A STUDY ON COMMODITY

MARKET AND PRODUCT

SELLING WITH RELIGARE
COMMODITIES

PREPARED BY- DIBYA SAGAR PRUSTY

RELIGARE ENTERPRISERS LTD.
 (A Ranbaxy Promoter Group Company) through Religare Securities
Limited, Religare Finvest Limited, Religare Commodities Limited
and Religare Insurance Advisory Services Limited provide
integrated financial solutions to its corporate, retail and wealth
management clients. Today, Religare provides various financial
services which include Investment Banking, Corporate Finance,
Portfolio Management Services, Equity & Commodity Broking,
Insurance and Mutual Funds.
 Today, Religare has a growing network of more than 150 branches
and more than 300 business partners spread across more than 180
cities in India and a fully operational international office at London.
However, their target is to have 350 branches and 1000 business
partners in 300 cities of India and more than 7 International offices
by the end of 2011.
GROUP COMPANIES
RELIGARE COMMODITIES LTD.
 Religare Commodities Limited (RCL), a wholly owned
subsidiary of Religare Enterprises Limited was initiated to
spearhead Exchange based Commodity Trading. As a
member of NCDEX, MCX and NMCE, RCL is a trade facilitator
providing the platform to trade in commodities. Grounded in
the Religare philosophy, highly skilled and dedicated
professionals strive to offer the client best investment
solutions across the country.
 Religare’s business philosophy is to treat each client
situation as unique, requiring customized solutions. Their list
of corporate clients reads like a Who’s Who of the Indian
Industry and Religare has been successful in providing them
with practical customized solutions for their requirements.
Religare is propelled by their group vision and desire to
strive tirelessly and aim to be the best within this category.
EVOLUTION OF COMMODITIES MARKET
 Commodities futures trading have evolved from the need for
ensuring continuous supply of seasonal agricultural crops in
Japan, merchants stored rice in warehouses for future use. In
order to raise cash, warehouse holders sold receipts against
the stored rice. These were known as “rice tickets”
Eventually such rice tickets became accepted as a kind of
general commercial currency. Rules came into being, to
standardize the trading in rice tickets.
 The concept of organized trading in commodities evolved in
the middle of 19th century, in Chicago, United States.
Chicago had emerged as a major commercial hub with
railroad and telegraphs lines connecting it with the rest of
the world, thereby attracting wheat producers from Mid-
West to sell their products to the dealers and distributors.
However, lack of organized storage facilities and absence of
a uniform weighing/ grading mechanism often confined
them to the mercy of dealer’s discretion. This led to inherent
need to establish a common meeting place both for framers
and dealers to transact in “spot” grain-to deliver wheat and
receive cash in return. This happened in 1848.
CONTINUED.
 In the 1870s and 1880s the New York Coffee, Cotton and
Produce Exchanges were born. The largest commodity
exchanges in USA are the Chicago Board of Trade, The
Chicago Mercantile Exchange, the New York Mercantile
Exchange, the New York Commodity Exchange and the New
York Coffee, Sugar and Cocoa Exchange. Worldwide there
are major futures trading exchanges in over twenty
countries including Canada, England, India, France,
Singapore, Japan, Australia and New Zealand.
 Over-the-counter:
 Traditional dealer market

 Electronic broking market

 Proprietary trading platform market

SPOT AND FUTURES MARKET
 Commodities can be transacted in both the spot as well as
in the futures markets. Although the two markets are
separated, they are interrelated nevertheless. The
commodities are physically bought or sold on a negotiated
basis in the spot market, which is generally considered as
the actual physical market for immediate delivery.

 The futures market, however, facilitates buying and selling

of standardized contractual agreements (for future delivery)
of the underlying asset as the specific commodity and not
the physical commodity itself. The formulation of a futures
contract is very specific regarding the quality of the
commodity, the quantity to be delivered and the date for
delivery.
EXCHANGES
 National Commodity & Derivatives Exchange Limited
(NCDEX) located in Mumbai is a public limited company
incorporated on April 23, 2003 under the Companies Act,
1956 and had commenced its operations on December 15,
2003.This is the only commodity exchange in the country
promoted by national level institutions. It is promoted by
ICICI Bank Limited, Life Insurance Corporation of India (LIC),
National Bank for Agriculture and Rural Development
(NABARD) and National Stock Exchange of India Limited
(NSE).
 Headquartered in Mumbai Multi Commodity Exchange of
India Limited (MCX), is an independent and de-mutulised
exchange with a permanent recognition from Government of
India. Key shareholders of MCX are Financial Technologies
(India) Ltd., State Bank of India, Union Bank of India,
Corporation Bank, Bank of India and Canara Bank.
PRICING COMMODITY FUTURES
 The relationship between cash price and futures price can
be explained in terms of cost of carry. Cost of carry is an
important element in determining pricing relationship
between spot and futures prices as well as between
prices of futures contracts of different expiry months.
According to the cost of carry model, futures prices
depend on the spot price of a commodity and the cost of
storing the commodity from the date of spot price to the
date of delivery of the futures contract. Cost of storage
and insurance and cost of financing constitute cost of
carry. Estimated cost of futures price is also called "Full
carry futures price". Cost of carry model: The cost of
carry model can be defined .as:
 
F=S+C (Where F=Futures price S=Spot price C=Cost of
carry)
PARTICIPANTS IN COMMODITY DERIVATIVES
MARKET
Hedgers
 Futures contracts have been used as financial offsets
to cash market risk for more than a century. Futures to
reduce or limit the price risk of the physical asset.
Hedging is an insurance used to avoid or reduce price
risks associated with any kind of futures transaction.
 The degree of effectiveness of a hedge is determined
by the percentage of the actual gain or loss incurred
in a futures transaction. Though most hedges reduce
risks related to price variations, they do not eliminate
them altogether.
CONTINUED….
Speculators
 When supplies of a commodity are greater than the
present demand or need, prices tend to decline. If
supplies appear to fall short of demand, prices trend
upward. Estimating market supply and demand
conditions are the challenges faced by market
participants. It is generally accepted that speculators are
interested in making fast money by anticipating future
price movements. Commodity futures allow speculators
to create high leveraged positions. A speculator accepts
the risk that hedgers seek to avoid, giving the market the
liquidity required to service hedge participants effectively
by providing the market with the necessary bids and
offers for a continuous flow of transactions. Speculation is
the opposite of hedging. A speculator holds no offsetting
cash market position and deliberately incurs price risk in
order to benefit from price movements.
CONTINUED…
Arbitragers
 Arbitragers are interested in making
purchases and sales in different markets at
the same time to profit from price
discrepancy between the two markets. So
arbitragers are interested in locking in a
minimum profit by simultaneously entering
into transactions in two or more markets. An
arbitrager knows the minimum profit
potential at the time of entering into
transactions. In today’s financial markets,
most arbitrage opportunities occur either
between regions, delivery periods or a
combination of these conditions.
REGULATORY FRAMEWORK
Forward Contracts Regulation Act, 1952
 The Constitution of India brought the subject of
STOCK EXCHANGES AND FUTURES MARKET in
Union list. As a result, the responsibility for
regulation of commodity futures markets
devolved on Government of India. The
Commodity Exchanges in India are governed and
regulated under the Forward Contracts
(Regulation) Act, 1952 and Rules framed there
under.
 It provides for a 3 tier regulatory system, namely:

. An association recognized by the Government of

India on recommendation of Forward Markets
Commission (FMC)
. The Forward Markets Commission (it was set up in
Sept 1953) and
. The Central Government
FINDINGS OF SURVEY
FINDINGS
 Survey defines that 38 of investor deals with the MCX
because of Metal Exchange. Where they go for different
commodities like Gold, Silver Etc. And 42 deals with the
NCDEX due to agri based commodities.
 In this analysis it is noticeable that nearly all the investors
have invested in pepper, coffee futures.
 Most investors invest in Chilli and Jeera to spread their risks
which they could face in the other commodities such as
pepper etc. The investors invest in different commodities
based on seasons to spread their risk. Chilli, whose
marketing season begins in the first week of March, peaks
during the month of April. The main producers of jeera other
than India are Syria and Turkey, they harvest their new crop
in the months august to September so until then Indian
jeera / Cumin seeds finds good market in overseas
countries. So these can be some reasons why investors are
trading in chilli and jeera.
 Investors of Gold and Silver are mostly gold or silver
merchants, who trade with the intentions to protect their
underlying stock, from price fluctuations or price failures.
PREFERRED FORM OF TRADING
 There are 3 types of preferred form in which
survey has been done:
 High risk high return
 Low risk low return
 Low risk high return
 Investors below the age group of 30 years are
more of a risk takers hoping for high return.
 The investors prefer low risk but high returns,
it can be said that the investors are more
savings oriented.
 In the age group between 40 years to 50
years that the investors attitude is different
from the age group of less than 30 years but
similar to the age group between 30 years to
40 years.
CONTINUED…
 84% of the investors did trading through registered
brokers i.e. the members of the exchange. 9% did
trading through agents i.e. the franchisees of the
members. 7% did not trade at all.
 73% of the respondents felt that the commodity
derivatives market in India was average compared to
the global derivatives market, this could be due to
factors such as, few malpractices, contract period
difference between exchanges, delivery lot difference.
 78% of the respondents felt that futures’ trading has
helped in improving commodities market. Only 6%
was of the opinion that it did not improve the
commodities market.
CONCLUSION
 Considering the present growth rate, the total
valuation of the Indian Commodity Market is
estimated to cross Rs. 10,000 billion by the year 2010.
Demand for commodities is likely to become four
times by 2010 than what it presently is.
 The commodity industry requires increasing capital
formation, improved availability of agricultural inputs,
infrastructure facilities for agricultural business.
 The existence of commodity futures exchanges will
refine and strengthen the database for agricultural
sector, which will be helpful in bringing greater
reliability to estimates and forecasts, thus,
strengthening the process of planning and policy
making.
THANK YOU