The document discusses the growing market for commodities trading in India and the need for skilled training programs. It notes that the volume of trading on national commodity exchanges has increased significantly in recent years. There is also increased volatility in commodity prices and more corporates are seeking to hedge risks. However, there is a shortage of skilled professionals to support hedging needs. The document proposes developing a comprehensive university-level training course on commodities trading to address this shortage and help different industry segments.

1. Market for Course on
Commodities
Derivatives
covering OTCs and trading at
foreign commodity exchanges
Prepared by Puneet Gulati 1

2. The market for commodities trading is growing.
• The volume of three national commodities exchanges that
account of 95 % of total derivative business was
– ` 77.65 lakh crore in 2009-10, which was 47.93 % up from
yr 2008-09 (` 51.58 lakh crore)
– this was further up by 31.88 % from 2007-08 volume of
` 39.11 lakh crore
http://www.financialexpress.com/news/price-discovery-risk-management-
possible-in-commodity-exchanges/633275/
• As on today (Aug 2010) there are four fully operational
national commodities exchanges, one more is expected to
commence operations within a month
• MCX, India’s leading exchange ranks No.1 among the global
exchanges for Silver, No.2 for Gold, Copper and Natural Gas
and No. 3 for Crude Oil, in terms of futures contracts traded
www.mcxindia.com
Prepared by Puneet Gulati 2

3. The market for commodities trading is growing.
• The RBI has been continuously relaxing norms for the
corporates, with respect to commodities price hedging
• It is quite likely that within next two to three years, there will
be a free market for commodities price hedging for the Indian
companies
• Over the past two years
years,
– RBI has allowed hedging domestic exposure for base metals, ATF
(aviation fuel), Petroleum Products, Refining Margins etc.
– RBI has also permitted the “Foreign Currency Futures” to be
traded at the Indian Exchanges
– Indian companies have been allowed to hedge their Carbon
Credits / CER exposure using financial derivatives
Prepared by Puneet Gulati 3

4. The market for commodities trading is growing.
The prices of commodities have been very volatile over the
past few Years, this volatility can be attributed to :
– Demand and supply mismatch incase of certain commodities
– Fund Houses’ participation in commodities rallies, mainly thru
derivative products
– Industry has an exposure to the live information and facilities to
react instantly
– Derivatives have become popular and there is a large
participation from industry as well as non industry segments
The volatility is not going to end anytime soon, infect it is likely to increase going forward.
It has already become very difficult for the industry to sustain commodity price volatility.
Prepared by Puneet Gulati 4

5. Impact of commodity price volatility
• Quite a few large corporate houses have started taking their
commodities price exposure very seriously
• Many commodities suppliers have expressed their reluctance in getting
into long duration fixed price contracts
• Some Infrastructure companies have even started asking for insertion
of clauses on “compensation against commodities price rise” for long
p g p g
duration projects
• There are many mid size companies doing active trading in
commodities thru domestic exchanges
Prepared by Puneet Gulati 5

6. There is a shortage of skilled manpower
• There are not enough of institutes providing training on
commodities markets
• So far the people are being trained in house; they are hired
based on some experience of equity derivatives
– As most of such people are involved with speculative trading
during their previous stints, they lack understanding of the
hedging / risk management practices
• Hence many a times the hedging platform fails to perform as
per the expectations of the management
• This ultimately kills the interest of corporates, and the market
is deprived of the industry participation i.e. large volumes and
depth
Prepared by Puneet Gulati 6

7. There is a shortage of skilled manpower
• Following are a few institutes that provide both classroom or
online training for the Commodities Markets
– We School / Welingkar Institute of Management and Research
– Commoditytraining.in / Commoditiesindia.com in association with
MCX
– Career Launcher in association with NCDEX
– IIFM – A Jaypee Capital company
Prepared by Puneet Gulati 7

8. The potential segments that require skilled
manpower
• Large Brokerage Houses
– Indiabulls, India Infoline, ICICI Direct, Motilal Oswal
• Mutual Funds that manage Commodities (gold) ETFs
– UTI, Reliance Capital, Kotak
• Trading Houses i.e. bulk importers / traders of the
commodities
– Adani Enterprises, Coal & Oil, Somani Group
• Indian Commodities Exchanges
– MCX, NCDEX, NMCE, ICEX, ACE
Prepared by Puneet Gulati 8

9. The potential segments that require skilled
manpower
• India based Arbitrage Funds / Trading houses
– Jaypee International, Open Futures, Globe Capital
• Foreign Commodities Exchanges
– Nymex, LME, CBOT, DCX
• Foreign Banks / Financial institutions
– Barclays, Macquarie, CitiBank, Standard Bank
• Consultants / Information Providers
– E&Y, PWC, Reuters, Argus, Bloomberg, Infraline
Prepared by Puneet Gulati 9

10. The potential segments that require skilled
manpower
Producers of the commodities
• Metal producers
– Hindalco, Tisco, Sterlite, Nalco, Hindustan Zinc
• Refiners
– Reliance, IOC, HPCL, MRPL, BPCL, Essar Oil
• E & P Companies
– ONGC, Carin Energy, Shell
• Sugar manufacturers
– Bajaj Hindusthan, Balrampur Chini, Renuka Suger
Prepared by Puneet Gulati 10

11. The potential segments that require skilled
manpower
Bulk Users of commodities
• Air lines
– Air India / NACIL, Jet Airways, Spicejet, Indigo, Go Air
• Shipping Companies
– GE Shipping, Mercetor Lines, Varun Shipping
• Power Plants
– Reliance Power, Tata Power, JSW Power, GMR Power
– Captive power plants that run on coal / Petroleum Products
– SEZs, Hindalco, Vadanta, Binani, Jindal, JSW Steel
Prepared by Puneet Gulati 11

12. The potential segments that require skilled
manpower
• Large infrastructure companies
– L & T, Gammon Infra, IVRCL, GMR Infra, Jaypee
Associates, HCC
Prepared by Puneet Gulati 12

13. Going forward . . . .
The launch of options is held up because of some regulatory
issues, which are likely to be resolved soon
Once that happens we can look forward to the Indian OTCs as
well
Introduction of the Options and OTC will make commodities
trading more relevant for the Indian companies
All these will create more opportunities and
the demand for the skilled manpower will go
up substantially.
Prepared by Puneet Gulati 13

14. The course should cover
• History of commodity markets
• Introduction to derivatives
• Commodity futures in India and its regulations
• Advanced concepts in commodity futures
• Introduction to options
• Advanced concepts in options on commodity futures
• Introduction to OTCs
• Advanced concepts in OTCs
• Concept of trader maintaining independent risk books
Prepared by Puneet Gulati 14

15. The course should cover
• Dematerialization and rematerialisation in commodity markets
• Other contemporary issues in commodity markets
• Commodity traders work station (tws) : an overview
• Taxation and accounting issues
• Live trading Practice on Dummy Terminals
Prepared by Puneet Gulati 15

16. The course should also cover
• Commodities Exchanges
– Indian Commodities Exchanges
– Foreign Commodities Exchanges
• Basic understanding of
– Fundamentals & Technical Analysis
• One module can be included on
– Currencies Trading
– Emission Trading / Carbon Credits
Prepared by Puneet Gulati 16

17. Strategy
• Obtain an university affiliation
• Tie ups with
– Management colleges to offer these courses as an extension to
their existing financial management courses
– Commodity Exchanges and Brokerage Houses for training of their
manpower
– A shorter version of the course can b d
h f h be developed f the investors
l d for h
/ traders and offered thru associate Brokerage Houses and
Commodities Exchanges
• At a latre stage we may approach
– Corporates, that have been using the commodity trading platforms
to mitigate their price risks
– Trading houses providing trading / arbitrage facilities for the
foreign commodities exchanges
Prepared by Puneet Gulati 17

18. Prepared by Puneet Gulati 18