejected

Brokens, Splits

Chana with Brokens, Splits more than 3% acceptable up to5% maximum on 2:1 discount which shall be applied to suchcontent above 3% rounded off to the higher 0.5%

Chana with Brokens, Splits more than 5% rejected

Moisture

Chana with Moisture more than 10% acceptable up to 12%maximum on 1:1 rebate which shall be applied to suchcontent above 10% rounded off to the higher 0.5%

Chana with Moisture more than 12% rejected

Damaged, Weeviled Seeds

Chana with Damaged, Weeviled Seeds more than 3% (with

Weeviled not more than 2%) acceptable but up to 10%maximum (with Weeviled not more than 2% ) at a discountof 2:1 which shall be applied to such content above 3%rounded off to the higher 1%

Chana with Damaged, Weeviled Seeds more than 10%rejected

Premium/Discount for Chana delivery at additional

delivery centers

The Premium and discount for different locations shall beannounced by the Exchange before launching of contract

Special margins

In case of additional volatility, a special margin at suchpercentage, as deemed fit, will be imposed in respect ofoutstanding positions, which will remain in force as long asthe volatility exists, after which the special margin may berelaxed.

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Top importers

Japan

Sri Lanka

Iran North African countries

Middle Eastern countries

Ethiopia

United States

United Kingdom

Major Trading Centres

Nizamabad

Dugirala in Andhra Pradesh

Sangli in Maharashtra

Salem

Erode

Dharmapuri

Coimbatore in Tamil Nadu

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Contract Futures Contract Specifications

Name of Commodity Turmeric

Ticker symbol TMCFGRNZM

Trading System NCDEX Trading System

BasisUnpolished turmeric fingers Nizamabad quality exwarehouse Nizamabad inclusive of Sales Tax/VAT

Unit of trading 10 MT

Delivery unit 10 MT

Quotation/base value Rs. per Quintal

Tick size Re. 1

Quality specification

Unpolished turmeric fingers of the current year with thefollow specifications as the basis

Unpolished turmeric fingers #

Inferior quality Turmeric* should not be more than1.5%

Lengtho Fingers that are broken/those less than 15mm

should not be more than 3.0%o At least 75% of turmeric should be more than

3 cm in length Damage due to moisture (i.e. Lokhandi) or over

boiling (i.e. Kadh) should not be more than 1.2% Unboiled or less boiled turmeric should not be more

than 0.3% Bhusa, chaff dirt, earth clods and stones should not

be more than 0.75% Bulbs should not be more than 3% Moisture

o Basis 12%

o Allowed at 1:1 discount upto 13%

Turmeric should be free from fungus Turmeric should not be artificially coloured with

dyes or chemicals

#Farmer polished turmeric will be treated as good fordelivery at 'on par' basis

* Chora/atthu finger, khota gatha, markha

Also Deliverable The following qualities will be acceptable at Exchangespecified premium/discount

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Only farmer polished fingers will be acceptable incase of Rajapore, Desi Cuddapah, Erode and Salemqualities

Farmer polished fingers/unpolished fingers will beacceptable in the case of Duggirala and Warangalqualities

Quantity variation +/- 2%

Delivery centerNizamabad (up to the radius of 50 Km from the municipallimits)

Additional delivery centres

Sangli, Erode, Duggirala and Warangal (up to the radius of50 Km from the municipal limits) with location wisepremium/discount as announced by the Exchange from timeto time

Hours of Trading

As per directions of the Forward Markets Commission fromtime to time, currently:

Mondays through Fridays: 10:00 a. m. to 5:00 p.m.Saturdays: 10.00 a.m. to 2.00 p.m.

The Exchange may change the above timing with due notice.

Due Date/ Expiry Date

20th day of the delivery month

If 20th happens to be a holiday, a Saturday or a Sunday then

the due date shall be the immediately preceding trading dayof the Exchange, which is other than a Saturday.

Delivery logic Compulsory delivery

Delivery Specification

Upon expiry of the contract all outstanding positions willresult in delivery.The penalty structure for failure to meet delivery obligationswill be as per circular no. NCDEX/TRADING-086/2008/216 dated September 16, 2008.

Opening of ContractsTrading in any contract month will open on the 10th day ofthe month. If 10th happens to be a non-trading day, contracts

would open on the next trading day

Closing of contractOn the expiry of the contract, all the outstanding positionwould have to be settled by physical delivery

No. of active contracts As per Annexure.

Daily Price fluctuation limit Daily price limit will be 2%. If the price touches 2%, tradingwill continue with 2% limit for the 15 minutes period from

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the time 2% limit was reached. Thereafter, price limit wouldbe extended by another (+)/ (-) 2 %. No trade would bepermitted during the day beyond the price limit of (+)/(-) 4%from the previous days closing price

Position limits

Member: 9,000 MT for all contracts or 15% of market wide

open position whichever is higher.Client: 3,000 MT for all contracts

The above limits will not apply to bona fide hedgers. Forbona fide hedgers, the Exchange will, on a case to casebasis, decide the hedge limits

For near month contracts:

The following limits would be applicable from 28 days priorto expiry date of a contractMember: Maximum of 1,800 MT or 15% of market wide

open interest in near month whichever is higherClient: Maximum of 600 MT

Special margins

In case of additional volatility, a special margin at such otherpercentage, as deemed fit, will be imposed in respect ofoutstanding positions, which will remain in force as long asthe volatility exists, after which the special margin may berelaxed

Tolerance limit for outbound deliveries for all the contracts expiring in August 2007 and

therafter

Indian Scenario

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India has 185.32 lakh hectares under turmeric cultivation with a total production of

701.66 lakh tonnes. Andhra Pradesh topped both in area and production with 73.93 lakh

hectares and 375.77 lakh tonnes respectively. Tamil Nadu follows with 33 lakh hectares

with 158.64 lakh tonnes (As per latest Statistics). Productivity was highest in Tamil Nadu

6118 Kg/ha.

Turmeric is a seasonal product which is available in the market mainly in two seasons,

commencing in mid February to May and second season is mid August to October. .

The important varieties used in India are: 'Alleppey Finger' (Kerala) and 'Erode and

Salem turmeric' (Tamil Nadu), 'Rajapore' and 'Sangli turmeric' (Maharashtra) and

'Nizamabad Bulb' (Andhra Pradesh). In Tamilnadu, the important varieties cultivated are

Erode local, BSR-1, PTS-10, Roma, Suguna, Sudarsana and Salem local. Among these

varieties, 70-75% is occupied by the local varieties. .

Some of the important turmeric varieties exported from India are Allepey Finger

Turmeric, Rajapuri, Madras and Erode variety. The processed forms of turmeric exported

are dry turmeric, fresh turmeric, turmeric powder and oleoresin. India in 2003-04 is

estimated to have exported 34500 tons of turmeric, valued at Rs. 127.5 crores. .

United Arab Emirates (UAE) is the major importer accounting for 24.06 % of the total

exports followed by United States of America (USA) with 12.93 %. The other leading

importers are Japan, United Kingdom and Sri Lanka. The quality stipulation followed by

USA is considered to be more important for export of turmeric.

Global Scenario

India is the largest producer, consumer and exporter of turmeric. .

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Other producers in Asia include Bangladesh, Pakistan, Sri Lanka, Taiwan, China, Burma

(Myanmar), and Indonesia. Turmeric is also produced in the Caribbean and Latin

America: Jamaica, Haiti, Costa Rica, Peru, and Brazil. The use of the spice spread widely

in Oceania, but it is not used as a condiment in Melanesia and Polynesia..

Major importers are the Middle East and North African countries, Iran, Japan and Sri

Lanka. These importing countries represent 75% of the turmeric world trade, and are

mostly supplied by the Asian producing countries..

Europe and North America represent the remaining 15%, and are supplied by India and

Central and Latin American countries. Taiwan exports mostly to Japan. The United States

imports of turmeric come from India at 97%, and the rest is supplied by the islands of the

Pacific, and Thailand..

The total yearly consumption of Turmeric all around the globe is approximately 38 Lakh

bags to 40 Lakh bags depending on the rates.

Uses of Turmeric

Turmeric is a member of the Curcuma botanical group, which is part of the ginger family of

herbs, the Zingiberaceae. The root and underground stem of the Curcuma longa L. plant is

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crushed and powdered into ground Turmeric. Ground Turmeric is used worldwide as a

seasoning, to make curry, and for its medicinal properties. Curcumin, composing 3% of

Turmeric, is the herbs most biologically active phytochemical compound. It is extracted and

researched for its renowned range of therapeutic effects.

Potent anticancer properties

Reduces beta-amyloids which cause Alzheimer's disease

Lowers cholesterol levels in kidney and liver tissue

Potent antioxidant properties

Helps protect against or lessen the degree of kidney lesions

Increase the production of digestive fluids and reduce gas

Protected against free radical damage Neutralizing of free radicals

Possesses anti-inflammatory actions

Increases catabolism of cholesterol into bile acids

Possesses hypolipidemic action

Reduces excess gas in the stomach and intestines

Helps prevent oxidation of blood cholesterol

Possesses anti-thrombotic activity

Relieves pain and inflammation in mucosal tissue

Acts as an anti-mutagenic and chemoprotective

Relationship between Spot prices and Futures trading

Certainly, there is a relationship between the spot prices and future prices; future prices

are just an indication of a common opinion of the public at large on how the spot prices

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are going to behave in the future. Future prices are derivates of spot prices but not

independent of what is happening on the spot front.

Spot prices are driven by current demand supply conditions, and the high inflation today

is due to these imbalances. Futures trading provides valuable signals about expected

output for taking economic decisions. If the market believes that the crop would be sub-

optimal, prices would move up in the futures market, while if current stocks are in

abundance, then spot prices will remain low. As long as the market is efficient and not

being concerned ,which the exchange and regulation ensure, there would be a discipline

in the market.

A significant correlation between spot and futures(notional)commodity indices as

maintained by MCX and NCDEX .The relationship, however is stronger in the case of

non-agro commodities and agro-commodities which are mostly commercial in nature

.Since the spot prices for agro-commodities vary widely across the regions and producers

even for the same crop, hedging effectiveness seems to be lower.

Relationship between futures trading and rise in prices of the agricultural

commodities

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Background

Futures trading in most commodities were prohibited in India under the provisions of the

Forward Contract Regulation Act, 1952 since the early days of development planning.

While the prohibition was progressively lifted for many commodities in the post-

liberalization period, essential commodities like wheat, rice (non-basmati), pulses, edible

oils and sugar continued to remain outside its purview. It was in 2003 that the BJP led

NDA Government lifted all prohibition on futures trading and even allowed online

trading of essential commodities in newly established commodity exchanges.

However, opposition to futures trading in essential commodities gathered momentum in

the backdrop of high inflation being experienced in the country since 2006, particularly

the sharp rise in prices of essential commodities. Besides the Left Parties, which have

consistently opposed futures trading in essential commodities, other political parties had

also started voicing similar demands.

ECFT Report

This Expert Committee to Study the Impact of Futures Trading on Agricultural

Commodity Prices (ECFT), chaired by Planning Commission member Prof. Abhijit Sen,

has recently submitted its report to the Government. The main report, which has been

agreed upon by all the committee members, states: current evidence available does not

provide any conclusive evidence about whether there is any causal relationship between

futures trading and rise in prices of the agricultural commodities.

However, it needs to be noted that the evidence collated and analyzed by the ECFT

report does not rule out the possibility of futures trading contributing to inflation.

In Para 4.12 the report says: Both monthly and weekly data show that the annual trend

growth rate in prices was higher in the post-futures period in 14 commodities, viz. Chana,

Pepper, Jeera, Urad, Chillies, Wheat, Sugar, Tur, Raw Cotton, Rubber, Cardamom,

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Maize, Raw Jute and Rice; and lower in 7 commodities, viz. Soy oil, Soy bean, Rape

seed/Mustard seed, Potato, Turmeric, Castor seed, and Gur..

.The number of commodities in which inflation accelerated is double the number in

which this decelerated, and their weights are also much higher in both futures trading and

in the WPI. Also, significantly, all sensitive commodities (i.e. food grains and sugar)

recorded some acceleration in inflation after the start of futures trading.

But the report goes on to say in Para 4.13: there is the problem that the period during

which futures markets have been in operation is much too short to discriminate

adequately between the effect of opening up futures markets and what might simply be

normal cyclical adjustments. Thus, while the price rise of most agricultural commodities

in the post-futures trading period is clearly established, whether or how much futures

trading has caused or contributed to the price rise could not be conclusively ascertained.

Commodity Futures do affect Spot Prices(UNCTAD REPORT)

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In sharp variance to the findings of an expert panel set up by India, a UN agency says

futures trading in commodities affects spot prices of physical markets across the world,

calling for concerted regulatory action by governments.

Released worldwide Monday, the report by the United Nations Conference on Trade and

Development (Unctad) blames large financial investors for influencing commodity prices

through futures trading, without regards to the actual demand-

Incidentally, a government panel headed by economist Abhijit Sen had said in a report

last year that there was no empirical evidence to suggest a link between futures trading

and rising prices in India.

Unctads annual Trade and Development Report says commodities were being treated as

merely an asset class and futures trading in its current form held the power to shift prices,

irrespective of the supply-demand situation.

Individual market participants may take position changes that are so large relative to the

size of the market that they move prices, which can be called the weight-of-money

effect, says the report.

The UN agency, accordingly, calls for international collaboration among countries and

regulators to bring about a comprehensive framework to deal with excessive speculation

that has been blamed by several countries including India for the surge in food prices.

These last two years, there was no connection between real demand and supply situation

and the way commodity prices at exchanges went. This affects us all, said professor

Jayanti Ghosh of the Jawaharlal Nehru University who unveiled the report here.

The investors can always move out to another country if they find regulations in one

country to be detrimental to their interest, what we need is collaborative action, Ghosh

added.

The Abhijit Sen committee had said in its report that negative sentiments had been

created in India by the decision to de-list futures trading in some important agricultural

commodities.

Accordingly, the Forward Markets Commission, the watchdog, had said suspension of

futures trading in commodities

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Accordingly, the Forward Markets Commission, the watchdog, had said suspension of

futures trading in commodities would hinder the markets development, apart from

negatively impacting on the confidence of stakeholders.

The government, however, went ahead and banned futures trading in four commodities -

rice, wheat, urad dal and tur dal.

Last year, soya oil, rubber and potato were added to the list but the notification was

allowed to lapse in December. Presently, futures trading is also banned in sugar till

December.

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Objectives of study

Primary objective: To know the impact of Commodity Futures Trading on Volatility ofCommodity spot prices.

Secondary objectives:

To know the relationship between current spot prices and future prices.

To know the reason of the relationship between current spot prices and future prices.

To know the contribution of commodity future in causing rise in prices of food

commodities

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Theoretical Framework

CONSTRUCT: To study the impact of commodity futures trading on volatility of commodityspot price with special reference to Sugar,Chana &Turmeric on NCDEX.

VARIABLES: There are basically two types of Variables, as follows:

Independent Variable

Dependent Variable

The following are the variables of the study:

Independent Variable:

Commodity future Prices

Commodity future Traded Volume

Commodity future Traded Value

Dependent variable:

Commodity spot prices

Commodity spot Traded volume

Commodity spot Traded Value

Moderating variable:

Stock Exchange Index i.e.NCDEX

As per the construct, the basic aim of this study is to study the impact of commodity

futures trading on spot price of commodities traded on NCDEX.

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LITERATURE SURVEY & REVIEW

Once the area of interest is selected then the researcher should undertake extensive literature

survey connected with the problem or the topic of interest.For this problem, the abstracting and

indexing journals and published or unpublished bibliographic are the first place to go to.

Academic journals, conference proceedings, government reports, books etc must be tapped

depending upon nature of problem.

Conceptual literature:-

Conceptual literature is that which relates with concepts and theories. Help from different books

should be taken for different concepts and theories.

Empirical literature:-

Empirical literature consists of study made by other in the same field. The published data in

newspapers books & magazines available for discussion with people of organization. Such as:

Newspapers

Journals

Case Studies

Websites

Books

Bulletins

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Books:-

Sharan V., International Financial Management, Prentice Hall Of India, New

Delhi,pp.386-403 (5)This book will help me to learn about Forex Market Mechanism. On

the other hand this book will also enable me to learn facts about the Interest Rate Risk &How does it deal in the currency future market.

Miller W Thomas, Derivatives, Z. A Printers, Delhi,pp.87-112(6) This book contains a

lot of information regarding Derivatives but the best part I found is the mechanism of

future pricing in Derivative market, what various factors effect the pricing of the future

derivatives.

Kothari C.R. ,Research methodology methods & techniques(7) : Knowledge about

research process, sample design, research design etc. The information regarding the

basics of research and research methodology, what are the different types of research

designs, problem statement, sampling, sampling methods and sampling techniques,

sources of data collection and methods of data collection are given in this section.

Hair Joseph F., Marketing research-within a changing information

environment.3rd edition.TATA Mcgraw Hill Publishing Company ltd. New Delhi. Page

no. 350-378. - Tell about what is a construct, how to develop it and basic concepts of

scale measurement and types of data collected in research practices. Apart it also tell

about basic level of scale i.e. 5 types of scales these are nominal. Ordinal, class interval,

and hybrid ordinally- interval and ratio scales. It also provides information about what is

a measurement and object. It tells about the construct operationalization. Ratio scale is

widely used because it not only identifies the absolute difference between each scale

point but also to make comparisons between responses.

Cochran William G., sampling technique2006. of sample size, steps in determining

the sample size, the formula for n in sampling for proportions, the formula for n with

continues data, advance estimates of population variances, sample size more than one

item and sample size in decision problems. There are many formulas for determining

sample size Edition -3rd. Replika press Pvt.ltd India. Page no.72-85. Tell about estimation

which formula have to be used for determining sample size is different in different

studies which have to be used is estimated with these topics.

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Sekaran Uma , research methods for business-a skill building approach2006.

Edition-4th.Pashupati printers (p) ltd.page-174-185.It tells about measurement of

variables: operational definition and scales, how variables are measured, operational

definition: dimensions and elements, concept of achievement motivation,

operationalizing the concept of learning and elements of achievement motivation.

Black Tathan Multivariate data analysis, edition fifth, new delhi page no: 326-338:

It gives the information about the analysis of variance (ANOVA).what is ANOVA, basic

principle of ANOVA, ANOVA technique. One way ANOVA and two ways ANOVA. It

also tell about the Analysis of co-variance (ANOCOVA), why anocova and about the

anocova technique. It tell about applications of these i.e. where weve to apply these in

practical use.

Krishnaswamy K.N., management research methodology integration of

principles.methods and techniques. Baba Bareka nath printers. Page no.-268-273.

Tell about types of scaling i.e. scale classification, methods of successive intervals,

quantitative judgment methods, scale construction techniques, judgment methods, factor

scales.

Bryman Alan, business research methods2003, edition 2nd. Oxford university

press, in India Gopsons papers ltd Noida. Page no.-179-205. Tell about steps in

conducting social survey, basic terms and concepts in sampling, sampling error, types ofprobability sample, sample size, types of non probability sampling, and sources of error

in social survey research, error in survey research and sources of sampling and non

sampling error in a survey of the effect t of privatization.

Churchill Gilbert A., marketing research-methodological foundations, Edition-

8th.Chennai Micro Print pvt.ltd. Page no. 373-397. It give the information about attitude

scaling procedures, self report attitude scales, which scale to use, how to construct a

scale, most important considerations when shopping for selected appliances.

N.D.Vohra & B.R.Bagri futures and option, 2ndedition, 2008 V.K. (India) delhi.

Page no.233-240: tell about the basics of the future contracts and the features of Indian

commodity market. It depicts the information about the supply, demand of commodity

market and about captive market (agro products are produced and consumed locally),

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waiting for explode i.e. about the value of production and expected future market

potential value.

Surendra S.Yadav ,P.K.Jain foreign exchange markets8, 2007 macmillan

publication delhi.. Page no.216-247: Tell about the future contracts used for commodity

markets. It tells about the standardization, future time expiry, dealing point (exchange),

standard time and standard quantity of commodities and about the actual delivery/square

offs of the contracts.

Alan C.Shapiro Multinational Financial Management. Edition-4th, 2002, printice

hall of India private limited New Delhi. Page -478-492: tell about the commodity

market and their dealing and about the benefits of the future commodity trading. Apart

from this it also tell about the flexibility certainty, hedging the price risk associated with

future contractual commitments, trading limits to traders in commodity exchanges,

hedged position of producers and processors and reduction of the default risk faced by

banks.

S.S Yadav commodity market operations. 2nd edition, 2005, vidya publications New

Delhi.Page no.214-230: It provides information about commodity shares in Indian

derivatives market. It also provides information about the operations performed by

commodity markets and their fluctuations in the prices. It also tells about that the share of

commodity derivative market is increasing day by day as compare to the stock futuresand index futures. The value is 72% in 2007-08.this is the highest value till now.

J.N.Dhankhar, The Indian commodity-Derivatives Market in Operation, Edition

2005, Skylark Publications, New Delhi. Page no.144-153,183-193: Ive taken the

meaning of commodity and commodity exchange and the features of present commodity

exchanges. It also tells about the basics of commodity future market and provides

knowledge about the operations of the same. It also tells about settlement of traders i.e.

about the both systems-cash and delivery mechanism. Also tell about important players-

Hedgers, Speculators, arbitrageurs and about the sale tax and registration procedure, how

to start the trading in the commodity futures.

J Coakes Sheridan SPSS Version 13.0 for Windows analysis without anguish

Wikely student edition, Saras Graphics, Noida: it gives the information about each and

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every tools for analyzing the data by using the software SPSS. It is used to conclude

about whether the study is significant or not.

Redhead Keith, Financial derivatives: An introduction to futures, forwards Eastern

economy edition(14):- It tells me about the reasons of rising derivative, introduction of future,

meaning of future, meaning of forward, difference between forward &future.

Tucker Alan L Financial futures, Options and Swaps(15) :- Economies importance of

future, application of future contract, meaning of future, types of future, history of

swap, future classification, initial margin, mark to marking margin.

Black Tathan Multivariate Data Analysis, edition fifth, New Delhi,

pp.326-338(12)

It gives the information about the analysis of variance (ANOVA).what is ANOVA, basic

principle of ANOVA, ANOVA technique. One way ANOVA and two ways ANOVA. It

also tell about the Analysis of co-variance (ANOCOVA), why anocova and about the

anocova technique. It tell about applications of these i.e. where weve to apply these in

practical use

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JOURNALS:

Chartered and financial analyst 2008,13 commodity future trading-page no.-58-62:

It tell about the benefits of future trading like distribution network, transparency in

procuring commodities, cash purchase and its storage

Economic and political weekly Jan 2008, page no. 18-23 Impact of future trading

on commodity prices: This article attempts to explore the effect of introduction of future

trading on the spot prices.

Journal of finance, (2006) the price effect of future introduction- page no.487-498:

It tells about the MCX market share among national commodity exchanges

Economic and political weekly Aug 2008, page no. 35-42 Expert committee on

commodity futures: Agreements and disagreements. This article attempts to explore

the effect of futures trading in India on price volatility.

Global business review elasticities of commodity group using time-series data covering

the 50 year period.

Chartered and financial analyst 2007,Special issue- commodity futures-a future tool

for Indian banks.- It provides the information about the turnover in financial markets

and commodity market. It also tells about the relationship between equity and commodity

future market. It also shows the percentage to GDP contribution of different segments

like government security market, Forex market, NSE and BSE and of commodity market

also. Apart it also tell about the comparison of price volatility of various commodities

traded on MCX and NSE Nifty Index.

Journal of financial economies vol-10- different shares of different commodity

markets-page no.6