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An eight weeks summer internship Project

report on – ―Today’s Scope Of Commodity

Market In India.”

-By ―Plaban Kundu‖

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CONTENTS

1. Profile page…………………………………………………………………………………………. 3

2.Subject Of the Study and name of guides…………………………………………….. 4

3. Acknowledgement………………………………………………………………………………. 5

4. Declaration by Student………………………………………………………………………… 6

5. Executive Summary……………………………………………………………………………… 7

6.Project Schedule…………………………………………………………………………………… 8

7. About the company……………………………………………………………………………… 9-12

8. About the Commodity Market……………………………………………………………... 13-37

MCX …………………………………………………………………………………... 19-20

NCDEX…………………………………………………………………………………. 20-21

Top three commodities……………………………………………………….. 22-27

Market Structure…………………………………………………………………. 28

Other information……………………………………………………………….. 28-37

9. Research Methodology………………………………………………………………………..... 38-39

10. Data Analysis……………………………………………………………………………………..... 40-54

11. Findings and Recommendation……………………………………………………………. 55-56

12. Learning……………………………………………………………………………………………….. 57-59

13. Glossary……………………………………………………………………………………………….. 59

14. Reference…………………………………………………………………………………………….. 61

15.Attachment…………………………………………………………………………………………… 62-66

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Summer Internship Project Report

Submitted for the partial fulfillment of the requirement of Postgraduate Diploma in

Business Management Program in

By

PLABAN KUNDU

(20010-12)

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COLLEGE GUIDES COMPANY GUIDES

Mr. Arnab Chakrabarty Mr. Suvranil Chatterjee

Mr. Ajay Sharma Mr. Ayan Biswas

Mr. D. K. Ahuja Mrs. Moumita Chatterjee

TODAY’S SCOPE OF COMMODITY

MARKET IN INDIA

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Acknowledgement

When I started my SIP I founded it very difficult because I have to work as a

Junior Relationship Manager and I was totally unaware of what to do and

whom to approach , but slowly as progressed, I did realize that I was not

alone after all! There were friends and well wishers, their generous help and

support made it a relative easier.

Summer Internship Program is an integral part of any post graduate diploma

program and for that purpose I had joined a company what else can be as

good as NIRMAL BANG SECURITIES PVT LTD, India¶s premier stock

broking firm.

This company helps me to gain practical knowledge of how a broking

company works. I wish to express my gratitude to Mr. Goutam Bag who is

regional head of Nirmal Bang Pvt. Ltd. in Kolkata. My special obligations

to my company guide Mr. Suvranil Chatterjee(Sales Head), Moumita

Chatterjee ( Manager Equity), and Mr. Ayan Bswas(Manager Equity ) who

has directed me all the way. They had shared their experience which has

helped me to be able to attempt this project.

I like to thank Prof. D K Ahuja, Prof Ajay Sharma, Mr. Arnab Chakraborty

our faculty guide, who guided us accordingly where ever needed and was

always ready to clear all our doubts & queries. I also like to thanks Mr.

Joydeep Ghosh & Mr. Sandeep (A.V.P. in Nirmal Bang, Kolkata) and Mr.

Abhishek Saha (Manager-Commodity) who extended their kind help,

guidance and suggestion without which; it could not have been possible for

me to complete this project. Interacting with them I learnt few tricks of

professional management and I am sure the knowledge imparted will go

in a long way in enriching my career. I also like to thank all our

faculties who have taught us and have shared their experience with us

which has helped us in doing our project.

Last but not the least, I would like to show my gratitude to all those people

who have provided me assistance and help in completion of this project whose

names could not have been included due to paucity of space.

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Declaration

I hereby declare that this project report titled

TODAY’S SCOPE OF

COMMODITY MARKET IN

INDIA

Is submitted by me to MASTER SCHOOL OF MANAGEMENT,

MEERUT is a bonafide work undertaken by me and it is not submitted to

any other University or Institute for the award of any Degree / Diploma /

Certificate or published any time before.

.

Place: Meerut

...............................................................

Date: (PLABAN KUNDU)

(20010-12)

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Executive Summary

In the times of economic recession and global meltdown, when global stock indices are

breaching their previous lows, stock prices are falling headlong making new lows every

day, and business newspapers like The Economic Times are coming up with headlines

like “Saare Zameen Par” on a regular basis, investors are really worried about their

investment. The market volatility really effects the investors’ investment in a very large

way. So, in this project I will try to find out how the market volatility effect the stock

market where people invest and how the investors are really overcome this market

volatility situation.

The equity markets have been on a roller-coaster ride in the past few weeks. While India

is relatively shielded from the sub-prime problem, its alignment to international markets

and an increased presence of foreign investors, especially hedge funds, has made our

stock markets move in tandem with global markets. investors are looking for some other

place to invest their hard-earned money. Commodity market is one such market which has

provided a good opportunity to the investors to earn good returns. People are looking to

diversify their portfolios to maximize their return on investment. Commodity market is one

such place where some good money can be made. Commodity prices are on the rise and the

further outlook for the boom in these markets is positive. Analysts expect the commodity

market to provide hefty returns to the investor’s money.

Investors at this time are facing the all-important question of how to insulate themselves

from this heavy volatility? To answer this question, let us look at the options available

for an equity investor. There are three main investment avenues for a person wishing to

invest in equities. These are direct equities, equity mutual funds and portfolio

management schemes. Many investors prefer direct equities, since it gives them the

freedom to make their own decisions and adequate flexibility to manage their portfolios.

However, most investors are lost as to what and when they should buy or sell, and often

rely on market tips, which can be dangerous. Others prefer mutual funds, especially

through the systematic investment plan route, since it gives them professional fund

management expertise and zero headache, but at a higher cost.

So, in this project I will try to analyze that how the market volatility effect the Indian

Stock market and the commodity market as well as the investors who invest in Stock

market. Thus, I would like to cover certain aspects of the equity markets as a whole to

find out whether it is a safe place to invest or not.

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PROJECT SCHEDULE

EVALUATION

STAGES

DATE ACTIVITIES

Stage 1

9th

May

First day in Nirmal Bang

Stage 2

(10 – 14) May

Training on the services

provided by Nirmal Bang

Stage 3

(15 – 20) May

Collecting information about

Equity & commodity market.

Stage 4

(21th May-4th

June)

Fixing appointments with

clients through tele calling

from the database provided by

the company.

Stage 5

(5 – 12 ) June

Visiting the clients with senior

manager and convince them to

invest in Equity & commodity

market through Nirmal Bang.

Visiting franchisee owners to

make them aware about the

promotional offers and take

Nirmal Bang franchisee.

Stage 6

(13 – 17) June

Online trading training

through online terminals &

learning investment technique

Stage 7

(18th

June -3rd

July )

Preparing questionnaire &

Analysis of data collected

through questionnaire

Stage 8

(4th – 8th)July

Preparation of final project

report under the guidance of

both internal and external

guide

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ABOUT THE COMPANY

Nirmal Bang Group is one of the largest retail broking houses in India,

providing the investors state of art services in capital markets in the

country. They are a financial services company in India, offering a wide

range of financial products and services targeted at retail investors, high

net worth individuals and corporate and institutional clients. The Group

has memberships of Bombay Stock Exchange Limited, National Stock

Exchange of India Limited, Multi Commodity Exchange of India

Limited, National Commodity and Derivatives Exchange limited and is

also a Depository participant of NSDL and CDS (I) L, the Depositories of

the country.

Our principal group companies are:

Nirmal Bang Securities Private Limited

Member- National Stock Exchange of India Limited

Member- Bombay Stock Exchange Limited

Participant- National Securities Depository Limited

Participant- Central Depository Services (India) Limited

Nirmal Bang Commodities Private Limited

Member- Multi Commodity Exchange of India Limited

Member- National Commodity & Derivatives Exchange Ltd

Bang Equity Broking Private Limited

Member- Bombay Stock Exchange Limited

Nadi Finance & Investment Private Limited

RBI registered Non Banking Finance Company

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Shresth Financial & Insurance Services Pvt Ltd

We started in 1986 under the leadership of Late Shri Nirmal Bang and

have grown steadily and progressively since then. Our clients as well as

Business Partners have contributed tremendously to our growth we

recognize and applaud this, we value our relationship with them and for

their convenience have all investing avenues under one roof. It is a

consistent profit making company from Last 5 years. It‘s an extremely

well capitalized company with high Net worth (more than 4000 crore).

SERVICES

EQUITY AND DERIVATIVES

Trading platform for equities and equity derivatives on NSE and BSE-

the Company has a reach of over 100 branches at 36 locations in the

country to cater to retail and high net worth individuals. The branches

constitute of self owned hubs and franchise/ remissers/ sub broker

through whom the business is sourced.

COMMODITIES

Trading platform for commodities on NCDEX and MCX- Commodity

trading facility is provided to all the clients at all the centers and location.

The company is planning to establish itself as a leading research center

for commodities market in the country.

DISTRIBUTION

Distribution of retail finance products – Mutual Funds and IPO‘s. The

group is empanelled with all the Fund Houses in the country to sell their

Mutual Fund and NFO‘s using the retail network. IPO‘s selling is

undertaking from all the branches of the company

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FINANCIAL ADVISORY SERVICES

Investment and trading advisory services to its clients based on technical,

fundamental and market research- The Company has one of the best

fundamental research and technical analysis teams in the company. We

release reports based on fundamental research of industries, sectors,

companies and individual stock to our clients on a basis. The technical

research team gives the clients recommendations using charting tools like

Falcon and Metastock. Comprehensive reports on volume breakouts,

delivery reports and F&O open interest positions are given to all the

clients.

S W O T analysis Of NIRMAL BANG

Strengths:

Company having young management team which consists of very

talented and knowledge professionals from different fields.

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Nirmal Bang is a well capitalized group with net worth of more than

3500 crores.

Company is unaffected in this global recession which shows

company‘s never say die sprits. It means company is armed with

proper resources to fight any adverse situation.

Company‗s research team provides tremendous research calls to their

clients which almost hits and generates level of satisfaction to clients.

Weakness:

Investors are not completely aware of Nirmal Bang, so the brand value of the company is low.

The market share of the company in commodity and equity market in terms of turnover is not significant.

Opportunities:

The growth of capital market is very high. Investors are now ready to

invest their money in this market because the return is much higher

compare to other place for investment, so they are ready to bear risk

factor associated with it. It means volume will increase year by year

in this sector.

As Nirmal Bang having its presence in 36 location of the country, so

company has good opportunities to extents its branches all over the

country.

Company has not come yet with its own IPO, this is a good chance

for the company to be a public limited company which will help

company to get money and create brand awareness in this market.

Threats:

Company has to face a tough competition from major market leaders,

so it will be a difficult task for Nirmal Bang to sustain itself in this cut

throat competitions.

Recently financial market is not performing well due to global

recession and investors have suffered a huge loss, so investors now

investing their money at much safer place instead of this market.

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COMMODITY MARKET

Some facts on domestic marketsLargest consumer of Gold, accounting for more than 23% of global demand.

Third largest industrial consumer of Silver after America and Japan.

One of the major producers of Soy bean.

Largest importer of edible oils in the world.

World’s leading producer of 17 Agri – Commodities.

Over 30 Major Markets and 7500 Mandies.

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COMMODITY TRADING AS AN

INVESTMENT VEHICLE

The commodities market is one of the fastest-growing areas in the investment world.

And it offers some major advantages over stocks that you might not have considered

before.

Recently, commodity market is booming irrespective of global meltdown and

recession. When equity market is underperforming, this commodity market has given

tremendous returns in gold, silver, zinc and in other metals and agro-products; hence

people have withdrawn their funds from equity market and shifted their investment in

commodity market.

Commodity investing was initially received well only by a few sectors. Such

investments were first restricted to the trade and exchange of commodities meant for

regular and day to day use. However, the awareness in the subsequent stages has

brought all sectors into the manifold of commodity investing and has enabled speedy

movements, transfer and transaction of goods and services.

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Introduction to Commodity Market

What is “Commodity”?

Any product that can be used for commerce or an article of

commerce which is traded on an authorized commodity exchange

is known as commodity. The article should be movable of value,

something which is bought or sold and which is produced or used

as the subject or barter or sale. In short commodity includes all

kinds of goods. Indian Forward Contracts (Regulation) Act

(FCRA), 1952 defines ―goods‖ as ―every kind of movable property

other than actionable claims, money and securities‖.

In current situation, all goods and products of agricultural

(including plantation), mineral and fossil origin are allowed for

commodity trading recognized under the FCRA. The national

commodity exchanges, recognized by the Central Government,

permits commodities which include precious (gold and silver) and

non-ferrous metals, cereals and pulses, ginned and un-ginned

cotton, oilseeds, oils and oilcakes, raw jute and jute goods, sugar

and gur, potatoes and onions, coffee and tea, rubber and spices.

Etc.

What is a commodity exchange?

A commodity exchange is an association or a company or any other body

corporate organizing futures trading in commodities for which license has

been granted by regulating authority.

What is Commodity Futures?

A Commodity futures is an agreement between two parties to buy or sell a

specified and standardized quantity of a commodity at a certain time in

future at a price agreed upon at the time of entering into the contract on the

commodity futures exchange.

The need for a futures market arises mainly due to the hedging function

that it can perform. Commodity markets, like any other financial

instrument, involve risk associated with frequent price volatility. The loss

due to price volatility can be attributed to the following reasons:

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Consumer Preferences: - In the short-term, their influence on price volatility is

small since it is a slow process permitting manufacturers, dealers and wholesalers to

adjust their inventory in advance.

Changes in supply: - They are abrupt and unpredictable bringing about wild

fluctuations in prices. This can especially noticed in agricultural commodities where

the weather plays a major role in affecting the fortunes of people involved in this

industry. The futures market has evolved to neutralize such risks through a

mechanism; namely hedging.

The objectives of Commodity futures: -

Hedging with the objective of transferring risk related to the possession of physical

assets through any adverse moments in price. Liquidity and Price discovery to ensure base minimum volume in trading of a commodity through market information and

demand supply factors that facilitates a regular and authentic price discovery

mechanism.

Maintaining buffer stock and better allocation of resources as it augments reduction in

inventory requirement and thus the exposure to risks related with price fluctuation declines. Resources can thus be diversified for investments.

Price stabilization along with balancing demand and supply position. Futures trading

leads to predictability in assessing the domestic prices, which maintains stability, thus

safeguarding against any short term adverse price movements. Liquidity in Contracts of the commodities traded also ensures in maintaining the equilibrium between

demand and supply.

Flexibility, certainty and transparency in purchasing commodities facilitate bank

financing. Predictability in prices of commodity would lead to stability, which in turn

would eliminate the risks associated with running the business of trading

commodities. This would make funding easier and less stringent for banks to commodity market players.

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Benefits of Commodity Futures Markets:-

The primary objectives of any futures exchange are authentic price discovery and an

efficient price risk management. The beneficiaries include those who trade in the

commodities being offered in the exchange as well as those who have nothing to do with

futures trading. It is because of price discovery and risk management through the existence of

futures exchanges that a lot of businesses and services are able to function smoothly.

1. Price Discovery:-Based on inputs regarding specific market information, the demand

and supply equilibrium, weather forecasts, expert views and comments, inflation rates, Government policies, market dynamics, hopes and fears, buyers and sellers

conduct trading at futures exchanges. This transforms in to continuous price

discovery mechanism. The execution of trade between buyers and sellers leads to assessment of fair value of a particular commodity that is immediately disseminated

on the trading terminal.

2. Price Risk Management: - Hedging is the most common method of price risk

management. It is strategy of offering price risk that is inherent in spot market by taking an equal but opposite position in the futures market. Futures markets are used

as a mode by hedgers to protect their business from adverse price change. This could

dent the profitability of their business. Hedging benefits who are involved in trading

of commodities like farmers, processors, merchandisers, manufacturers, exporters, importers etc.

3. Import- Export competitiveness: - The exporters can hedge their price risk and

improve their competitiveness by making use of futures market. A majority of traders

which are involved in physical trade internationally intend to buy forwards. The purchases made from the physical market might expose them to the risk of price risk

resulting to losses. The existence of futures market would allow the exporters to

hedge their proposed purchase by temporarily substituting for actual purchase till the time is ripe to buy in physical market. In the absence of futures market it will be

meticulous, time consuming and costly physical transactions.

4. Predictable Pricing: - The demand for certain commodities is highly price elastic.

The manufacturers have to ensure that the prices should be stable in order to protect

their market share with the free entry of imports. Futures contracts will enable predictability in domestic prices. The manufacturers can, as a result, smooth out the

influence of changes in their input prices very easily. With no futures market, the

manufacturer can be caught between severe short-term price movements of oils and necessity to maintain price stability, which could only be possible through sufficient

financial reserves that could otherwise be utilized for making other profitable

investments.

5. Benefits for farmers/Agriculturalists: - Price instability has a direct bearing on farmers in the absence of futures market. There would be no need to have large

reserves to cover against unfavorable price fluctuations. This would reduce the risk

premiums associated with the marketing or processing margins enabling more returns

on produce. Storing more and being more active in the markets. The price

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information accessible to the farmers determines the extent to which

traders/processors increase price to them. Since one of the objectives of futures exchange is to make available these prices as far as possible, it is very likely to

benefit the farmers. Also, due to the time lag between planning and production, the

market-determined price information disseminated by futures exchanges would be

crucial for their production decisions.

6. Credit accessibility: - The absence of proper risk management tools would attract the

marketing and processing of commodities to high-risk exposure making it risky

business activity to fund. Even a small movement in prices can eat up a huge

proportion of capital owned by traders, at times making it virtually impossible to payback the loan. There is a high degree of reluctance among banks to fund

commodity traders, especially those who do not manage price risks. If in case they

do, the interest rate is likely to be high and terms and conditions very stringent. This posses a huge obstacle in the smooth functioning and competition of commodities

market. Hedging, which is possible through futures markets, would cut down the

discount rate in commodity lending.

7. Improved product quality: - The existence of warehouses for facilitating delivery

with grading facilities along with other related benefits provides a very strong reason to upgrade and enhance the quality of the commodity to grade that is acceptable by

the exchange. It ensures uniform standardization of commodity trade, including the

terms of quality standard: the quality certificates that are issued by the exchange-certified warehouses have the potential to become the norm for physical trade.

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MULTI COMMODITY EXCHANGE

Overview:

Headquartered in the financial capital of India, Mumbai, MCX (www.mcxindia.com) is a

demutualised nationwide electronic multi commodity futures exchange set up by Financial

Technologies with permanent recognition from Government of India for facilitating online

trading, clearing & settlement operations for futures market across the country. The exchange

started operations in November 2003. Apart from being accredited with ISO 9001:2000 for

quality standards, MCX offers futures trading in 55 commodities as on December 31, 2007,

defined in terms of the type of contracts offered, from various market segments including

bullion, energy, ferrous and non-ferrous metals, oils and oil seeds, cereals, pulses, plantations,

spices and plastics. The exchange strives to be at the forefront of developments in the

commodities futures industry and has forged ten strategic alliances across the world,

including with Tokyo Commodity Exchange, Chicago Climate Exchange, London Metal

Exchange, New York Mercantile Exchange, New York Board of Trade and Bursa Malaysia

Derivatives, Berhad. Mr. Venkat Chary is the Chairman and Mr. Joseph Massey is

Managing Director and CEO of MCX.

Key shareholders:

The Key shareholders in MCX are: State Bank of India and its associates (SBI), National

Bank for Agriculture and Rural Development (NABARD), National Stock Exchange of India

Ltd. (NSE), SBI Life Insurance Co. Ltd., Bank of India (BoI), Bank of Baroda (BoB), Union

Bank of India, Corporation Bank, Canara Bank, HDFC Bank, Benett Coleman & Company

Limited, Fid Fund (Mauritius) Ltd. - an affiliate of Fidelity International, ICICI Trusteeship

Service Limited, IL&FS Trust Company Limited, Kotak group, Citibank Strategic Holdings

Mauritius Limited, Merrill Lynch Holdings (Mauritius) and Financial Technologies of India

Ltd.

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Product wise Volumes - MCXProduct wise Volumes - Feb

7.74

66.57

10.401.35 2.23

Pulses Bullion Crude Metals Soy

Product wise Volumes - May

1.03

80.02

3.52

11.20 1.44

Pulses Bullion Crude Metals Soy

NATIONAL COMMODITY &

DERIVATIVES EXCHANGE

OVERVIEW:

National Commodity & Derivatives Exchange Limited (NCDEX) is a professionally managed

on-line multi commodity 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 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 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. Forward Markets Commission regulates NCDEX. 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. NCDEX is located in

Mumbai and offers facilities to its members about 550 centers throughout India. The reach

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will gradually be expanded to more centers. NCDEX currently facilitates trading of 57

commodities.

Promoter shareholders: Life Insurance Corporation of India (LIC), National Bank for

Agriculture and Rural Development (NABARD) and National Stock Exchange of India

LTD.(NSE).

Other shareholders: Canara Bank, CRISIL Limited (formerly the Credit Rating Information

Services of India Limited), Goldman Sachs, Intercontinental Exchange (ICE), Indian Farmers

Fertilizer Cooperative Limited (IFFCO) and Punjab National Bank (PNB). Mr. R.

Ramaseshan is the Managing Director and Chief Executive Officer of NCDEX.

Product wise Volumes - NCDEXProductwise February Volumes

60.50

12.00

3.00

13.392.43

Pulses Guar Spices Bullion Soya

Productwise May Volumes

30.58

34.74

20.22

3.85

Pulses Guar Spices Bullion Soya

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TOP THREE COMMODITIES

GOLD

Gold is the world‘s oldest international currency and has played a role in most countries‘

currency system for well over two thousand years. Since the breakdown of the Breton Woods

system in the early 1970s, gold has no longer been the formal backbone of the international

monetary system and under IMF rules member countries can no longer back their currencies

by it. Gold, nevertheless, retains certain monetary functions and is considered by some as ―the

ultimate form of payment‖.

Gold, often called a ‗safe haven‘ instrument is good for diversification of portfolio. In

any asset portfolio, it rarely makes sense to have all your eggs in one basket.

Obviously the price of gold is prone to fluctuation, but so do exchange and interest

rates of the currencies held in reserves.

Major Characteristics

Gold (Chemical Symbol-Au) is primarily a monetary asset and partly a

commodity.

Gold is the world's oldest international currency.

Gold is an important element of global monetary reserves.

With regards to investment value, more than two-thirds of gold's total

accumulated holdings is with central banks' reserves, private players, and held

in the form of high-karat jewellery.

Less than one-third of gold's total accumulated holdings are used as

―commodity‖ for jewellery in the western markets and industry.

Demand and Supply Scenario

Gold demand in 2010 reached a 10-year high of 3,812.2 tonnes, worth

US$150billon, as a result of;

o strong growth in jewellery demand;

o the revival of the Indian market;

o strong momentum in Chinese gold demand and

o a paradigm shift in the official sector, where central banks became net

purchasers of gold for the first time in 21 years.

China was the world's largest gold producer with 340.88 tonnes in 2010,

followed by the United States and South Africa.

In 2010, India was the world's largest gold consumer with an annual demand

of 963 tonnes.

The total supply of gold coming onto the market in 2010 reached 4,108 tonnes,

a rise of 2% from 2009 levels.

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Bull Run in Gold

Gold has remained one of the top performing assets since the start of the US sub-prime crisis,

which has not only derailed the United States economy but also resulted in a sharp decline in

global growth. Gold has preserved and enhanced the wealth of investors during times of

highest uncertainties. It is one of the best alternative investments in financial markets.

Weakness in various currencies against dollar has added fuel to bullish sentiments causing

prices to move further up due to a weaker currency. Despite weak retail demand, robust

investment demand has resulted in a sharp upside in gold. Gold has started moving up due to

a weaker dollar, rising crude oil prices and inflationary concerns across the globe since the

start of the sub-prime crisis in Aug ‘07. Gold is traditionally seen as a hedge against inflation.

Global inflation was moving up briskly because of rising crude oil prices, which touched

$147 per barrel. After the sharp decline in crude oil prices, we have seen de-leveraging in

commodities causing gold prices to move down. Crude oil prices went down from $147 per

barrel to $35 per barrel in a span of seven months. Retail demand of gold was seen going

down, inflationary concerns moderated across the globe and last but not the least the dollar

also strengthened significantly in last two to three months. So all the factors, which supported

the Bull Run in gold were against the yellow metal. What then supported the recent rally in

gold?

Gold is primarily driven by uncertainties in the financial market. When we say

uncertainties, we refer to inter-bank lending activity, which is the heart of the

financial market. Since the start of ‘09, we are observing three months dollar LIBOR,

which implies that the cost of borrowing of dollars has gone up from 1.08 to 1.26,

which is more than 15%. When Lehman Brothers filed for bankruptcy, three months

dollar LIBOR shot by two times and gold prices shot by more than $120 an ounce in

two to three days. The US Federal Reserve has cut its interest rate from 5.25% to 0-

0.25%. This sharp drop in interest rates puts gold at par with cash, making it more

attractive to buy. Investment demand in gold remained robust despite the fact that

since the start of ‗09, India which remains the top consumer of gold has seen a sharp

drop in imports due to higher prices. But investment demand by the largest traded

ETF SPDR Trust‘s holdings shot up by nearly 20% in the last one month to 1,029

tonnes (as on 28th Feb ‘09).

Indian Scenario

Gold is valued in India as a savings and investment vehicle and is the second

preferred investment after bank deposits. India is the world's largest consumer of gold

in jewellery as investment. In July 1997 the RBI authorized the commercial banks to

import gold for sale or loan to jewellers and exporters. At present, 13 banks are active

in the import of gold. This reduced the disparity between international and domestic

prices of gold from 57 percent during 1986 to 1991 to 8.5 percent in 2001. The gold

hoarding tendency is well ingrained in Indian society. Domestic consumption is

dictated by monsoon, harvest and marriage season. Indian jewellery off take is

sensitive to price increases and even more so to volatility. In the cities gold is facing

competition from the stock market and a wide range of consumer goods. Facilities for

refining, assaying, making them into standard bars in India, as compared to the rest of

the world are insignificant, both qualitatively and quantitatively.

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India is the largest market for gold jewellery in the world. 2010 was a record year for

Indian jewellery demand; at 745.7 tonnes, annual demand was 13% above the

previous peak in 1998. In local currency terms, Indian jewellery demand more than

doubled in 2010.

A 20% rise in the rupee price of gold combined with a 69% rise in the volume of

demand, pushed up the value of gold demand by 101% to 1,342 billion. This

compares with 2009 demand of 669 billon.

The rising price of gold, particularly in the latter half of 2010, created a 'virtuous

circle' of higher price expectations among Indian consumers, which fuelled purchases,

thereby further driving up local prices.

Factors Influencing the Market

Above ground supply of gold from central bank's sale, reclaimed scrap, and

official gold loans.

Hedging interest of producers/miners.

World macroeconomic factors such as the US Dollar and interest rate, and

economic events.

Commodity-specific events such as the construction of new production

facilities or processes, unexpected mine or plant closures, or industry

restructuring, all affect metal prices.

In India, gold demand is also determined to a large extent by its price level and

volatility.

Gold in future market

Investors can enter the market via futures exchanges, where people trade in contracts to buy

or sell a particular commodity at a fixed price on a certain future date. In India, we have

MCX. The COMEX division of the New York Mercantile Exchange is the world's largest

gold futures market in terms of trading volume. The Tokyo Commodity exchange, popularly

known as TOCOM, is the most important futures market in Asia. China launched its first gold

futures contract on Jan 9. Several other countries, including India, Dubai and Turkey, have

also launched similar futures exchanges.

Measurement Weight Conversion Table

To convert from To Multiply by Troy ounces Grams 31.1035

Million ounces Tonnes 31.1035

Grams Troy ounces 0.0321507

Kilograms Troy ounces 32.1507

Tonnes Troy ounces 32,150.70

Kilograms Tolas 85.755

Kilograms Taels 26.7172

Kilograms Bahts 68.41

Troy ounces Grains 480.00

Troy ounces Avoirdupois ounces 1.09714

Troy ounces Penny weights 20.00

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Avoirdupois ounces

Troy ounces

0.911458

Short tonne Metric tonne 0.9072

SILVER

Silver's unique properties make it a very useful 'Industrial Commodity', despite it being classed as a precious metal. Demand for silver is built on three main pillars; industrial uses,

photography and Jewellery & silverware accounting for 342, 205 and 259 million ounces respectively in 2002. Just over half of mined silver comes from Mexico, Peru and United

States, respectively, the first, second and fourth largest producing countries. The third largest

is Australia. Primary mines produce about 27 percent of world silver, while around 73 percent comes as a by-product of gold, copper, lead, and zinc mining. The price of silver is not only a

function of its primary output but more a function of the price of other metals also, as world

mine production is more a function of the prices of other metals. The tie between silver and economic activity is strong, given that around two-thirds of total silver fabrication is in the

industrial and photographic sectors. Often a faster growth in demand against supply leads to

drop in stocks with government and investors.

Demand and Supply Scenario

Silverware achieved an increase of 4.6%, owing to stock-related gains in India.

Demand for coins and medals surged yet higher from 2008, rising by 20.7% to

reach a new record high of 78.7 Moz (2,447 t) in 2009 on the back of strong

investment demand.

In 2009, implied net investment soared to 136.9 Moz (4,258 t), buoyed by safe

haven concerns, which led to strong inflows into both ETFs and physical

investment.

Scrap supply continued to decrease in 2009 by almost 6% to 165.7 Moz, despite a

strong recovery in prices over the year.

Most notable increases were seen in Bolivia and Argentina (both +6.8 Moz) with

by largest single decline coming from Australia (-9.4 Moz).

Net government sales fell by just over one half to 13.7 Moz (426t) in 2009,

primarily driven by lowest stock sales from Russia, coupled with the continued

absence of any disposal from China and India.

Indian Scenario

Silver imports into India for domestic consumption in 2002 was 3,400 tons down 25

% from record 4,540 tons in 2001.Open General License (OGL) imports are the only

significant source of supply to the Indian market. Non-duty paid silver for the export

sector rose sharply in 2002, up by close to 200% year-on-year to 150 tons. Around

50% of India's silver requirements last year were met through imports of Chinese

silver and other important sources of supply being UK, CIS, Australia and Dubai.

Indian industrial demand in 2002 is estimated at 1375 tons down by 13 % from 1,579

tons in 2001. In spite of this fall, India is still one of the largest users of silver in the

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world, ranking alongside Industrial giants like Japan and the United States. By

contrast with United States and Japan, Indian industrial off take for fabrication in

hardcore industrial applications like electronics and brazing alloys accounts for only

15 % and the rest being for foils for use in the decorative covering of food, plating of

Jewellery and silverware and jari. In India silver price volatility is also an important

determinant of silver demand as it is for gold. India's silver demand averages 2500

tonnes per year, whereas the country's production was around 206.95 tonnes in

2010.Nearly 60% of India's silver demand comes from farmers and rural India, who

store their savings in silver bangles and coins.

Factors Influencing the Market

Economic events such as national industrial growth, global financial crisis,

recession, and inflation affect metal prices.

Commodity-specific events such as the construction of new production

facilities or processes, unexpected mine or plant closures, or industry

restructuring, all affect metal prices.

Governments set trade policy (implementation or suspension of taxes,

penalties, and quotas) that affect supply by regulating (restricting or

encouraging) material flow.

Geopolitical events involving governments or economic paradigms and armed

conflict can cause major changes.

A faster growth in demand against supply often leads to a drop in stocks with

the government and investors.

Silver demand is underpinned by the demand from jewellery and silverware,

industrial applications, and overall industrial growth.

In India, the real industrial demand occupies a small share in the total

industrial demand of silver. This is in sharp contrast to most developed

economies.

In India, silver demand is also determined to a large extent by its price level

and volatility.

Measurement Weight Conversion Table

To convert from To Multiply by 1 Moz Metric tons 31.103

1 Ton Troy ounces 32,511

1 Ton Grams 1,000,000

\

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CRUDE OIL

Crude oil is a mixture of hydrocarbons that exists in a liquid phase in natural underground

reservoirs. Oil and gas account for about 60 per cent of the total world's primary energy

consumption. Almost all industries including agriculture are dependent on oil in one way or

other. Oil & lubricants, transportation, petrochemicals, pesticides and insecticides, paints,

perfumes, etc. are largely and directly affected by the oil prices. Aviation gasoline, motor

gasoline, naphtha, kerosene, jet fuel, distillate fuel oil, residual fuel oil, liquefied petroleum

gas, lubricants, paraffin wax, petroleum coke, asphalt and other products are obtained from

the processing of crude and other hydrocarbon compounds. The prices of crude are highly

volatile. High oil prices lead to inflation that in turn increases input costs; reduces non-oil

demand and lower investment in net oil importing countries.

Categories of Crude oil

West Texas Intermediate (WTI) crude oil is of very high quality. Its API gravity is

39.6 degrees (making it a "light" crude oil), and it contains only about 0.24 percent of

sulphur (making a "sweet" crude oil). WTI is generally priced at about a $2-4 per-

barrel premium to OPEC Basket price and about $1-2 per barrel premium to Brent,

although on a daily basis the pricing relationships between these can vary greatly.

Brent Crude Oil stands as a benchmark for Europe. India is very much reliant on oil

from the Middle East (High Sulphur). The OPEC has identified China & India as their

main buyers of oil in Asia for several years to come.

Indian Scenario

India ranks among the top 10 largest oil-consuming countries. Oil accounts for about 30 per cent of India's total energy consumption. The country's total oil consumption is about 2.2

million barrels per day. India imports about 70 per cent of its total oil consumption and it makes no exports. India faces a large supply deficit, as domestic oil production is unlikely to

keep pace with demand. India's rough production was only 0.8 million barrels per day. The oil

reserves of the country (about 5.4 billion barrels) are located primarily in Mumbai High,

Upper Assam, Cambay, Krishna-Godavari and Cauvery basins. Balance recoverable reserve was about 733 million tones (in 2003) of which offshore was 394 million tones and on shore

was 339 million tones. India had a total of 2.1 million barrels per day in refining capacity.

Government has permitted foreign participation in oil exploration, an activity restricted earlier to state owned entities. Indian government in 2002 officially ended the Administered Pricing

Mechanism (APM). Now crude price is having a high correlation with the international

market price. As on date, even the prices of crude bi-products are allowed to vary +/- 10% keeping in line with international crude price, subject to certain government laid down norms/

formulae. Disinvestments/restructuring of public sector units and complete deregulation of

Indian retail petroleum products sector is under way.

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Market structure Market structureMinistry of Consumer Affairs, Food & Public

Distribution

Forward Market Commission

Outcry exchangeOnline Exchanges

MCX

Mumbai

NCDEX Mumbai

NMCE Ahmedabad

NBOT Indore

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GROWTH OF INDIAN COMMODITY MARKET

In 2003, the size of commodities trade stood at Rs.129364 crore, registering an

increase of over 94% which thereby went to Rs.571759 crore in 2004 recording an

increase of 341%. In 2005, the growth in commodities trade was by 276% as the

trade stood at Rs.2, 155,122 crore in 2005. However, in 2006, though the

commodities trade increased to Rs.2, 739,340 crore, it could register year on year

growth of 27% over the last year. For 2007, the trade in commodity reached at Rs.33,

753, 36 crore and registered a growth of 23%, say the ASSOCHAM-Evalueserve

findings.

Releasing them, the ASSOCHAM President, Mr. Venugopal N. Dhoot said that the

growth in commodities derivatives trading which was at massive level in the last five

years would now register by about 30% and reached the projected level of

Rs.7415613 crore. Mr. Dhoot said that the commodities market size would not grow

at its first phase growth rate as it was beginning but people‘s participation in the trade

would continue and that is why the growth rate is projected for 30% up to 2010.

GROWTH TREND OF TURNOVER IN INDIAN COMMODITY MARKET

Turnover in 2003-04 was Rs.1,29,364 crores

Turnover in 2006-07 was Rs.39,32,403 crores

Turnover in 2008-09 was Rs.52,48,956 crores

Projected increase to Rs.74,15,613 crores in 2010

PARTICIPANTS IN COMMODITY FUTURES

Farmers/ Producers

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Merchandisers/ Traders

Importers

Exporters

Consumers/ Industry

Commodity Financers

Agriculture Credit providing agencies

HEDGING

Hedging in the futures market is a two-step process. Depending upon the hedger's

cash market situation, he will either buy or sell futures as his first position. For

instance, if he is going to buy a commodity in the cash market at a later time, his first

step is to buy futures contracts. Or if he is going to sell cash commodity at a later

time, his first step in the hedging process is to sell futures contracts. The second step

in the process occurs when the cash market transaction takes place. At this time, the

futures position is no longer needed for price protection and should therefore be offset

(closed out). If the hedger was initially long (long hedge), he would offset his position

by selling the contract back. If he was initially short (short hedge), he would buy back

the futures contract. Both the opening and closing positions must be for the same

commodity, number of contracts, and delivery month. The justification for futures

trading is that it provides the means for those who produce or deal in cash

commodities to hedge, or insure, against unpredictable price changes.

Understanding the meaning of buying/long hedge

A buying hedge is also called a long hedge. Buying hedge means buying a futures

contract to hedge a cash position. Dealers, consumers, fabricators, etc, who have

taken or intend to take an exposure in the physical market and want to lock- in prices,

use the buying hedge strategy.

Benefits of buying hedge strategy:

To replace inventory at a lower prevailing cost.

To protect uncovered forward sale of finished products.

The purpose of entering into a buying hedge is to protect the buyer against price

increase of a commodity in the spot market that has already been sold at a specific

price but not purchased as yet. It is very common among exporters and importers to

sell commodities at an agreed-upon price for forward delivery. If the commodity is

not yet in possession, the forward delivery is considered uncovered.

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Long hedgers are traders and processors who have made formal commitments to

deliver a specified quantity of raw material or processed goods at a later date, at a

price currently agreed upon and who do not have the stocks of the raw material

necessary to fulfill their forward commitment.

Understanding the meaning of selling/short hedge

A selling hedge is also called a short hedge. Selling hedge means selling a futures

contract to hedge. Uses of selling hedge strategy.

To cover the price of finished products.

To protect inventory not covered by forward sales.

To cover the prices of estimated production of finished products.

Short hedgers are merchants and processors who acquire inventories of the

commodity in the spot market and who simultaneously sell an equivalent amount or

less in the futures market. The hedgers in this case are said to be long in their spot

transactions and short in the futures transactions. There are many kinds of hedges, and

a few examples can adequately explain the principles of hedging

. Who can Hedge?

Any manufacturer that faces risks due to volatile commodity prices, prior approval

from the Reserve Bank of India is required. The products that are available for

hedging are futures, options, and over the counter derivatives (where individual

parties can at any time strike a good deal based on their own requirements through a

broker).

What are the costs involved in Hedging?

In case of futures, the party hedging would have to pay a margin – a percentage cost

of the contract value (usually between 5-8%). For options, they would have to pay a

premium, which is market-driven. Over and above all these things, a brokerage fee is

also due to be paid to the broker who carries out each of our transactions.

Is hedging risky?

Hedging is generally not considered risky if it is based on covering short-term

requirements. However, if the hedging party places a wrong bet, then they may miss

out on potential savings. For instance, if a copper manufacturer has a capacity of 200

tonnes and decides to sell 300 tonnes on the futures exchange the remaining 100

tonnes is considered as speculation in the market. If prices fall then he stands to

benefit, however if prices go up the 200 tonnes he produces can be delivered on the

exchange but he would have to incur losses on the additional 100 tonnes.

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SPECULATION

The primary function of the commodity trader, or Speculator, is to assume the risks

that are hedged in the futures market. To a certain extent these hedges offset one

another, but for the most part speculative Traders carry the hedging load. Although

speculation in commodity futures is Sometimes referred to as gambling, this is an

inaccurate reference. The generally accepted difference between gambling and

speculation is that in gambling new risks are created which in no way contribute to

the general economic good, whereas in speculation there is an assumption of risks that

exist and that are a necessary part of the economy. Commodity trading falls into the

latter category. Everyone who trades in commodities becomes a party to an

enforceable, legal contract providing for delivery of a cash commodity. Whether the

commodity is finally delivered, or whether the futures contract is subsequently

cancelled by an offsetting purchase or sale, is of no real consequence. The futures

contract is a legitimate contract tied to an actual commodity, and the persons who

trade in these contracts perform the economic function of establishing a market price

for the commodity.

While speculative traders assume the risks that are passed on in the form of hedges,

this does not mean that traders have no choice as to the risks they assume or that all of

the risks passed on are bad risks. The commodity trader has complete freedom of

choice and at no time is there any reason to assume a risk that he doesn‘t think is a

good one. One‘s skill in selecting good risks and avoiding poor risks is what

determine one‘s success or failure as a commodity trader.

ARBITRAGE

Arbitrage refers to the opportunity of taking advantage between the price difference

between two different markets for that same stock or commodity.

In simple terms one can understand by an example of a commodity selling in one

market at price x and the same commodity selling in another market at price x + y.

Now this y is the difference between the two markets is the arbitrage available to the

trader. The trade is carried simultaneously at both the markets so theoretically there is

no risk. (This arbitrage should not be confused with the word arbitration, as

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arbitration is referred to solving of dispute between two or more parties. The person

who conducts and takes advantage of arbitrage in stocks, commodities, interest rate

bonds, derivative products, forex is known as an arbitrageur.

An arbitrage opportunity exists between different markets because there are different

kind of players in the market, some might be speculators, others jobbers, some

market-markets, and some might be arbitrageurs.

In India, there are a good amount of Arbitrage opportunities between NCDEX, MCX

in commodities. In the Indian Stock Market, there are a good amount of Arbitrage

opportunities between NSE, Cash and Future market and BSE, Cash and Future

market.

How Commodity market works?

There are two kinds of trades in commodities. The first is the spot trade, in

which one pays cash and carries away the goods. The second is futures trade. The

underpinning for futures is the warehouse receipt. A person deposits certain amount

of say, good X in a ware house and gets a warehouse receipt. Which allows him to ask

for physical delivery of the good from the warehouse. But some one trading in

commodity futures need not necessarily posses such a receipt to strike a deal. A

person can buy or sale a commodity future on an exchange based on his expectation

of where the price will go. Futures have something called an expiry date, by when the

buyer or seller either closes (square off) his account or give/take delivery of the

commodity. The broker maintains an account of all dealing parties in which the daily

profit or loss due to changes in the futures price is recorded. Squiring off is done by

taking an opposite contract so that the net outstanding is nil.

For commodity futures to work, the seller should be able to deposit the

commodity at warehouse nearest to him and collect the warehouse receipt. The buyer

should be able to take physical delivery at a location of his choice on presenting the

warehouse receipt. But at present in India very few warehouses provide delivery for

specific commodities.

Following diagram gives a fair idea about working of the Commodity

market.

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Today Commodity trading system is fully computerized. Traders need

not visit a commodity market to speculate. With online commodity trading they could

sit in the confines of their home or office and call the shots.

The commodity trading system consists of certain prescribed steps or stages as

follows:

I. Trading: - At this stage the following is the system implemented-

- Order receiving

- Execution

- Matching

- Reporting

- Surveillance

- Price limits

- Position limits

II. Clearing: - This stage has following system in place-

- Matching

- Registration

- Clearing

- Clearing limits

- Notation

- Margining

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- Price limits

- Position limits

- Clearing house.

III. Settlement: - This stage has following system followed as follows-

- Marking to market

- Receipts and payments

- Reporting

- Delivery upon expiration or maturity.

View of an investor:

Investor R.K. Gupta says he took a right decision when he started trading in

commodities a year ago. Gupta, who began investing in the stock market some seven

years back, says equity markets with their volatile trades are not easy to live with.

As a result, ―I mostly trade in gold and other metals, prices of which are determined

internationally and are much more stable,‖ he insists. ―In the Indian stock exchanges,

one can lose money in even the best known blue-chip company as volatility plays a

much bigger role than the company‘s strong fundamentals.‖

Increasingly, Gupta is not alone in coming to this conclusion even if it is not

necessarily empirically valid across commodities and markets. Investors are

increasingly putting more of their money in commodities as the equities market in

India goes through a prolonged downturn.

Futures trading in July at the country‘s two main commodity exchanges—Multi

Commodity Exchange of India Ltd, or MCX, and National Commodity and

Derivatives Exchange Ltd, or NCDEX—have more than doubled over year-ago July.

In comparison, futures and options trading at National Stock Exchange, or NSE, rose

on 38%, data available with the bourses show. For investor Gupta, trading in gold has

an additional benefit. ―While in gold I will have to spend only 4% as margin but in a

scrip like Ranbaxy or Reliance Industries, it would be anywhere between 25% and

30%,‖ he says. ―With the money I save in paying margin, I can do more trades in

gold.‖ Margins are taken by commodity exchanges before a trade is initiated to cover

price risks.

View of a commodity expert:

On 15 July, a combined MCX and NCDEX saw the highest average daily turnover of

Rs31, 090 crore in a year. On 16 July last year, the cumulative trade amounted to

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some Rs9, 434 crore. Statistics for the last one year also show volumes in

commodities markets have been rising since February, when the stock markets slowed

down.

―Commodities‘ prices are generally perceived to be negatively correlated with equity

prices and analyses show with a fall in volumes in NSE F&O, we have seen a rise in

MCX volumes,‖ says Jayant Manglik, commodity analyst.―Falling equity prices and

volumes have led to renewed focus on scientific asset allocation by investors and

traders. Most large firms are putting 10-30% of their investible surplus in

commodities as against 5% earlier and have managed handsome returns.‖

The positive part of investing in commodity market:

Commodity prices fluctuate with basic supply and demand.

Commodity price cannot remain at low prices or high prices there is a cycle of

supply and demand.

Factors irrelevant to the supply and demand wont have an impact in the

prices.

Far more easily predictable than any other form of investment.

Commodities are used in a day to day basis so all the factors that influence the

prices are readily made known.

No single investors or group can influence commodity prices it‘s a global

market with high liquidity and maximum participants.

If price moves are favorable, the producer realizes the greatest return with this

marketing alternative.

No premium charge is associated with futures market contracts

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The negative part of invest in commodity market are:

Commodity Futures and Options are not the same as stocks; meaning they are

not equity. They are basically contracts for future delivery, at a locked in

price, of a wide range of products like soy onions got bumped from the list.

The contract is a legally binding agreement between the buyer and seller on a

price and amount to be delivered or paid for on a settlement date, determined

by both. The buyer pays a market determined price (premium) and has the

right to exercise his or her option within a specific time period bean and pork

bellies to oil and gas.

It also takes the risk of making less than double on a bad crop in exchange for

the chance to profit on a good crop. This is referred to as hedging, a term

you‘ll hear a lot in the futures market. It‘s simply insurance against the

damages of price volatility.

This market is risky and if the price goes in the opposite direction, investors

can lose big. They could lose the chance of profits and even lose the chance

the breaking even. Because the contract is usually insured, the buyer can lose

the premium and associated costs, but the seller can lose much more.

The buying and selling of these commodities hardly ever happens. There are a

lot of players in this market that are in it for the market itself; not the goods.

Many buyers have no intention of taking delivery and many sellers have no

intention a making delivery of the product. They just want to profit from the

change in price. They‘re called speculative investors and their presence keeps

the market competitive futures market as well as the chance to reap a higher

rate of return in exchange for the greater risk.

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RESEARCH METHODOLOGY

OBJECTIVE OF THE SURVEY

A survey was done on the investors of the equity and the commodities market.

The survey was directed at certain target and the main objectives of the survey

are as follows:.

Study the awareness level about operating process of commodity market

in India.

Study the investment strategies taken by Indian Investors in commodity

market.

To find out the expectation of an Investor regarding the service provided

by the broking firms.

Study the risk taking nature of different investors in India.

To identify the most suitable mode of communication.

DESIGN OF THE SURVEY

For the purpose of the study 100 customers were picked up at random and their

views solicited on different parameters. The methodology adopted includes

Criteria question

Questionnaire

Random sample survey of customers

Discussions with the concerned

The criteria question was that whether the individual was already investing in

either equity or commodities market. Personal interviews and informal

discussions were held with only the positive respondents. Further applying

simple statistical techniques, the collected data are processed.

SAMPLING PLAN

Population: (infinite) Any investors located in West Bengal.

Sampling size: A sample of hundred was chosen for the purpose of the study.

Sample consisted of both small and large investors

Sampling Methods: Probability sampling requires complete knowledge about

all sampling units in the universe. Due to time constraint non-probability

sampling was chosen for the study.

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Sampling procedure: From large number of investors, sample lot was

randomly picked up by me.

Field Study: Directly approached respondents (businessmen, small

shopkeepers, physical commodities traders and service class people).

COLLECTION OF DATA THROUGH QUESTIONNAIRES

The data collected for the study purpose is through questionnaires. One

hundred investors were selected randomly for the study purpose and then the

information revealed from the customers is analyzed and interpreted in the

study.

LIMITATION OF STUDY

Since sample size is only 100, this is not a true representation of the

population as a whole.

Level of accuracy of the results of research is restricted to the accuracy

level with which the customers have given their answers and the

accuracy level of the answers cannot be predicted.

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DATA ANALYSIS AND INTERPRETATION

By doing market survey we understand the investment pattern of people,

competitors‘ position in the market, what they are offering to their customer

and compare with our service.

To survey the market we made a questionnaire with 19 questions. We made

100 copies of this questionnaire and move on to some marketplace. We asked

people to fill up these questionnaires according to their opinion.

(Among the people there are 20 garments shop keeper, 20 gold trader, 30

existing Nirmal Bang clients and rest are moving public on the road.)

Based on their answer we got this report.

1. Market investment.

Out of the whole sample 37% people don‘t invest in market and rest

67% are investing in the market as per the survey.

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2. Occupational Status Of the Sample

Out of the one total samples we have found that majority of them are

businessman (approx.42%). after them there are service persons (approx.

35%). Then there are professionals like doctors, engineers, lawyers, CAs

etc (approx. 8%) and Retired persons (approx. 15%) respectively.

3. Most preferable place for Investment.

When we asked the question in which sector you would like to invest

your money most? Then we found that most of the person goes for Bank

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FD(approx. 44.9%) because there they get the opportunity to grow their

money in a steady and safe way. After Bank FD they would like to

invest their money in Insurance (Approx. 27.8%) because they get the

opportunity to grow their money with an advantage of accident and

death coverage.

The Postal deposits come to third position in terms of ranking (approx.

11.6%). After that people prefer to invest in the Equity Mkt.(approx 6.5

%)Where there is high return and high risk also. Here it is very

important to have a basic idea about current economic condition of the

country and performances of the companies. Commodity comes after

Equity market according to people‘s choice (approx. 3%)and then comes

Mutual funds(approx 1.2%) where they get the net impact of some

chosen stocks. Thus it minimizes the risk as well as return also.

4. If invest in stock market then which is the preferable place to

invest?

MARKET PREFERENCE

ONLY EQUITY

ONLY COMMODITIES

EQUITY AND COMMODITIES

According to this survey investors that I surveyed 83% are investing only in the

equity market, 3% are investing only in the commodities market and the

remaining 14% are investing in both the equity and commodities market.

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5. Where do you Invest ?

Among the whole sample investment in Equity is approx 32.5 % ,following by

commodity 15% and Mutual funds 6 %. Investment in the other sectors is

approx 46.5 % of whole investment.

6. How people get the information about Stock Market?

0

10

20

30

40

50

60

70

News paper

TV

Internet

Magazins

Most of the people (approx. 61%) who invest in stock market keep

themselves updated with the help of television through various business

news channels (like – CNBC, NDTV- profit, CNBC-awaz, CNN, ZEE

Business etc.). Business newspaper is another option which gives

information about stock market. It is one of the oldest medium of getting

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information but still effective and comes to the Second position (approx.

22%). Internet is mostly use by those people who would like to trade

online. Though it is the most advanced way to get the information about

stock market but due to lack of proper knowledge of computer most of

the people do not use this facility and thus it comes to the Third position

with approx. 13% vote. Business magazines are also used by people to

monitor stock market (approx. 4%). It is mainly use by the investors

who would like to invest their money on a particular stock over a long

period of time. These business magazines give people an overall picture

of economy and position of different sectors in a particular economic

situation. Thus these business magazines help investors to generate an

idea in which sector they should invest their money to get a maximum

return of their money.

7. If don’t invest in Commodity market then why?

0

10

20

30

40

50

Not aware of stockmarket

High Risk

already face a loss

Don’t have time tomonitor market

This is a test to find out the back logs and pitfalls of Stock market and

all the broking companies. When we asked the people that why they do

not invest in stock market then we get this result.

Most of the people (approx. 46%) want to stay out of the stock market

because of high risk and market volatility. They have a fear in their

mind that they might a loss. They don‘t want to lose their hard earned

money in stock market. Many people think that stock market is like a

lottery where the possibility of profit is very less and risk is very high.

Some people (approx. 32%) don‘t invest in stock market because they

are not aware of stock market. They don‘t know what is Sensex or Nifty

and why these indicators changes so rapidly. People belong to this

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category asked several question to us and give them feedback from our

company.

Approx. 6% of people leave stock market because they already faced a

loss in the market and thus they don‘t want to waste their money any

more.

Some people (approx. 16%) don‘t invests in stock market because they

don‘t have time to monitor stock market. They used to be very busy at

that particular time when stock market operation is going on.

This is one of the important results we found in our market survey and if

we are able to discover an ideal solution which can solve this problem of

customers then we can generate a better customer base and can create a

high brand value.

8. If invest in stock market then how often trade?

Through this question we tried to identify the pattern of investment by

the people and categories them according to their investment.

We have found that among the people who invest in stock market

approx. 16 % of them prefer to trade on daily basis and want to take

profit or loss on that day itself. We called them the intraday trader.

Some times when they find that the stock which they holds run on a loss

they might take the stock on hold for few days and sell when the price of

that stock increases.

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There is a group of people (approx. 10%) who would like to hold a stock

for a long period of time usually more than a year. This kind of trader

purchase the stock whenever the value of stock decreases due to any

reason and hold it over a long period of time, the value of that stock

increases due to economic development or value appreciation after a

long period. Then they sell that stock and earn a huge profit. They are

called Investor. The world‘s 2nd

richest person Mr. Waren Buffet is an

Investor. He holds most of the stocks for minimum of 20 to 25 years.

There are some people who neither act as intraday trader nor as an

Investor. They prefer to hold stocks for a short period of time usually a

week or a month. Their proportion is approx. 11% (weekly investor) and

approx. 36 % (monthly investor).

9. For how long have you been investing in commodity / equity market?

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10. Factors behind choosing a broking house.

0

5

10

15

20

25

30

35

40

45

Brand name

Brokerage Rate

Better research

Good relation / betterservice

When a person is choosing a broking house to trade with he or she looks

at different factors and facilities which a broking house generally offer

to its customer. I have tried to ranking those priorities which a customer

seeks while choosing a broking house by collecting the opinion of

people.

Most of the people (approx. 41%) prefer a company which has a high

brand value. They believe that the company which has a high brand

value is better to trade with because they have successfully satisfy

customers and gave people better service and thus they have earned such

a Brand recognition.

The other group of people (approx. 27%) looks at the brokerage rate that

a company offers to its customer. The lower it the better for them

because usually they trade with a high volume on intraday basis and

don‘t want to give much brokerage as their profit margin is small.

The third group (approx. 13%) wants better research and useful tips.

Their main intention is to earn profit. If they get proper useful tips which

increase the possibility of profit they will be satisfied. Here brokerage

rate doesn‘t matter to them. This group mainly consists of those people

who have a limited knowledge about stock market and thus depend up

on company tips.

This group of people (approx. 19%) gives importance to the relationship

with the broker. They build a strong relationship with the broker and

trade according to their opinion. They have trust on that particular

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broker. If the broker changes the company then the customers also

change the company. Company policy, brand name, brokerage rate is

secondary object to them.

11. Commodity market investor preference.

Above data revels that majority of commodity investors like to

invest in Bullion (Gold & Silver).

12. Perception about commodity market.

25%

25%

50%

Less Risky

Risky

Very Risky

Analysis of data shows that majority of people who are aware about

commodity market; feel that investment in commodity market is very risky. So

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efforts should be done to minimize the risk in commodity investment and make

peoples about minimum risk in commodity investment.

13. Opinion about information on commodity market

(Expressed by those who know commodity market)

100

Not Informative

There is no second opinion amongst commodity investors, that

commodity market advertisements do not give all the necessary

information.

14. In which commodity exchange investment rate is more?

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According to my survey 68% of the whole sample invests in MCX because

the volumes on MCX are good, and the MCX is one of the fastest growing exchanges.

MCX has large volumes especially in gold and silver. And 32 % invests in NCDEX.

15. The amount investors prefer to invest at a time in Commodity market?

According to my survey 25 % of the sample who invest in the commodity

market prefers to invest more than Rs. 5, 00,000 at a time. And approx 43%

like to invests Rs. 1,00,000 to Rs. 5,00,000, 12% invests Rs. 50,000 to Rs.

1,00,000 and 20% invests less than Rs.50,000 .

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16. What is the profit percentage you are getting, per annum, from

commodity / equity investment?

17. Are you satisfied with the return?

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18. Is your portfolio diversified?

19. Do you hedge your portfolio?

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20. Do you use stop loss while trading?

21. Market share of different broking houses.

When we asked the people who invest in stock market that with which

broking house in India they are treading currently then we get this result.

According to our survey the majority of the people (approx. 32%) trade

with ―India Infoline‖. ―India bulls‖ comes to second position with

approx. 24% vote. Share Khan comes after them with 11% vote and then

Motilal Oswal with 9% vote.

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22. Are you satisfied with the services provided by your broking firm?

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Finding & Recommendation

FINDINGS:

Investment in the stock market mostly done by the business man.

Investors are inclined towards the equity market and few are interested

about investing in the commodities market.

The most popular source of information about the market among the

investors is television and newspaper followed by internet and business

magazines.

In commodity market maximum people are interested to invest in

precious metal (gold, silver etc.) and energy product (crude oil).

The level of awareness among the investors about commodity market is

low.

Most of the investor prefer MCX than NCDEX .

In commodity market at a time investment rate is much higher(most of

the investors invest in the range of Rs.1,00,000 to).

Awareness level about Nirmal Bang Securities Pvt. Ltd. is low among

the investor.

The investors provided valuable suggestions about better service of a

broking firm. The most popular suggestions are:-

- Good tips and calls.

- Less brokerage.

- Easy money transfer (pay-in and pay-out).

- Good trading software.

- Regular research reports.

- Educating the clients about the market.

- Good relation with the dealers and the relationship manager.

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RECOMMENDATIONS:

Improve the brand awareness of Nirmal Bang by increasing

advertisements and promotional activities like performing campaigning

programs. This will improve the brand of Nirmal Bang which will help

to attract more clients.

Introduce some programs which will help to attract more of office going

clients. Most of the investors are businessmen, and very few of the

office goers invest in these markets. Thus there is still a huge number of

client base in the corporate sector which can be attracted towards these

markets by educating them about these markets.

The investors do not have much knowledge about the commodities

market and the various concepts like hedging and arbitration present in

these markets. The first priority should be to educate the investors about

the market and the various techniques to invest in these markets which

will enable the investors to extract better return from these markets.

The investors mainly follow the television and the newspapers to update

themselves about the market. So it will be beneficial for Nirmal Bang if

they come out with weekly article in the leading newspapers regarding

market research and present market condition.

Providing the clients better guidance to diversify their portfolio to

minimize the risk involved.

The service of the company can be improved keeping in mind the

suggestions provided by the investors.

More franchisee‘s & branch‘s must be opened at key location‘s, so as to

attract more investors.

Once in Every month, the client must be invited for feedback and

suggestion‘s.

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Learning/Working till date

The 8 weeks at Nirmal Bang had been a very fruitful experience. The axiom

which states that there is a lot of difference between bookish knowledge and

practical knowledge has found a perfect manifestation in my two month SIP

at Nirmal Bang. The corporate structure is completely different. Our

preconceived misconception about the equity & commodity market has

been completely derailed in these two months and I have obtained a

fresh new perspective of the commodity & equity market. Initially I had

been given to understand and analyze the basic aspects of the

commodity market. A unique learning opportunity that I got at Nirmal Bang was to get an understanding of the process of acquiring a new client and sub-brokers and

the portfolio management technique. The process is explained in details

below

DATABASE COLLECTION

The initial task was to create a database of the potential clients both

individual and sub-brokers. The database was formed through various

methods. Firstly, the name and phone numbers of the physical commodity

dealers were collected from the internet and from newspaper. Secondly,

initially I had to accompany my seniors to campaigning programs where

name and phone numbers of individual clients and equity & physical

commodity dealers were collected. Thirdly, the name and phone numbers of

the sub-brokers were collected from the reference of the clients and also

from the internet.

FIXING APPOINTMENTS

The next step in acquiring clients and sub-brokers were to give them a call

and finalizing an appointment with the interested individuals.

VISITINGS POTENTIAL CLIENTS

After the appointment is fixed, the next step was to visit these potential

clients. I was most of the time accompanied by a senior while visiting any

client. I had to visit many clients mostly in Kolkata and few outside Kolkata

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like in Durgapur, asansol ,Ranaghat, Konnagar, etc. In these client visits, we

used to pitch our product and services according to the needs of the clients.

FOLLOW UP PROCESS

Most of the potential clients were not readily convinced in the first visit.

Thus I had to keep in touch with these clients and updating my seniors with

the present situation

CLOSING DEAL

When a client is convinced, we needed to close the deal by filling up our

forms and getting the required documents like Xerox of PAN card, Xerox of

address proof, photograph, etc. When all these formalities were completed,

only then the deal was completed.

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GLOSSARY

Here is a list of commonly used terms used in the project

Bear Market: A market condition in which the prices of securities are falling or

are expected to fall.

Bourses: Is the European way of saying "stock exchange"; by extension it

has come to mean any Non-American market for the trading of

stocks and bonds.

Bull Market: A financial market of a certain group of securities in which prices

are rising or are expected to rise.

Crash: A major decline in a financial market.

Fiscal Deficit: A deficit in the government budget of a country.

Heavyweights: The stock which has high market capitalization and which

influences the direction in which the market moves.

Northwards: A rise in the market.

New economy stocks: These stocks are heavily involved in the technology sector and the

more successful companies are able to build value at markedly

higher growth rates.

Old economy stocks: Represent large, well-established companies that participate in

more traditional industry sectors and have little investment or

involvement in the technology industry.

Repo Rate: The rate at which RBI borrows from banks.

Scrips: It is any substitute for currency which is not legal tender, and is

often a form of credit.

Southwards: A decline in the market.

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61

REFERENCES

FOR WEB SUPPORT:

1) www.mcxindia.com

2) www.ncdex.com

3) www.businessstandard.com

4) www.wikipedia.com

5) www.google.com

6) www.sebi.com

7) www.nseindia.com

8) www.bse.com

BOOKS, MAGAZINES & NEWS-PAPERS SUPPORT:

1) Business World

2) Business Economy

3) The Economic Times

4) Business standard

5) Business Line

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ATTACHMENTS

QUESTIONNAIRE

Name:

Contact No:

Address:

Occupation:

1. Do you invest in market?

a. Yes b. No

2. What is you Occupation?

a. Service d. Retired

b. Business.

b. Professional

3. According to you, which is the best place for investment?

a. Equity d. Mutual Fund g. Real Estate

b. Commodity e. Postal savings

c. Bank FD f. Life Insurance

4. What type of investment do you prefer?

a. Only Equity

b. Only Commodity

c. Equity and Commodity both

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5.In which sector do you invest?

a. Equity d. Mutual fund

b. Commodity e. Others

c. Insurance

6. How people get information about stock market ?

a. News Paper d. Magazines

b. TV

c. Internet

7. If not investing in the Commodity Market, what is the reason?

a. Not aware of stock market d. Don‘t have time to monitor market

b. High Risk

c. Already faced a loss

8. How often do you trade?

a. Daily d. Monthly

b. Weekly e. Yearly

c. Fortnight

9. For how long have you been investing in commodity / equity market?

a. < 1 month d. >1 year

b. 1 month to 6 months

c. 7 month to 1 year

64

10. What are the Factors behind choosing a Broking House?

a. Brand Name. d. Good relation/ better service

b. Broking Rate

c. Better research

11. Among the commodities where do you invest?

a. Metals d. Others

b. Energy Product

c. Agro based commodity

12. What is you perception about commodity Market ?

a. Less Risky

b. Risky

c. Very Risky

13. What is your opinion about the information available for commodity market/

a. Informative

b. Not so much Informative

c. Not informative

14. Where do you invest?

a.MCX b. NCDX

15. How much do you prefer to invest at a time in commodity?

a. <50000 d. > 500000

b. 50000-100000 e. Nil

c. 100000-500000

65

16. What is the profit percentage you are getting, per annum, from commodity / equity

investment?

___________ %

17. Are you satisfied with the return?

Yes No

18. Is your portfolio diversified?

Yes No

19. Do you hedge your portfolio ?

Yes No

20. Do you use stop loss while trading?

Yes No

21. In which broking firm, you have opened your D-Mat account?

a. India Infolone d. Motilal Oswal

b. India Bulls e. Nirmal Bang

c. Share Khan f. others

22. What services do you expect from your broking firm?

A.

B.

C.

D.

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23. Are you satisfied with the services provided by your broking firm?

Yes No

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COMMENTS

68