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Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
Commodity Market Overview & Prospects of an Arbitrage
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Commodity Market Overview & Prospects of an Arbitrage

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  • 1. Commodity Market Overview & Prospects of Arbitrage
  • 2. WHAT COMPRISES COMMODITY MARKET? Precious Metals Agriculture Commodity markets Power Other Metals
  • 3.
    • CONCEPT
    •  
    • Commodity futures are tool used to hedge the price risk of underlying commodity.
    •   Helps in price discovery of underlying commodity
    • Helps in stabilizing the price of commodity for longer term.
  • 4.
    • Reduce the price disparity over two geographical locations and bridge the demand/supply position over two locations and manage the regional distortion
    •   Bring out the information about the commodity indicating the price trend.
  • 5.
    • CURRENT ISSUES FOR GROWTH OF MARKET
    • Lack of education and awareness of exchange amongst the marks of Investors, Traders (resulting low liquidity)
    •   Low participation of Indian Corporate (Again due to the above)
    •   Common delivery system for all exchange in demat form, which would ensure automatically the product standards
    •  
  • 6.
    •   Delay in formations of Regulation for Institutional Investor, which are in pipeline.
    •   The differential Sales Tax & Local Tax requires an early introduction of Value added Tax System.
    • The delivery center of commodity should be in multiple locations as presently in one location for one product in most of commodities .
  • 7.
    • COMMODITY MARKET IN INDIAN SCENARIO
    • Bullion
    •      Market
      •       Largest consumer (Rs. 400 bn) – traditional form of investment
      •       Large stock of unaccounted metal
      •       Skills in hand made jewellery
    •       Potential
      •       Use it as monetary unit to boost rural economy
      •       Effective instrument for investment diversification
      •       Boost jewellery exports
    •        Impediments
      •       Differences in sales tax, octroi & stamp duty among states
      •       Lack of good assaying practices – difficult to liquidate
      •       Little avenue to hedge price risk of jewellery exporters
      •  
  • 8.
    • Other metals
    •         Market
      •   Indian Production (Al, Cu & steel) – Rs. 600 bn
      • Largest exporter of iron ore and alumina
      •   Large importer of copper
      •    Current trade by negotiation / price setting by producers
    •         Potential
      •   Increased scope for aluminum & steel exports
      • (as against alumina and iron ore)
      •      Stable metal prices can fuel boom in downstream industries
      •      Rival China as preferred manufacturing location
      •      Growth in manufacturing to equal that in services
      •      Impediments
      •       No organised exchange in India – price discovery difficult
      • Significant PSU participation
    •  
    •  
  • 9.
    • Agriculture
    •           Market
      •        Agricultural share in GDP – 26% (Rs. 5000 bn)
      •       Large producer of cotton, cereals, sugar, fruits, spices etc
      •       Current exports of about USD 4 bn
      •       Specific commodity based exchanges – not very successful
    •         Potential
      •       Diverse gene pool and climatic conditions
      •       Increase in agricultural exports – sugar, cereals
      •       Increase in processed foods production & consumption
    •         Impediments
      •        Restrictions on inter state movement
      •       Poor transport & warehousing – 30% wastage in cereals
      •       Member controlled exchanges – transparency issues
    •  
  • 10.
    • Power
    •           Market
      •       Large requirement and trading in Power units
      •       Exports and imports of excessive units.
      •       Specific commodity based exchanges – not very successful
    •           Potential
      •        Diverse climatic conditions
      •       Increase in demand.
      •       Increase in disinvestments among PSU’s involved in trading .
    •           Impediments
      •        Restrictions on inter state movement
      •       Poor transport mechanism
      •       No organised exchange in India – price discovery difficult
      • Significant PSU participation
    •  
    •  
  • 11. Trade Potential 55,000 33,000 11,000 Total 25,000 15,000 5,000 Energy 25,000 15,000 5,000 Agriculture 3,000 1,800 600 Metals 2,000 1,200 400 Bullion 5 time multiple (Rs. in bn) 3 time multiple (Rs. in bn) Physical trade (Rs. in bn)
  • 12.
    • ADVANTAGE THE ORGANIZED SECTOR OFFERS
    • Facilitate high quality intermediation
    • Foster professionalism and transparency
    • Nation-wide reach and consistent offering
    • Provide impetus to commodity market and generate higher volumes
  • 13.
    • Inculcate international best practices
        • Demutualisation
        • Technology platforms
        • Information dissemination without noise
        • Low cost solutions
  • 14.
    • FUTURE PROSPECTS
    •   The prospect of commodity exchange in India store a bundle of opportunities in term of following:
    •  
    • In term of volume, as many of market player would tend to participate for their ask management which would ensure liquidity for the lines to come.
    •  
  • 15.
    • FUTURE PROSPECTS contd.
    • Since the exchange would play like a nationwide common market, it would reduce the dis-equilibrium of price/demand supply
    • Creation of employment opportunities.
    • The participation of institutional Investor, like Files, Mutual Funds, would with distinct emails and provide further depth to the market.
  • 16. Volume of Existing Exchanges Gur Gur, Mustard Pepper Castor, Groundnut Gur Mustard Castor, Cotton seed Multiple Soya, Mustard Products 3,500 Rajdhani Oil & OilSeeds 40,000 NMCE, Ahmedabad Approx Annual Vol. (Rs. Crore) Commodity Exchange 1,500 Others (mostly inactive) 140,000 TOTAL 2,500 Chamber of Commerce, Hapur 2,500 IPSTA, Cochin 1,500 Bhatinda Om and Oil & Oilseeds 2,500 Rajkot Seeds Oil & Bullion 2,500 Vijai Beopar Ch., Muzzaffarnagar 3,500 Ahmedabad Commodity Exch. 80,000 NBoT, Indore
  • 17.
    • ARBITRAGE IN COMMODITY EXCHANGE
    • Arbitrage can be in the following ways:
    • Cash (Spot market Vs. future market)
    • Future Vs Future (Intra Exchange)
    • Domestic Vs International.
    •  
  • 18.
    • WHY ARBITRAGE OPPORTUNITIES EXITS
    • Different in perception of different investors;
    • Demand and supply over market or over location
    • Market inefficiency
  • 19.
    • ADVANTAGES OF ARBITRAGE
    •  
    • Reduces market inefficiency
    • Provide liquidity to the market
    • Act like a market equalizer tool
    • Ensure risk free profit
    •  
  • 20. Thanks

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