COMMODITY FUTURES AS AN INVESTMENT AVENUE

COMMODITY FUTURES AS AN INVESTMENT
AVENUE
Submitted in partial fulfilment of the requirements
For the award of the degree of
Master of Business Administration
To
Guru Gobind Singh Indraprastha University, Delhi
Guide: Submitted by:
Dr. Vikas Gupta Aditya Arora
Associate Professor Roll No: 35280003918
GITARATTAN INTERNATIONAL BUSINESS SCHOOL
NEW DELHI- 1100085
BATCH 2018-2020

Certificate
I, Mr. Aditya Arora, Roll No. 35280003918 certify that the Project Report/Dissertation (MS-
202 or MIB-212) entitled “Commodity Futures as An Investment Avenue” is completed by me
and it is an authentic work carried out by me at Gitarattan International Business School. The
matter embodied in this project work has not been submitted earlier for the award of any degree
or diploma to the best of my knowledge and belief.
Aditya Arora
Signature of the Student
Date:
Certified that the Project Report/Dissertation (MS-202 or MIB-212) entitled “Commodity
Futures as An Investment Avenue” done by Mr. Aditya Arora, Roll No. 35280003918, is
completed under my guidance.
Signature of the Guide
Date:
(Dr. Vikas Gupta)
(Associate professor)
Countersigned
Director/Project Coordinator

Acknowledgement
The satisfaction and joy that accompanies the successful completion of a task is incomplete
without mentioning the name of the person who extended his help and support in making it a
success.
I am greatly indebted to Dr. Vikas Gupta (Associate Professor at GIBS), my Project Guide and
Mentor for devoting his valuable time and efforts towards my project. I thank her for being a
constant source of knowledge, inspiration and help during this period of making project.
My sincere thanks goes to Mr. B.S.Hothi sir Director of the institute for his
coordination in extending every possible support for the completion of this project.
I al so thanks t o m y parent s for thei r moti vati on & support . I m ust
thanks to my classmates for their timely help & support for compilation of this project.
Last but not the least I would like to thank all those who had helped directly or
indirectly towards the completion of this project.
Aditya Arora
Gitarattan International Business School
MBA (2018-2020)

Executive Summary
The growth of commodity futures market has been significant in terms of both network and
volume since the inception of market about a decade ago. At present, there is a two-level
formation for Commodity Exchanges in India: Regional and Country-Wide. The regional
exchanges are permitted to trade in restricted commodities (which are clearly specified for each
regional exchange) and their membership is local. On the other hand, the country wide
exchanges are electronic with demutualized ownership and offer wide bouquet of contracts for
trading purposes. The three premier country wide commodity exchanges in India are MCX
(Multi Commodity Exchange), NMCE (National Multi Commodity Exchange) and NCDEX
(National Commodities and Derivatives Exchange). The MCX occupies over 80% of market
share in India and finds its place in the top ten commodity exchanges in the world.
Our endeavour is to find out the status of Commodity Derivatives as they stand in the overall
economical, social and demographic picture of our system. The impact in economical system
is very much obvious and beyond any dispute as commodities are themselves economical
propositions.
But commodities are also subject matter of our social fabrication. Any society comprises of
two set of people: Traders and Farmers. Commodities are affecting the lives of both set of
people. Their business practices and strategies are rapidly changing, and commodity market is
very much influencing it. We have studied that impact. It is noteworthy that the new world
economic order is of convergence. All sectors, economies and trades are being interlinked.
Whether we like it or not, our businesses are no more ours. Entire world economy is involved
into it. The same applies to commodities Whether one participates into it or keeps himself
aloof, he, in no ways can escape its effects.
However, it must be kept in mind that as an asset class and even as a tool of risk minimization
(for Traders, Farmers and businesses); it is a very new and nascent proposition in India. Even

though Commodity futures have their long history in this country, periodical bans and
derogatory government policies have hindered their prospects to develop as a tool for hedgers
(risk minimization), leave alone the matter of their development as an investment avenue. Their
primary goal of true price discovery is also much waited.
This project aims to achieve the following objectives:
• To explore commodity futures as:
• An investment avenue (for middle class)
• A risk minimization tool (for the business class).
• To find out the penetration level of commodity futures markets in Indian society taking
Hyderabad as a representative market and added inputs from other parts of country.
• To explore the present status and prospects of commodities in our economy.
To develop a business development model for UTI SECURITIES as a brokerage firm by
targeting key markets and business houses in and around Hyderabad, giving main emphasis
on sugar and metal companies

Contents
S. No. Topic Page No.
1 Certificate (s) -
2 Acknowledgement (s) -
3 Executive Summary -
4 List of Tables -
5 List of Figures -
6 List of Symbols -
7 List of Abbreviations -
8 Chapter-1: Introduction 1-13
9 Chapter-2: Literature Review 14-32
10 Chapter-3: Data Presentation & Analysis 33-68
11 Chapter-4: Summary and Conclusions 69-78
12 Chapter-5: Recommendations 79
13 References/Bibliography 80

List of Tables
Table No Title Page No.
1.1 Commodity Groupwise Trends in Value of
Futures Trading
38
2.1 Commodity Prices (MCX) 40
3.1 Commodity Prices (NCDEX) 41
3.2 MCX Top Gainers 42
3.3 MCX Top Losers 43
3.4 Most Active Commodity on MCX (Value) 44
3.5 Most Active Commodity on MCX (Volume) 45
3.7 NCDEX Top Gainers 46
3.8 NCDEX Top Losers 47
3.9 Most Active Commodity on NCDEX (Value) 49
3.10 Most Active Commodity on NCDEX (Value) 50
3.11 Cross Tabulation between income group and
age group
51
3.12 Cross Tabulation between income and
occupation.
53
3.13 Price variation influences the fluctuation 61
3.14 Regulatory mechanism of commodity futures
in India.
67

List of Figures
Figure No Title Page No
1.1 Multi Commodity Exchange of India Ltd
(MCX)
40
2.1 National Commodities and Derivatives
Exchange (NCDEX)
41
List of Symbols
S No Symbol Nomenclature & Meaning
1  Sigma (Summation)
2 @ At the rate

1
Chapter-1
Introduction
1.1 Profile Organisation/Company:
Commodities have always been a part of our day to day existence as one of the finest
investment avenues available. But we have been unaware of them. The wheat in our bread, the
Cotton in our clothes, our gold jewels, the oil that runs our cars, etc., are all traded across the
world in major exchanges. India has a long history of trade in commodity derivatives; this
sector remained underdeveloped due to the control over and intervention in commodities prices
by the government for many years. The production, supply and distribution of many
agricultural commodities are still governed by the state and forwards and futures trading are
selectively introduced with stringent controls. Free trade in many commodity items is restricted
under the Essential Commodities Act, 1955 and the Agriculture Productive Marketing
Committees Acts of the various state governments. The Bombay Cotton Trade Association set
up the first commodity exchange in India and formally organized futures trading in cotton in
1875. Subsequently, many exchanges came up in different parts of the country for futures
trading in various commodities. The Gujarati Vyapari Mandali came into existence in 1900,
which undertook futures trading in oilseeds for the first time in the country. The Calcutta
Hessian exchange ltd and the East India Jute Association Ltd were set up in 1919 and 1927
respectively for futures trade in raw jute. A future trading in cotton was organized in Mumbai
under the auspices of East India cotton Association in 1921. Simultaneously, several exchanges
were set up in major agricultural centres in North India before the World War broke out and
they were mostly engaged in wheat futures until it was prohibited in 1921.

2
1.1.1 Indian Commodity Market in the Global Scenario
Despite having a robust economy, India's share in the global commodity market is not as big
as estimated. Except gold, the share in other sectors of the commodity market is not very
significant. India accounts for 3 per cent of the global oil demands and 2 percent of global
copper demands. In agriculture, India's contribution to international trade volume is rather less
compared to the huge production base available. Various infrastructure development projects
that are being undertaken in India are being seen as a key growth driver in the coming days.
1.1.2 Commodity Futures Market
A commodity futures market is nothing more or less than a public marketplace where
commodities are contracted for purchase or sale at an agreed price for delivery at a specified
date. These purchases and sales, which must be made through a broker who is a member of an
organized exchange, are made under the terms and conditions of standardized futures contract.
In the commodity futures market commodities are bought and sold for later delivery and there
is no immediate transfer of ownership. Commodity futures are essentially price agreements.
People who trade in commodity futures at CME are basically speculating about what they think
of the prices of specific agricultural products will be at some point in the future – the next
minute, next hour, next month or even the next year.
What they trade, more specifically, are contracts – legally binding documents – to buy or sell
a specific quantity and quality of a commodity such as live cattle, lean hogs or milk for delivery
during a particular month, at a price mutually agreed upon by the buyer and seller, with full
payment expected at delivery. They do not, however, have to hold that contract until it expires.
Instead of taking delivery, they can turn around and “offset” the contract with an equal and

3
opposite transaction– buying if they initially sold, selling if they initially bought – and hope
that the selling price is more than the price they paid, so that the transaction is profitable.
1.1.3 Evolution of Commodity Futures Market
Commodities futures’ trading was evolved from the need of assured continuous supply of
seasonal agricultural crops. The concept of organized trading in commodities evolved in
Chicago, in 1848. But one can trace its roots in Japan in the 19th century. Chicago in United
States had emerged as a major commercial hub so that wheat producers from Midwest were
attracted here to sell their produce to dealers and distributors. Due to Lack of organized storage
facilities, the absence of uniform weighing and grading mechanisms, producers often were
confined to the mercy of dealers’ discretion. These situations led to the need for establishing a
common meeting place for farmers and dealers to transact in spot grain to deliver wheat and
receive cash in return. Gradually sellers and buyers started making commitments to exchange
the produce for cash in future and thus contract for “futures trading” evolved whereby the
producer would agree to sell his produce to the buyer at a future delivery date at an agreed upon
price of storage, pricing, and transfer of agricultural products.
1.1.4 History of Commodity Futures Market in India
The history of organized commodity derivatives in India goes back to the nineteenth century,
when the Cotton Trade Association started futures trading in 1875, about a decade after it was
started in Chicago. Over the time, derivatives market developed for several commodities in
India following Cotton derivatives trading which started in oilseed in Bombay (1900), raw jute
and jute goods in Calcutta (1912), Wheat in Hapur (1913) and Bullion in Bombay (1920).

4
1.1.5 National Level Commodity Exchanges in India
There are four commodity exchanges in India and they are:
a) National Commodity & Derivatives Exchange Limited (NCDEX) Mumbai,
b) Multi Commodity Exchange of India Limited (MCX) Mumbai,
c) National Multi- Commodity Exchange of India Limited (NMCEIL) Ahmedabad and,
d) Indian Commodity Exchange Limited (ICEX), Gurgaon
a) NMCE (National Multi Commodity Exchange of India Limited)
NMCE is the first demutualised electronic commodity exchange of India approved by the
Government of India with a national character and become operational since 26th Nov, 2002.
Promoters of NMCE are, Central Warehousing Corporation (CWC), National Agricultural
Cooperative Marketing Federation of India (NAFED), Gujarat Agro-Industries Corporation
Limited (GAICL), Gujarat State Agricultural Marketing Board (GSAMB), National Institute
of Agricultural Marketing (NIAM) and Neptune Overseas Ltd. (NOL). Main equity holders are
PNB. The Head Office of NMCE is located in Ahmadabad. There are various commodity
trades on NMCE Platform including Agro and non-agro commodities.
b) NCDEX (National Commodity and Derivates Exchange Limited)
NCDEX is a public limited company. Incorporated on April 2003 under the Companies Act
1956 and it obtained its certificate for commencement of Business on May 9, 2003. Further it
commenced its operation on December 15, 2003.The promoter shareholders are: Life Insurance
Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD)
and National Stock Exchange of India (NSE) and the other shareholders of NCDEX are: Canara

5
Bank, CRISIL limited, Goldman Sachs, Intercontinental Exchange (ICE), Indian Farmers
Fertilizer Corporation Ltd (IFFCO) and Punjab National Bank (PNB). The NCDEX is located
in Mumbai and currently facilitates trading in 57 commodities mainly in Agro products.
c) MCX (Multi Commodity Exchange of India Limited)
Headquartered in Mumbai, MCX is a demutualised nationwide electronic commodity futures
exchange set up by Financial Technologies (India) Limited with permanent recognition from
the government of India for facilitating online trading, clearing and settlement operations for
future market across the country. The exchange started its operation in Nov, 2003. The MCX
equity partners include, NYSE Euro next, State Bank of India and its associates, NABARD,
NSE, SBI Life Insurance Corporation Limited, Bank of India, Bank of Baroda, Union Bank of
India, Corporation Bank, Canara Bank, HDFC Bank, etc. The MCX is well known for bullion
and metal trading platform.
d) ICEX (Indian Commodity Exchange Limited)
ICEX is the latest commodity exchange of India which started functioning from 27 Nov, 2009.
It is jointly promoted by India Bulls Financial Services Limited, MMTC Limited and Indian
Potash Limited. KRIBHCO and IFC among others, as its partners having its head office located
at Gurgaon (Haryana).
1.1.6 Determination of Prices in Commodity Futures Market
In commodity futures market, prices are determined solely by supply and demand conditions.
If there are more buyers than the sellers, prices will be forced up. If there are more sellers than

6
buyers, prices will be forced down. Buy and sell orders, which originate from all sources and
are channelled to the exchange trading floor for execution, are actually the factors that
determine prices. These orders to buy and sell are translated into actual purchases and sales on
the exchange trading floor, and according to regulation this must be done by public outcry
across the trading ring or pit and not by private negotiation. The prices at which transactions
are made are recorded and immediately released for distribution over a vast
telecommunications network.
The purpose of a commodity exchange is to provide an organized marketplace in which
members can freely buy and sell various commodities in which they have an interest. The
exchange itself does not operate for profit. It merely provides the facilities and ground rules for
its members to trade in commodity futures and for non-members also to trade by dealing
through a member broker and paying a brokerage commission.
1.1.7 Profiles
For a market to succeed, it must have all three kinds of participants-hedgers, speculators and
arbitragers. The confluence of these participants ensures liquidity and efficient price discovery
on the market. Commodity markets give opportunity for all three kinds of participants. In this
chapter we look at the use of commodity derivatives for hedging, speculation and arbitrage.
a) Hedgers:
Hedgers could be government institutions, private corporations like financial institutions,
trading companies and even other participants in the value chain, for instance farmers,
extractors, ginners, processors etc., who are influenced by the commodity prices.

7
(i) Short Hedge: A short hedge is a hedge that requires a short position in futures contracts.
As we said, a short hedge is appropriate when the hedger already owns the asset, or is likely
to own the asset and expects to sell it at some time in the future. For example, a short hedge
could be used by a cotton farmer who expects the cotton crop to be ready for sale in the
next two months.
(ii) Long Hedge: a long Hedge that involve taking a long position in futures contract are known
as long hedges. A long hedge is appropriate when a company knows it will have to purchase
a certain asset in the future and wants to lock in a price now.
b) Speculation:
An entity having an opinion on the price movements of a given commodity can speculate using
the commodity market. While the basics of speculation apply to any market, speculation in
commodities is not as simple as speculating on stocks in the financial market.
For a speculator who thinks the shares of a given company will rise, it is easy to buy the shares
and hold them for whatever duration he wants to. However, commodities are bulky products
and come with all the costs and procedures of handling these products. The commodities
futures markets provide speculators with an easy mechanism to speculate on the price of
underlying commodities.
To trade commodity futures on the NCDEX, a customer must open a futures trading account
with a commodity derivatives broker. Buying futures simply involves putting in the margin
money. This enables futures traders to take a position in the underlying commodity without
having to actually hold that commodity. With the purchase of futures contract on a commodity,
the holder essentially makes a legally binding promise or obligation to buy the underlying
security at some point in the future.
c) Arbitrage:
A central idea in modern economics is the law of one price. This states that in a competitive
market, if two assets are equivalent from the point of view of risk and return, they should sell

8
at the same price. If the price of the same asset is different in two markets, there will be
operators who will buy in the market where the asset sells cheap and sell in the market where
it is costly.
This activity termed as arbitrage, involves the simultaneous purchase and sale of the same or
essentially similar security in two different markets for advantageously different prices. The
buying cheap and selling expensive continues till prices in the two markets reach equilibrium.
Hence, arbitrage helps to equalize prices and restore market efficiency.
1.1.8 Rules governing commodity derivatives exchanges
The trading of commodity derivatives on the NCDEX is regulated by Forward
Markets Commission (FMC). Under the Forward Contracts (Regulation) Act, 1952, forward
trading in commodities notified under section 15 of the Act can be conducted only on the
exchanges, which are granted recognition by the central government.
All the exchanges, which deal with forward contracts, are required to obtain certificate of
registration from the FMC. Besides, they are subjected to various laws of the land like the
companies Act, Stamp Act, Contracts Act, Forward commission Act and various other
legislations, which impinge on their working.
Forward Markets Commission provides regulatory oversight in order to ensure financial
integrity, market integrity and to protect and promote interest of customers/ non-members. It
prescribes the following regulatory measures:
a) Limit on net open position as on the close of the trading hours. Sometimes limit is also
imposed on intra- day net open position. The limit is imposed operator-wise, and in some
cases, also member-wise.

9
b) Circuit-filters or limit on price fluctuations to allow cooling of market in the event of abrupt
upswing or downswing in prices.
c) Special margin deposit to be collected on outstanding purchases or sales when price moves
up or down sharply above or below the previous day closing price. By making further
purchases/sales relatively costly, the price rise or fall is sobered down. This measure is
imposed only on the request of the exchange.
d) Circuit breakers or minimum/maximum prices these are prescribed to prevent futures prices
from falling below as rising above not warranted by prospective supply and demand factors.
e) Skipping trading in certain derivatives of the contract, closing the market for a specified
period and even closing out the contract.
In the budget speech delivered on 28 February 2002, the then Finance Minister announced an
expansion of futures and forward trading to cover all agricultural commodities. This was
followed by the removal of the ban on futures trading on 27 (out of 81 items) in oilseeds, oils
and their cakes in August 2002. Subsequently, in February 2003, the Government removed the
prohibition on the remaining 54 commodities also under the Forward trading in general and the
agricultural sector in particular, The Securities Contracts (Regulation) Act, 1956, was also
amended in August 2003 to provide for commodity derivatives Exchange (NCDEX ) and Multi
Commodity Exchange (MCX), Mumbai.
National status was given to these exchanges so that they would be automatically permitted to
conduct futures trading in all commodities subject to the clearance of bylaws and contract
specifications by the FMC, While the NMCE, Ahmedabad commenced futures trading in

10
November 2002, MCX and NCDEX, Mumbai commenced operations in October and
December 2003 respectively.
Over the ages, commodities have been the basis for trade and industry. They have spurred
commerce, encouraged exploration and altered the histories of nation. Today they play a very
important role in the world economy with billions of dollars of these commodities traded each
day of exchanges across the world, so much so that today the commodity market are roughly
4-5 times the size of the equity market, where ever they are actively traded.
Futures trading play a key role in the marketing of many important agricultural commodities
and their products. And yet this institution is still perhaps “the least understood and often the
most condemned part of the entire marketing system.” In our own country as well as in those
like the U.S.A. and the U.K., where active Futures markets exist, a theoretical debate has been
going on for quite some time as to their role and functions. Much of the discussion has naturally
centred on the Effects of futures trading on prices. Some affirm that it helps to stabilize prices
while others argue that because of the existence of speculation which is inherent in it; its price
effects are often destructive. Little empirical evidence, however, has yet been produced in
support of either view. The present study is a modest attempt in that direction.
Trade in commodity futures contracts via the organized exchanges currently seen in the United
States goes back to the 1860s. The basic concept is much older. There are records of trade in
contractual obligations, similar to the modern day futures contracts, in China and Japan in
earlier centuries. The current widespread and growing interest in commodity futures emerged
during the 1970s. Extreme price variability in the grains, oilseeds, fibers, and livestock
commodities brought with it a sense of urgency and a need for mechanisms to manage age
exposure to price risk. Instability in the economy late in the decade and into the early 1980s
brought double-digit inflation, a prime interest rate that exceeded 20 percent, and widespread

11
uncertainty. Farm policy moved away from approaches that pegged specific prices for key
agricultural commodities and toward a posture that would allow U.S. prices to trade in futures
contracts for such diverse items as the agricultural commodities, treasury bills, lumber, foreign
currencies, copper, and heating oil.
Options on futures contracts can remove two related and major barrier to the use of commodity
futures in the forward-pricing of agricultural commodities. The first is the producer’s constant
fear that forward prices of future sales have been set too low or that forward prices (i.e., costs)
of futures purchases have been set too high.
Producers often equate bad outcomes, in terms of opportunity costs, with bad decisions. Even
if the forward price established is profitable, there is a tendency for producers to view the hedge
set early at relatively low prices (or at relatively high costs) to be a bad decision. If the futures
side of the hedge loses money, the Tendency is to view the hedge as a mistake and to talk about
losing money with the hedge.
Second and related barrier to direct use of the futures markets is the need to manage a margin
account and answer margin calls as the market rallies against a short position in the futures.
Neither producers nor their lenders have always understood the need for a special and
additional credit line to answer margin calls. There are countless examples of producers being
forced to offset short hedges due to the inability or lack of a willing creditor to provide the
needed margin funds. Often, the market turns lower after the upward price move that forced
the producer to offset the short hedges. A loss is incurred in the futures account and then the
producer is without price protection as the market turns and trends lower.

12
1.2 Objectives of Study:
The primary objective of the study is to evaluate the Commodity Futures as an Avenue for
Investment and following supporting objectives are set as under:
1. To examine the need of Commodity Futures in India
2. To examine the various risk factors in using commodity future,
3. To study the influence of futures trading, on price and price variation,
4. To evaluate the effectiveness of the various measures of commodity futures as investment
avenues in India.
1.3 Scope of Study:
1.3.1 This study focuses on futures alone among derivative. Among futures, only commodity
future has been assessed,
1.3.2 The main focus on potential investors and those who invest regularly commodity
futures there return, risk and expectation towards commodity futures of this study is to
asses,
1.3.3 To examine the various risk factors in using commodity futures by inflation and price
fluctuation, and to evaluate the future trading on price and price variation.
1.4 Methodology:
1.4.1 According to Clifford woody research comprises of “defining, redefining problem,
formulating hypothesis or suggested solution, collecting, organizing and evaluating
data, making deductions and reading conclusions to determine whether they fit the
formulating hypothesis.”

13
1.4.2 It is a way to systematic solution of the research problem. The researcher needs to
understand the assumption underlying various techniques and procedures that will be
applicable to certain problem. This means that it is necessary for the researcher to
design its methodology.
1.4.3 There are various factors such as the personal factors as well as the market factors that
motivate a person to save and invest. Thus, the questionnaire will be directed towards
the respondents to give the feedback about their savings interest and the various
investment opportunities they are aware about and it also give respondents to rethink
about their investment criteria and upgrade it to maximize their returns.
1.5 Hypothesis:
Testing: For hypothesis testing ‘Chi square’ test is used. The total no of respondents who are
involved in the survey are 60 out of which 45 respondents are regular investors in commodity
futures remaining 15 were potential investors Hypothesis to be tested:
1.5.1 H0-Commodity futures are not excellent vehicle for investment
1.5.2 H1-Commodity future are excellent vehicle for investment

14
Chapter-2:
Literature Review
2.1 Literature Review:
Futures trading are a device for protection against the price fluctuations which normally arise
in the course of marketing of commodities. Stockiest, processors and manufacturers utilize the
futures contract to transfer the price risk faced by them. This use of the futures market is
commonly known as hedging.
A futures contract is a highly standardize contract, which is invariably entered into for the
‘basis’ variety, but against which other varieties within a stipulated range can also delivered
with appropriate premier or discounts for the differences in their qualities from the ‘basis’
during a period which, in futures market parlance, is called the delivery month. Wherever a
futures market is organized, two markets operate side by side, viz., the spot and the futures.
This chapter purposes to provide an ephemeral idea on the existing literature that chains the
objective of this research work. It also helps in understanding the theoretical root and to present
the numerous viewpoints offered by different studies on commodity markets. Literature of
review discussed published material in a specific area and sometimes information in a specific
area within a certain time period. The assessment of the past studies in the research means to
note the observations, exploration and numerous more things completed in the past regarding
the enquiry in the hand. It is foundation for natural and social science. It offers details regarding
tools used, procedures accepted, findings and observations made. It also hints the way for data
collection and introduction from the numerous sources. This kind of study is also valuable to
define the scope of our research.

15
2.1.1 Studies on the Growth and Size of Commodities Market Globally
(Dewbre, 1981) anticipated an econometric model by working on the function of rational
expectation formation in joint determination of commodity cash and futures prices to recognise
the implications of such an approach by focusing the issues like the direction and magnitude
of changes in the cash and futures prices occurring in response to changes in the valuable
economic information. From the analysis, they observed the persistence of ‘rational
expectation’ and working of equally redundant efficient market hypothesis. (Garbade & Silber,
1983) examined the distinctiveness of price movement in cash and futures market for storable
commodities. They employed the simultaneous price dynamics model and found that over short
intervals of time, the correlation of price changes become a function of elasticity of arbitrage
between the physical commodity and its counterpart futures contract. Basically, the two price
series exhibits stochastic behaviour while pricing identical assets and exhibit a deterministic
liner relationship between them.
(Brorsen, Ollerman, & Farris, 1989) employed regression techniques to measure the effects
of futures trading on the variability and volatility of cash cattle prices and found the futures
trading impacting cash markets. Moreover, futures trading increases cash market pricing
efficiency also increases short run spot price risk. A future contract is a contract to buy or sell
a predetermined amount of certain standardized commodity at a predetermined future date at a
pre-agreed price. Future market performs several economic functions. It includes hedging
function, price discovery function, financing function, liquidity function and price stabilization
function. A well-organised spot market also performs the price discovery function, but only in
respect of the spot price. Future prices provide an expression of the consensus of today’s
expectation at some point in future. The process of price discovery also facilitates the inventory

16
allocation function by which market participants are able to compare the current and future
prices and decide the optimal allocation of their stocks between immediate sale and storage for
future sale. Unlike the physical market facilitate offsetting the trades without exchanging
physical goods until the expires of a contract as a result, future market attracts hedgers for risk
management and encourage considerable external competition from those who possess market
information and price judgment to trade as traders in these commodity. While hedgers have
long-term perspective of the market. Polling is process of gathering information from a cross
section of market players about the spot price of the commodity in the market. Spot prices is
captured at the identified basis centres of a commodity, by getting price quotes from the
empanelled polling participants representing the value chain comprising various user class like
Auctioneers, traders, cold store owners, Farmer, Grader, Miller, Commission agents,
Wholesaler’s, Processors, Importers, Exporters etc. The prices of the underlying commodity
are polled and disseminated to the Market. Future Markets are able to perform the price
discovery function for two reasons. Firstly, future prices are a collective expectation of market
agents about prospective demand and supply of commodities at maturity of the future contract.
Tracers make the decision to buy or sell the future contract on the basis of the difference in
expectation about future demand and supply condition at maturity. Secondly, future trading is
paper trading: therefore, prices tend to be very sensitive to new information, the transaction
cost of future trading is low and also it provides greater liquidity. The studies of price discovery
are of two types. The first one is the price discovery within the market and the second one is
the price discovery across the market. In the first phase, price discovery examines that a future
leads to the spot market. In the second phase, the present study intends to examine the price
discovery by taking spot market for the same commodity, considering one future market as the
spot market, which would reveal future market dominates in the price discovery process than
spot market dominates in the price discovery process.

17
(Garcia, Leuthold, Fortenbery, & Sarassoro, 1988) evaluated the pricing efficiency of the
live cattle futures and cash market by employing ARIMA model and composite forecasting
procedures, in terms of the mean-squared error criterion a necessary condition for market
efficiency and found the most accurate forecast with generation of large risk return ratio. Thus,
these results do not show strong evidence of inefficiency and call into question the use of only
mean squared errors to examine a market’s pricing efficiency.
(Bessler & Covey, 1991) employed co integration methods on daily data and shows the
evidence of co integration between nearby futures and cash prices, but no evidence of co
integration when more distant futures contracts were considered. There are mainly two types
of commodity markets - spot which is also known as physical and derivatives which is also
known as futures, options and swaps. In a spot market, a physical commodity is sold or bought
at a price negotiated between the buyer and the seller. The spot market involves buying and
selling of commodities in cash with immediate delivery. There are spot markets for individual
consumers and the business to business category. Spot markets also include traditional markets
such as Ludhiana’s Anaj Mandi that deal in all kind of grains. On the other hand, a commodity
can be sold or bought via derivatives contract as well. A futures contract is a predetermined
and standardized contract to buy or sell commodities for a specific price and for a certain date
in the future. For instance, if one wants to buy twenty tons of rice today, one can buy it in the
spot market. But if one wants to buy or sell twenty tons of rice at a future date, one can buy or
sell rice futures contracts at a commodity futures exchange. The futures contracts offer for the
delivery or receipt of a physical commodity of a specified amount at some future date. Under
the physically settled contract, the filled purchase price is paid by the buyer and the actual
commodity is delivered by the seller. But in a futures contract, actual delivery takes place later.
For occasion, a farmer enters into a futures contract to sell ten tons of rice at fifteen hundred

18
rupees per tons to a miller on a future date. On that date, the miller will pay the full purchase
price fifteen hundred rupees to the farmer and in exchange will receive the ten tons of rice.
However, under the cash-settled futures contract, the farmer and the miller would just exchange
the difference between the spot price of rice on the settlement date and the agreed upon price
as mentioned in the futures contract and there would be no actual delivery of rice. Subsequent
the above example, if on the settlement date the price of rice was twelve hundred rupees per
tons, while the agreed upon price of futures contract was fifteen hundred rupees a ton, the miller
will pay three hundred rupees to the farmer in cash and there will be no delivery of rice to the
miller. If on the settlement date, the price of rice was eighteen hundred rupees a ton, the farmer
will pay three hundred rupees to the miller in cash and no delivery of rice will take place. In
Repetition, most futures contracts do not involve delivery of physical commodity as contracts
are settled in cash through an exchange.
(Fortenbery & Zapata, 1993) and suggested a possible reason for inconsistent result of
Bessler and Covey might be the lack of explicit storage relationship between cash and futures
market for livestock. In many countries, billions of dollars’ worth of commodities is traded
daily through forward contracts providing for physical delivery. A forward contract is an
agreement among the seller and the buyer for the delivery of a certain quality and quantity of
a commodity at a detailed future date and for a specified price. Such contracts are self-
governing, bilaterally negotiated, private contracts and therefore not conducted at an organized
exchange. Though, such contracts are legally binding. Currently most commodity physical
forwards are conducted on electronic trading platforms. Since these contracts are conducted in
physical forward markets, they bring together the commodity producer, merchandiser and
consumer at a common marketplace. The commodity physical forward markets necessitate
substantial investments in the logistical infrastructure for the physical delivery of the

19
underlying commodity. It involves building and managing the logistics of the supply chain
from producer to consumers. The commodity physical forwards are different from commodity
futures contracts in many important ways. Unlike futures, the majority of commodity physical
forwards result in the physical delivery of the underlying commodity. Only in exceptional
circumstances, such contracts could be fully or partially cash settled. The transfer of ownership
of the underlying physical commodity is an important function of commodity physical forward
markets. The market participants interested in the physical delivery of commodities rely on the
physical forwards market for this function. On the other hand, futures market shares mainly
used for risk management, hedging and speculative purposes. In addition, the commodity
physical forwards are subject to different regulatory requirements since these are not
considered as purely financial instruments.

20
2.1.2 Status of Commodities Market in India
(Vashist & Ashutosh, 2002) attempted to discover the determination of equilibrium price of
future contract of a farming commodity with relationship of future contract with the expected
spot market at maturity of the contract. They identified three determinations of the equilibrium
price i.e. risk aversion of hedgers, demand and supply conditions expected by hedgers in the
spot market opportunity and responsiveness of speculators about current spot market. In case
of relationship between future contract and spot market, existence of excess demand was
observed. Speculator’s expectation of increase in spot prices resulted in high demand for future
and in opposite situation of low prices the speculators by doing reverse trade creates off setting
positions. India has a long history of commodity futures trading, extending over 250 years. Still
such trading was interrupted suddenly since the mid-seventies, in the caring hope of showing
in an indefinable socialistic pattern of society. As the country embarked on economic
liberalization policies in the early nineties and signed the world trade organisation agreements
in the mid-nineties, the government realized the need for future trading in commodity
derivatives to provide effective and advance price signal to producers and to provide the
economics stakeholders with a risk management platform. As such, futures trading began to be
permitted in several commodities including cotton, cardamom and silver which hold the key
position in terms of transportation and various other uses. Growth in the planned commodity
markets and their constituents suggests that there would be marvellous advantages and benefits
ensued to the Indian economy in terms of business generation and growth in employment
opportunities. With India exporting bulk of commodities, there is scope for diminishing price
risk of international commodities for the Indian economy as a total.

21
(Roy & Kumar, 2007) studied hedging effectiveness of wheat futures in India using least
square method and found that hedging effectiveness provided by futures markets was low.
(Rutten, 2009), as per his work on commodity future contract, international commodities traded
on the Indian exchange such as bullion, metals like copper, aluminum, steel, etc. and energy
product like crude oil, natural gas, etc., contributes for more than 80% of their average daily
commodity turnover. These commodities are mainly linked with global market as their imports
and exports are permissible subject to a marginal tariff incidence. Obviously, most of these
commodities are mostly governed by their fundamentals means the forces of demand and
supply at the global level and partly by expansion on the domestic level. So, it is essential for
the users of these commodities to take position on a future platform with worldwide linkages
in order to hedge their risk. For internationally traded commodities, mainly metals and crude
oil, the price discovered on Multi Commodity Exchange in India have very deeply with the
international benchmarks. This also displays that the prices of Multi Commodity Exchange’s
futures on internationally traded commodity follows efficiently and in cyclical combined force
of domestic and worldwide fundamentals, and this makes the national online exchanges a cost
effective and greater alternative to their global counterparts.
(Nath, Golka, Lingareddy& Tulsi 2008) emphasised that commercialism in artifact futures
contributed to a rise in inflation as result showed that in the fundamental measure of future
commercialism the cash price of selected commodities and their volatilities had denoted
exceptional increase. An exchange is associate unionised physical or virtual marketplace
wherever numerous tradable securities, commodities and derivatives are sold-out and
purchased. Artifact derivatives exchanges are places wherever commercialism of artifact
futures and choices contracts is conducted. Contrary to widespread perception, artifact
derivatives don't seem to be a brand new development. They appeared a lot of before monetary

22
derivatives within the world. Clay tablets appeared in geographical region regarding 2000 B.C.
as contracts for future delivery of agricultural product. The story of stargazer of Miletus B.C.
in Aristotle’s writings is taken into account because the initial account of associate possibility
trade whereby the price of the spring olive from the oil presses was negotiated in winter while
not associate obligation to shop for the oil. The concept was to offset the worth risk and
maintain a year round supply of seasonal agricultural crops within the markets. During the
twelfth century, merchants began creating commitments to shop for or sell goods even before
they were physically offered to scale back the danger of plundering whereas traveling on
dangerous routes. The central operate of those contracts, later known as derivatives, was to
guarantee a future value and avoid the risks of surprising higher or lower costs. The late
nineteenth century witnessed a spurt in artifact futures commercialism with the creation of
exchanges. The most explanation was reduction of dealings prices yet as organizing a
marketplace wherever patrons and sellers might realize a ready market. Remarkably, one
amongst the most reasons behind creation of Chicago Board of Trade – one amongst the
world’s largest artifact exchanges was that farmers coming to Chicago from time to time found
no patrons and had to dump their unsold cereals in Lake Michigan, contiguous the town.
Chicago emerged as a major commercial hub wherever derivatives were listed and harvest may
well be delivered with the most effective of rail, road and telephone line connections to draw
in wheat producers, dealers and distributors. The costs on the Chicago Board of Trade e.g. for
wheat futures are still necessary value references and value indicators used worldwide. Some
artifact exchanges were established within the remainder of the world. Another exchange came
upon in 1854, national capital Grain Exchange in Argentina is associate example of such
previous exchange within the world. After the relaxation of agricultural interchange, the 20th
century, several countries withdrew support to agricultural producers and costs became
additional volatile. Thus, artifact exchanges stepped in to satisfy the worth discovery and

23
hedging operate and facilitate physical commercialism. Initially, these exchanges were placed
primarily in developed countries however shortly the developing countries too caught on.
However, whilst several new subtle exchanges began operations, many old exchanges
disappeared. In the Nineteen Seventies and 80s, the US was a number one player in artifact
derivatives commercialism that began there with corn contracts at the Chicago Exchange
within the mid-19th century and cotton at the big apple Exchange. By the first Nineteen
Eighties, the North American country was home to 13 major futures and choices exchanges,
together with the Chicago Board of Trade, one amongst the world’s biggest futures and choices
exchange; Chicago Mercantile Exchange and the big apple Mercantile Exchange.
(Sen, 2008) provided a detailed study on the impact of future trading on agricultural
commodities, in which certain research attribute the influences of future trading on agricultural
commodities through 2008. The practiced committee headed by Prof. has been set up by
government of India to study the extent of impact if any, of futures trading on wholesale and
retail prices of agricultural commodities and to propose ways to diminish such an impact and
make such other references as the Committee may consider suitable regarding increased
association of farmers in the futures market or trading so that farmers are talented to get the
benefit of price discovery through Commodity Exchanges. A commodity exchange is an
exchange where various commodities and derivatives products are traded. The advent of
economic liberalization helped the cause of laying emphasis on the importance of commodity
trading. By the beginning of 2002, there were about twenty commodity exchanges in India,
trading in forty-two commodities, with a few commodities being traded internationally. The
year 2003 is a turning point in the history of commodity futures market when a large group of
prohibited commodities was opened up for forward trading and new national commodity
exchanges such that Multi Commodity Exchange, National Commodity & Derivative

24
Exchange and National Multi Commodity Exchange of India were established. Commodity
trading is now available in agro products, metals, oil and oilseeds, food grains, pulses,
vegetables, fibers, spices, energy products, polymers, petrochemicals and carbon credits.
Commodities futures contracts and the exchanges they trade in are governed by the Forward
Contracts (Regulation) Act, 1952. The regulator is the Forward Markets Commission, a
division of the Ministry of Consumer Affairs, Food and Public Distribution. The commodity
market has taken significant strides during the last few years. The prohibition on futures trade
has been abolished. Four new nationwide multi commodity exchanges has been approved, one
of which have already commenced trade; the other three are likely to commence trading in near
future. These Exchanges will be technology driven and will adopt international best practices
of risk management for trading, clearing and settlement. They are demutualised Exchanges.
Two of these exchanges are promoted by reputed institutions. One of the exchanges, i.e.,
National Multi-commodity Exchange of India Ltd. (NMCEIL) has Central Warehousing
Corporation, NAFED (Government of India enterprises) and Gujarat Agro Industries
Corporation (Gujarat Government) as prominent promoters. The National Commodities
Derivative Exchange Ltd. has been promoted by a consortium comprising of ICICI Bank,
National Stock Exchange, Life Insurance Corporation, and NABARD. The other two
exchanges have also committed to invite institutional participation. They propose to set up an
efficient Warehouse Receipt based delivery mechanism, which will have a bearing not only on
futures market but also upstream in the spot market and collateral financing. The impending
competition has imparted vibrancy among some of the existing exchanges. Volume of Trade
during 2002-2003 registered a jump of about 200 per cent. In value terms, the trade increased
from Rs.35, 000crores in 2001-2002 to over Rs. One lakh crore in 2002-2003.The MCX is the
world's largest exchange in silver, the second largest in gold, copper and natural gas and the
third largest in crude oil futures. However, exchange traded commodities contribute for only a

25
fifth of the total volume of commodities traded in India. Internationally, the futures market in
commodities is 30-40 times the size of the underlying physical commodity trade. The higher
the multiplier, the more delicately the commodity price risks can spread across the market. So,
it is obvious that there is a huge scope of upsurge in the volume of commodity futures trading
in India. In terms of market share, MCX is currently the largest commodity futures exchange
in India, with a market portion of close to 70%. CDEX follows with a market share of about
25%, leaving the remaining 5% for NMCE. (Lokare, 2007) accepted the empirical study on
commodity derivatives and price risk management which discovered that commodity
derivatives trading in India not withstanding its extended and riotous history with globalisation
and recent measures of liberalisation has witnessed a huge renaissance turning it one of the
most rapidly growing areas in the financial sector today. These study actions to test the
efficiency and performance of commodity derivatives in direction finding the price risk
management. The significant analytics of performance advises that these markets although are
yet to achieve least critical liquidity, about all the commodities throw an evidence of co-
integration in both spot and future prices, foretelling that these markets are marching in the
right direction of achieving enhanced operational efficiency at a slower pace. However, the
volatility in the future price has been significantly lower than the spot price signifying an
inefficient utilisation of information. Abundant commodities also appear to attract wide
speculative trading. Hedging shows to be an efficient proposition in respect of some
commodities, while others entail moderate or considerably higher risk. As the markets develop,
it leftovers to be seen whether the information content of future prices could be factored in the
path of future monetary policy setting.

26
(Dipankar Chakrabarti and Nath, 2009) specified in their work on Technology Concept of
Commodity Exchange that technology is and will continue pivotal for any commodity
exchange in future. Commodity exchange should utilise the new upsurge of technology
novelties to create differentiator for them. For slighter exchanges facing far snugger resource
restraints, the growth of close and cooperative partnership with technology developers will be
the main to surviving and flourishing in the technology age. This strategy is known as a short
hedge. In India, however such type of direct participation by farmers is rarely seen because
farmers have little knowledge of futures markets. Besides, trading in future markets is
cumbersome as it involves meeting various membership criteria, bank transaction norms, daily
payments of margins, etc. In the US, however, big farmers and agribusiness corporations do
take part in the futures markets. On the other hand, a guar gum manufacturer plans to buy guar
seeds in the future may suffer a loss on account of an increase in guar seed prices. To minimize
or eliminate the risk, the manufacturer may enter into a futures contract to buy the guar seed at
a certain fixed price. This strategy is known as a long hedge. Just like a guar farmer, an airline
can also hedge its operating costs by using a futures contract to lock in the price on future
delivery of jet fuel, which alone may account for 30-50 percent of its operating costs. It is
important to note that the commodity futures price, the price agreed upon by the parties for the
future transaction, is a market estimate about the future price of the underlying commodity. It
reflects the price expectations of both buyers and sellers for a time of delivery in the future. It
may be higher or lower than the spot price of the commodity in the spot market. Thus, the
futures price could be used as an estimate of the spot price of a commodity at some future date.
However, futures prices keep changing until the last date of the futures contract subject to
additional information about demand and supply. The continuous flow of information makes
the process of price discovery dynamic in a commodity futures market. For instance, the price
of March futures contract of guar seed will reflect the opinions of buyers and sellers about the

27
value of the guar seed when the contract expires in March. The March futures prices may go
up or down with the availability of new information. The price signal can provide a direction
to a farmer about what a commodity will be worth at a future point of time and, on the basis of
future prices, he can take decisions on what to produce on the likely prices in the near future.
If price signals given by long duration new season futures contract of guar seed mean high
prices in the future, he farmers can allocate more land/resources for growing guar, and vice
versa. Hence, the farmers can benefit from the dissemination of the futures prices. (Balaji K.,
2009) shown in his research undertaken on commodities market in India: policies, issues,
growth, importance and the commodities market information in the year 2009 tried to
comprehend the rules and regulations as well as the growth of commodity market during the
year 2009. The study was expressive in nature which provided general idea about the regulatory
system usual in the system for the commodity market. This study exposed that the market has
made marvelous growth in terms of technology, transparency and the trading activity.
(Shailesh and Sukhthankar, 2009) detailed in his research work on commodity derivative
market, that it is an occasion for banks to diversify risks by entering in commodity futures
business. As and when permissible to enter it, the commodity derivatives business grips huge
potential for banks. It will be particularly attractive for banks when they proposal a combination
of multiple derivative products to please the necessities of their customers. The two key
economic functions of a commodity futures trading are price risk management and price
discovery. A futures exchange carries out these twin functions by providing a trading platform
that brings buyers and sellers together. The price risk management is considered to be the most
important function of a commodity futures market. The hedging is used to manage price risks.
It allows transfer of price risk to other agents who are willing to bear such risks. The hedgers,
in principle, buy futures contracts for protection against rising commodity prices and sell

28
futures for protection against falling prices or to get a guaranteed price in the future. Hedgers
use futures market to protect themselves against price adverse changes and are often interested
in taking or making physical delivery of the underlying commodity at a specified price. On the
other hand, speculators, gamblers and other non-commercial players trade futures contracts
strictly to make profits by betting on price movements. Such players have no interest in taking
possession of the underlying commodity. Initially, commodity futures markets were created
for the benefits of hedgers who would like to get guaranteed prices for their product. The
commodity futures market can be potentially beneficial to producers and users of commodities
(including farmers, manufacturers, bulk users, traders, exporters and importers) who can pass
the price risk on an expected purchase or sale of physical commodity to other agents who
participate in these markets without any physical backing. The premise of hedging is the key
reason behind the existence of commodity futures exchanges. It has greater significance in a
country like India where over sixty percent of the population is dependent on agriculture and
farmers face various kinds of uncertainties and risks including price risk. In India, the original
purpose behind reintroduction of futures trading was to help farmers hedge against potential
risks rising out of price movements in agricultural commodities. The farmers can participate in
futures market to manage price risk arising from decline and rise in commodity spot prices in
the future. For instance, a guar farmer faces the possibility of incurring a loss on account of
decline in guar seed prices at harvest time. At the time of sowing, the guar farmer can reduce
or eliminate his risk by entering into a futures contract to sell guar seed at Bikaner exchange,
Rajasthan at a certain fixed price. By doing this, the farmer has hedged his exposure to changes
in guar prices. He is no longer affected by adverse price changes in prices of guar because he
is guaranteed to get the price quoted in the futures contract.

29
(Singh, Shunmmugam and Garg, 2009) provided an explorative study on how efficient are
future market operation in mitigating price risk. It exposed that India being an agricultural
economy, instability in commodity prices as always repeats a key concern for the producer as
well as the consumers. Numerous other challenges have cropped in Indian agriculture
throughout the post-two regimes, for case dragging technological progress, reduction of water
resources, still productivity and more importantly, lagging market reforms, rambling
marketing/trading of agriculture commodities in India. Given the experience of farmers to such
risks and challenges, it makes their investment in farming and unprofitable proposal. There are
numerous ways to cope with this problem. Market based risk management tools for
commodities have assumed special implication in the liberalisation age. Separately from
increasing the constancy of the market, numerous actors in the farm sector can better manage
their activities in an environment of an unbalanced price through future market. These markets
serve as a risk instable function, and can be used to lock in prices in its place of trusting on
uncertain price development. A well-organised future market provides a mechanism for
managing risk associated with the uncertainty of future events. Commodity insight is a chief
of its kind year book on commodities aimed at giving its readers infrequent insight into the
entire commodity ecosystem, which is the result of the joint exertion of the Multi Commodity
Exchange of India. Commodity insight will have an overabundance of valued data base on
commodity market decided in a novel way so that it is extremely valuable to almost all the
ecosystem stakeholder as a one-point source for rapid and informal reference. Moreover this
unique publication efforts to deliberate on issues and concerns that ought to be resolved for the
healthy development of the domestic commodity market. This will be in the form of articles
authored by alteration agents and thought leaders to provide a rich range of analytical articles.
Thus, commodity insights potentials to be truly useful to not only all the commodity market
stakeholders, such as traders, processors, consumers, banks, policy makers, analyst, and

30
industry spectators, but also others who matters in this industry giving them a yearlong
orientation book that is both fascinating and engaging. The yearbook aims to be a bench mark
reserve for dispersal knowledge about the commodity market.
(Mantu Kumar Mahalik, Debashis Acharya and Suresh Babu M., 2009) worked on price
discovery and volatility spill overs in futures and spot commodity markets. Some empirical
evidence from India which exposed that Indian commodity markets registered 373% growth
during 2005-06. Despite this growth rate, there is cynicism about the effect of commodity
futures on its underlying assets in India. Spot transaction results in immediate delivery of a
commodity for a particular consideration between buyer and seller. A marketplace that
facilitates Spot transaction is referred the Spot market and transaction price is usually referred
the Spot price. Here the buyer and sellers meet face to face and deals are struck. These are
traditional markets. An example of a spot market is a Grain Markets in India where food grains
are sold in bulk. Farmers would bring their products to this market and merchants/traders would
immediately purchase the products and they settle the deal in Spot and take or give delivery
immediately. The spot market involves buying and selling of commodities in cash with
immediate delivery. There are spot markets for individual consumers and the business to
business category. Spot markets also include traditional markets such as Bikaner’s Anaj Mandi
that deal in all kind of grains. On the other hand, a commodity can be sold or bought via
derivatives contract as well.
Gupta (2011) commented that the commodities market in India has huge growth potential. The
derivative instruments were reintroduced in Indian market in early 2000s after a long period of
suspension. Since then the Indian Commodity Market has witnessed exponential growth. The
growth is apparent in the “spread of market network as well as in volume of trade”. The Indian

31
Capital Market is now not just restricted to regional exchanges but also home to national
commodity exchanges namely, MCX, NCDEX and NMCE which have a huge market share.
The MCX (Multi Commodity Exchange Ltd.) has made its place in top ten commodity
exchanges worldwide. The commodity exchanges in India offer a bouquet of over 150
agriculture, metals and energy commodities for trade on these exchanges. “The volume of trade
has increased from Rs.34, 84,485 crore in 2006 to Rs.94, 94,725 crore in 2010”. He further
emphasized that in “liberalized regime we should welcome these exchanges and their huge
growth potentials and treat the commodity derivative market as an integral part of the
economy”.
Patra (2011) commented that the commodity futures markets are “the strength of an
agricultural surplus country like India”. The commodity exchanges in India are the pillars of
growth of the market and they play a “pivotal role in ensuring stronger growth, transparency
and efficiency of the commodity futures markets”. These roles are well imbibed in their
“functions, infrastructure capabilities, trading procedures, settlements and risk management
practices”. However, the Indian commodity exchanges are still on an emerging point and there
are several bottlenecks obstructing their growth. There are various “institutional and policy-
level problems” in growth path of the commodity exchanges. Such issues need to be addressed
by the regulator of commodity exchanges in India, Forward Market Commission (FMC) in
collaboration with Government of India. He emphasized that “if the commodities markets in
India are given the right type of environment to grow then the commodities sector of India can
develop from its current status of being a price taker to a price setter, with the national online
commodity futures exchanges taking the lead”. As a word of caution, he emphasized that it is
important that the participants comprehend the operations of commodity exchanges and

32
functioning of the entire market for healthy growth. It is important for the investors to know
the factors that can affect the commodity prices in short and long run.
Varadi & Kumar (2012) studied the role of speculation in volatility of commodity markets in
India. The study recognizes multiple factors namely, “traditional supply and demand, excess
global liquidity (i.e., monetary inflows in commodity markets), and financialization i.e.,
financial investors (portfolio investment and speculation) attitude” contributing to commodity
market volatility. Further, the paper provided the evidence for speculation during the crisis
period is a cause for excessive volatility in commodity markets. Hence, the paper suggested
that the regulator or policy makers should take initiative steps in order to reduce the impact of
excessive speculation in future. Morales & O’Callaghan, (2012) studied the persistence of
volatility in the returns of precious metals in US and considered the impact on returns of the
movement in the three important equity indices, namely Dow Jones Industrials, FTSE 100 and
Nikkei 225 and oil returns on the returns of these metals using daily data. They both determined
that "large changes in the volatility of each market returns occurs identifying major global
events that would increase the volatility of these markets using the Iterated cumulative sums
of squares (ICSS) algorithm to identify the break points or sudden changes in the variance of
returns in each market using the standardized residuals obtained through the GARCH (1,1)
mean equation". The results indicate that there is a strong relationship between oil prices and
prices of precious metals while the performance of stock market is an independent factor
among the three.

33
Chapter-3
Data Presentation & Analysis
3.1 Data Presentation:
Both primary as well as secondary data were used to fulfil the objectives of the study. Primary
data were collected with administering schedule prepared for the specific purpose and
the pre-tested. The data were collected from farmers, traders, millers/ processors, etc.
Secondary data for analysing impact of futures on spot prices is collected from different
sources. Daily prices of wheat from 2000 till 2008 were collected from the records of
Agricultural Produce Market Committee of Bareilly, Shahjahanpur and Hardoi in Uttar Pradesh
and for maize from Davangere in Karnataka. Futures prices of wheat and maize have been
collected from website of National Commodities and Derivatives Exchange, Mumbai. For
collection of primary data, to know the farmers and other stakeholders perceptions regarding
commodity futures, farmers and other stakeholders were selected as per below.
3.1.1 Primary Data
The data collected through questionnaire and the secondary data available was examined in
detail; it was further classified and tabulated for the purpose of analysis to generalize
percentages.
Based upon the information and objectives of the study, conclusions were drawn, suggestions
and recommendations are made which can be used in providing appropriate training and
development programs. Graphs and Charts have been used wherever necessary. The tabulated
data is being graphically represented for the better analysis.

34
a) Factor analysis:
Factor analysis is a general term for several specific computational techniques. All have
the objective of reducing to a manageable number many variables that belong together and
have overlapping measurement characteristics. . This method transforms a set of variables
into a new set of composite variables or principal components that are not correlated with
each other.
b) Cross tabulation:
Cross tabulation is a technique for comparing two classification variables, such as gender
and selection by one’s company for an overseas assignment. The technique uses tables
having rows and columns that correspond to the levels or values of each variable’s
categories.
An example of a computer-generated cross-tabulation. This table has two rows for gender
and two columns for assignment selection. The combination of the variables with their
values produces four cells. Each cell contains a count of the cases of the joint classification
and also the row, column, and total percentages. The number of row cells and column cells
is often used to designate the size of the table, as in this 2*2 table.
.
3.1.2 Secondary Data
The secondary data source is daily prices of selected commodity futures and spot prices
(per quintal) obtained from the websites ncdex.com, fmc.gov.in. Besides this
secondary data was also collected from magazines, other websites, books, journals,
thesis’s, company bulletins and reports. The major National Level Exchange in India
namely, NCDEX & MCX was selected for the study. Due to a large number of
commodities traded in this exchange.

35
3.1.3 Concept of Beta
Beta measures the systematic risk. Beta shows how prices of securities respond to the
market forces. Beta is calculated by relating the return on a security with return for the
market. By convention, market will have beta 1.0. Commodity can be said as volatile,
more volatile or less volatile. If beta is greater than 1 the stock is said to be riskier than
market. If beta is less than 1, the indication is that stock is less risky in comparison to
market. If beta is zero then the risk is as same as of the market. Negative beta is rare.
A relative measure of the sensitivity return on security is to change in the broad market
index return. Beta measure the systematic risk, it shows how prices of securities
respond to the market forces. Beta is calculated by relating the return on a security
with return for the market. Market will have 1.0, if the beta is greater than 1 than the
stock is said to be very riskier than market risk, beta less than 1 than the stock is said
to be not that much riskier as compare to the market risk. Beta involved market risk,
and market risk involved political risk, inflation risk, and interest rate risk. Market risk
is measured by beta, which is another measure of investment risk that is based on the
volatility of returns.
Beta Calculation:
NΣXY - ΣXΣY
β = NΣX2 – (Σ X)2
Where, N = No of observations
ΣX = Sum of X returns (Here X is market return)
ΣY = Sum of Y returns (Here Y is a particular fund return)
X2 = X * X
ΣXY = Sum of X * Y

36
3.1.4 Sharpe ratio:
Sharpe Ratio, named after William Sharpe,. The Sharpe Ratio is a commodities excess
return divided by its standard deviation, where excess return is the actual return less
the risk-free rate of return. Although the Sharpe Ratio is computed from historical data,
it is the same formula as the slope of the Capital Allocation Line, which is forward-
looking. Risk free rate of return can earn by investing in Government securities. T Bill
Index is a good measure of this risk free return.
The Sharpe ratio formula:
= 𝑟 𝑝−𝑟 𝑓
𝜎 𝑝
Where,
rp = Expected portfolio return
rf = Risk free rate
ƍp = Portfolio standard deviation
Sharpe ratio is the average return earned in excess of the risk free rate per unit of
volatility or total risk. Subtracting the risk free rate from the mean return, the
performance associated with risk taking activities can be isolated. Generally the grater
the value of the Sharpe ratio, the more attractive the risk adjusted return.
3.1.5 Treynor Ratio:
Treynor ratio developed by Jack Treynor. The treynor ratio, also known as the reward
to volatility ratio is a metric for returns that exceed those that might have been gained
on a riskless investment, per each unit of market risk. Treynor ratio is a risk adjusted

37
measurement of a return based on systematic risk. It is a metric efficiency that makes
use of the relationship that exists between risk and annualized risk adjusted return.
Ultimately the ratio attempts to measure how successful on investment is in providing
investors, compensation, with consideration for the investments inherent level of risk.
The treynor ratio is reliant upon beta that is the sensitivity of an investment to
movements in the market to judge risk.
When the value of the Treynor ratio is high, it is an indication that an investor has
generated high returns on each of the market risks he has taken. The Treynor ratio
allows for an understanding of how each investment within a portfolio an idea of how
efficiently capital is being used. The Treynor ratio relates excess return over the risk
free rate to the additional risk taken, however systematic risk is used instead of total
risk. The higher the treynor ratio, the better the performance of the portfolio under
analysis.
The Treynor ratio formula:
= 𝑟 𝑝−𝑟 𝑓
𝐵p
T = Treynor’s ratio
rp = portfolio return
rf = risk free rate
Bp = portfolio beta

38
3.1.6 Commodity Group –wise Trends in Value of Futures Trading
Commodity group wise volume and value of futures trade shows that there is tremendous
increase in the value of futures trade for energy, bullion and other metals. While there is slight
increase in the value of futures trade for agricultural commodities from 2004-05 to 2013-14,
the share of agricultural commodity to the total value of trade has declined sharply from 68
percent in 2004-05 to 16 percent in 2013-14 with a negative growth rate compared to other
commodity groups. The share of bullion and other metals have increased from 31.47 percent
in 2004-05 to 60 percent in 2013-14.
Commodity
Groups
2004-
05
2005- 06 2006- 07 2007- 08 2009-
10
2010-
11
2011-
12
2012- 13 2013-
14
Bullion and
other metals
1.8
(31.47)
7.79
(36.15)
21.29
(57.9)
26.24
(64.55)
49.66
(63.95)
81.81
(68.5)
130.78
(72.15)
75.20
(64.68)
60.7
(60)
Agriculture 3.9
(68.18)
11.92
(55.31)
13.17
(35.82)
9.41
(23.15)
12.18
(15.69)
14.56
(12.2)
21.96
(12.12)
15.36
(13.21)
16.02
(16)
Energy 0.02
(0.35)
1.82
(8.45)
2.31
(6.28)
5.00
(12.3)
15.78
(20.32)
23.10
(19.3)
28.51
(15.73)
25.69
(22.1)
24.72
(24)
Others 0.00 0.02(0.09) 0.001 0.00 0 0 0 0 0
Total 5.72
(100)
21.55
(100)
36.77
(100)
40.65
(100)
77.62
(100)
119.47
(100)
181.25
(100)
116.25
(100)
101.44
(100)

39
Share of Bullion, Metals, Agriculture Commodities and Energy in the Volume of
Futures Trade in 2004-05
Source: Drawn using FMC data (Annual Reports, various years
Share of Bullion, Metals, Agriculture Commodities and Energy in the Volume of
Futures Trade in 2013-14
Source: Drawn using FMC data (Annual Reports, various years)

40
3.2 Data Analysis:
3.2.1 Multi Commodity Exchange of India Ltd (MCX)
Multi Commodity Exchange of India Ltd (MCX) (BSE: 534091) is an independent commodity
exchange based in India. It was established in 2003 and is based in Mumbai. It is India's largest
commodity futures exchange and the turnover of the exchange for the year 2015 was 55.52
trillion rupees (865.55 billion US dollars). MCX offers futures trading in bullion, non-ferrous
metals, energy, and a number of agricultural commodities (mentha oil, cardamom, crude palm
oil, cotton and others).
Commodity Prices:
Commodity Price Change % Change
GOLD
05-06-2020
46,240.00 -287 -0.62
SILVER
05-05-2020
41,782.00 -269 -0.64
COTTON
30-04-2020
16,200.00 -90 -0.55
CRUDEOIL
18-05-2020
1,001.00 -349 -25.85
NATURALGAS
26-05-2020
137.3 -9.5 -6.47
ALUMINIUM
29-05-2020
132.55 -0.65 -0.49
COPPER
30-04-2020
401.5 -3.45 -0.85
NICKEL
30-04-2020
933.3 -13.2 -1.39
LEAD
29-05-2020
132.55 -0.15 -0.11
ZINC
29-05-2020
149.7 -0.25 -0.17
MENTHAOIL
30-04-2020
1,223.40 -50.9 -3.99

41
3.2.2 National Commodities and Derivatives Exchange (NCDEX)
National Commodity & Derivatives Exchange Limited (NCDEX) is a professionally managed
on-line multi commodity exchange. The shareholders of NCDEX comprises of large national
level institutions, large public sector bank and companies.
Commodity Prices:
Commodity Price Change % Change
RMSEED
20-05-2020
4,073.00 -7 -0.17
SYBEANIDR
20-05-2020
3,784.00 10 0.26
COCUDAKL
20-05-2020
1,883.00 28 1.51
TMCFGRNZM
20-05-2020
5,388.00 -46 -0.85
DHANIYA
20-05-2020
5,870.00 99 1.72
JEERAUNJHA
20-05-2020
13,640.00 -110 -0.8
BARLEYJPR
19-06-2020
1,545.00 -3 -0.19
3.2.3 Market Statistics:
a) Multi Commodity Exchange of India Ltd (MCX):
(i) MCX Top Gainers
(ii) MCX Top Losers
(iii) Most Active Commodity on MCX (Value)
(iv) Most Active Commodity on MCX (Volume)
b) National Commodities and Derivatives Exchange (NCDEX)
(i) NCDEX Top Gainers
(ii) NCDEX Top Losers
(iii) Most Active Commodity on NCDEX (Value)
(iv) Most Active Commodity on NCDEX (Volume)

42
a) Multi Commodity Exchange of India Ltd (MCX)
(i) MCX Top Gainers:
Symbol Expiry
Date
Last Price Change % Change High Low Average
Price
Volume
(in lots)
Value
(Rs. Lakh)
Open
Interest
Open
Int Chg
MENTHAOIL 44,012.00 1,040.40 27.4 2.70% 1040.4
1040.4
1040.4 1 11.24 6 0
0.00%
GOLDGUINEA 44,043.00 37,986.00 995 2.69% 38000
37986
37997.2 5 1.9 5 5
0.00%
SILVERMIC 43,951.00 43,065.00 341 0.80% 43930
42500
43200.73 1,408 608.27 1,214 551 -
31.22%
COPPER 30-Jun-20 408.1 2.6 0.64% 414.35
405.5
408.56 81 827.34 45 12
36.36%
GOLDPETAL 31-Jul-20 4,697.00 22 0.47% 4744
4650
4675.3 23 1.08 23 1
4.55%
MENTHAOIL 29-May-20 1,151.50 4.9 0.43% 1151.5
1133
1145.91 8 33 43 0
0.00%
ZINC 30-Jun-20 149.7 0.6 0.40% 153
149.7
151.84 15 113.88 9 3
50.00%
LEAD 30-Jun-20 133.65 0.3 0.22% 135.55
133.3
133.93 9 60.27 4 1
33.33%
GOLDPETAL 30-Apr-20 4,770.00 9 0.19% 4790
4762
4774.3 680 32.47 5,089 -1479
-22.52%
NICKEL 30-Jun-20 933 1.7 0.18% 956.9
931.1
946.15 11 156.12 4 3
300.00%
KAPAS 30-Apr-20 966 1.5 0.16% 981
966
978.56 9 17.61 86 -9
-9.47%
COPPER 29-May-20 406 0.25 0.06% 411.5
402.7
407.1 8,729 88,839.96 2,749 497
22.07%
SILVERM 31-Aug-20 43,058.00 6 0.01% 44067
43058
43375.5 40 86.75 14 13
1300.00%

43
(ii) MCX Top Losers:
Symbol Expiry
Date
Last Price Change Chg % High Low Average
Price
Volume
(in lots)
Value (Rs.
Lakh)
Open
Interest
Open
Int Chg
CRUDEOIL 18-May-
20
964 -386 -28.59% 12960.00
941
1089.57 2,01,379 2,19,417.45 13,062 2693
25.97%
CRUDEOIL 19-Jun-20 1,436.00 -271 -15.88% 1686.00
1422.00
1512.8 9,645 14,590.97 1,221 191
18.54%
CRUDEOIL 20-Jul-20 1,747.00 -226 -11.45% 1895.00
1740.00
1802.93 46 82.94 120 -8
-6.25%
NATURALGAS 26-May-
20
140.8 -6 -4.09% 145.2
136
139.64 89,549 1,56,310.11 5,426 3117
134.99%
MENTHAOIL 30-Apr-20 1,223.40 -50.9 -3.99% 1236.10
1223.40
1232.6 30 133.12 74 -4
-5.13%
CPO 30-Jun-20 590.6 -23.7 -3.86% 604
590
597.06 148 883.66 892 70
8.52%
CARDAMOM 15-May-
20
1,720.00 -65 -3.64% 1785.00
1715.00
1729.21 11 19.02 18 -9
-33.33%
NATURALGAS 27-Apr-20 130.3 -4.9 -3.62% 133.5
121.9
126.14 64,861 1,02,268.02 1,135 -902
-44.28%
NATURALGAS 25-Jun-20 159 -5.1 -3.11% 162
155
158.64 1,794 3,557.56 744 336
82.35%
CPO 29-May-
20
603.1 -17.8 -2.87% 613.2
601.3
606.63 1,301 7,892.32 3,301 110
3.45%
CPO 31-Jul-20 591.7 -13.3 -2.20% 591.7
591.7
591.7 1 5.92 1 1
0.00%
GOLDGUINEA 30-Apr-20 37,400.00 -670 -1.76% 38880.00
37400.00
37823.54 135 51.06 85 -117
-57.92%
ZINCMINI 30-Apr-20 148.2 -2.35 -1.56% 153.6
147.7
151.54 563 853.19 1,128 -381
-25.25%
NICKEL 30-Apr-20 935.6 -10.9 -1.15% 962.4
933.3
951.78 50 713.84 204 -17
-7.69%

44
(iii) Most Active Commodity on MCX (Value):
Symbol Expiry Date Last Price Change Chg % High Low Average Price Volume (in lots) Value (Rs. Lakh)Open Interest Open Int Chg
GOLD 05-Jun-20 46,216.00 -311 -0.67% 46,650.00 46,390.82 7,967 3,69,595.70 15,554 -139
46,131.00 -0.89%
CRUDEOIL 18-May-20 964.00 -386 -28.59% 1,296.00 1,089.57 2,01,379 2,19,417.45 13,062 2,693
941 0
SILVER 05-May-20 41,855.00 -196 -0.47% 42,488.00 42,049.11 14,013 1,76,770.25 3,784 834
41,652.00 28.27%
NATURALGAS 26-May-20 140.80 -6 -4.09% 145.20 139.64 89,549 1,56,310.11 5,426 3,117
136 134.99%
GOLDM 05-May-20 46,347.00 -203 -0.44% 46,673.00 46,457.17 31,615 1,46,874.33 11,274 779
46,250.00 7.42%
NICKEL 29-May-20 937.2 -6.5 -0.69% 961.9 946.43 8,127 1,15,373.98 1,087 380
930.70 53.75%
NATURALGAS 27-Apr-20 130.3 -4.9 -3.62% 133.5 126.14 64,861 1,02,268.02 1,135 -902
121.9 -44.28%
COPPER 29-May-20 405.90 0.15 0.04% 411.50 407.03 9,320 94,836.99 2,737 485
402.70 21.54%
SILVERM 30-Apr-20 41,838.00 -208 -0.49% 42,490.00 42,059.93 38,758 81,507.94 3,511 1,375
41,650.00 64.37%
ZINC 29-May-20 149.95 0 0.00% 153.90 151.01 30,333 45,806.50 11,175 2,737
148.5 32.44%
GOLDM 05-Jun-20 46,235.00 -288 -0.62% 46,665.00 46,406.36 8,963 41,594.02 6,112 108700.00%
46,167.00 21.63%
SILVER 03-Jul-20 42,489.00 -230 -0.54% 43,144.00 42,687.03 2,831 36,254.09 3,123 60800.00%
42,259.00 24.17%
GOLD 05-Aug-20 46,379.00 -318 -0.68% 46,799.00 46,544.15 711 33,092.89 4,287 44200.00%
46,300.00 11.50%
SILVERM 30-Jun-20 42,830.00 -215 -0.50% 43,412.00 43,021.12 14,281 30,719.23 4,196 106500.00%
42,666.00 34.01%
SILVERMIC 30-Jun-20 42,992.00 -122 -0.28% 43,498.00 43,144.33 64,635 27,886.34 17,620 436400.00%
42,821.00 32.92%

45
(iv) Most Active Commodity on MCX (Volume):
Symbol Expiry Last Change Chg High Average Volume Value Open Open Int Chg
Date Price % Low Price (in lots) (Rs. Lakh) Interest
CRUDEOIL 18-May-20 1,058.00 -292 -21.63% 1,296.00 1,081.09 2,23,938 2,42,096.58 12,184 1,815
941 17.50%
NATURALGAS 26-May-20 145.6 -1.2 -0.82% 146.3 140.72 1,19,623 2,10,422.26 6,131 3,822
136 165.53%
NATURALGAS 27-Apr-20 136 0.8 0.59% 138.8 127.3 74,945 1,19,259.83 718 -1,319
121.9 -64.75%
SILVERMIC 30-Jun-20 42,975.00 -139 -0.32% 43,498.00 43,125.82 72,345 31,199.38 16,067 2,811
42,821.00 21.21%
SILVERM 30-Apr-20 41,892.00 -154 -0.37% 42,490.00 42,043.53 42,199 88,709.75 2,819 683
41,650.00 31.98%
GOLDM 05-May-20 46,381.00 -169 -0.36% 46,673.00 46,449.39 34,824 1,61,755.36 10,443 -52
46,250.00 -0.50%
ZINC 29-May-20 149.5 -0.45 -0.30% 153.9 150.92 32,948 49,726.25 10,724 2,286
148.5 27.09%
GOLDPETAL 29-May-20 4,667.00 -16 -0.34% 4,690.00 4,673.88 19,737 922.48 11,884 1,427
4,660.00 13.65%
SILVERM 30-Jun-20 42,825.00 -220 -0.51% 43,412.00 43,002.47 15,711 33,780.59 3,897 766
42,666.00 24.47%
SILVER 05-May-20 41,890.00 -161 -0.38% 42,488.00 42,035.18 15,025 1,89,473.59 3,592 642
41,652.00 21.76%
CRUDEOIL 19-Jun-20 1,475.00 -232 -13.59% 1,686.00 1,509.39 10,264 15,492.38 1,229 199
1,422.00 19.32%
COPPER 29-May-20 406 0.25 0.06% 411.5 406.95 10,017 1,01,909.73 2,588 336
402.7 14.92%
GOLDM 05-Jun-20 46,247.00 -276 -0.59% 46,665.00 46,391.20 9,944 46,131.41 6,114 1,089
46,167.00 21.67%
LEAD 29-May-20 132.9 0.2 0.15% 134 132.91 8,999 11,960.72 2,169 741
131.8 51.89%
GOLD 05-Jun-20 46,225.00 -302 -0.65% 46,650.00 46,378.02 8,673 4,02,236.54 15,378 -315
46,131.00 -2.01%
NICKEL 29-May-20 935.7 -8 -0.85% 961.9 945.86 8,635 1,22,511.98 997 290
930.7 41.02%

46
b) National Commodities and Derivatives Exchange (NCDEX)
(i) NCDEX Top Gainers:
Symbol Expiry Last Change Chg High Volume Value * Open Open Int Chg
Date Price % Low (in lots) (Rs. Lakh) Interest
COCUDAKL 17-Jul-20 1,937.00 33 1.73% 1,944.00 240.00 5 550.00 10
1,900.00 1.85%
DHANIYA 20-May-20 5,870.00 99 1.72% 5,911.00 960 56 3,550.00 -130
5,691.00 -3.53%
COCUDAKL 19-Jun-20 1,908.00 32 1.71% 1,920.00 9,240 176 14,590.00 2,430
1,865.00 19.98%
DHANIYA 19-Jun-20 5,845.00 89 1.55% 5,911.00 420.00 25 670.00 60
5,744.00 9.84%
COCUDAKL 20-May-20 1,883.00 28 1.51% 1,896.00 26,520.00 499 39,470.00 -890
1,842.00 -2.21%
CASTOR 19-Jun-20 3,794.00 34 0.90% 3,794.00 1,210.00 46 8,175.00 735
3,746.00 9.88%
CASTOR 20-May-20 3,800.00 34 0.90% 3,800.00 2,010 76 12,505.00 -95
3,752.00 -0.75%
KAPAS 30-Apr-20 984.00 3 0.31% 990.00 36.00 0 199 -36
965.50 -15.32%
SYBEANIDR 20-May-20 3,784.00 10 0.26% 3,796.00 8,040.00 304 70,375.00 -1,565
3,712.00 -2.18%
BARLEYJPR 20-May-20 1,525.00 3 0.20% 1,525.00 120.00 2 3,720.00 -100
1,521.00 -2.62%
SYBEANIDR 19-Jun-20 3,744.00 6 0.16% 3,750.00 3,240.00 121 54,250.00 205
3,682.00 0.38%
SYBEANIDR 20-Jul-20 3,730.00 4 0.11% 3,742.00 1,070 40 1,555.00 505
3,678.00 48.10%

47
(ii) NCDEX Top Losers:
Symbol Expiry Last Change Chg High Volume Value * Open
Open Int
Chg
Date Price % Low (in lots)
(Rs.
Lakh) Interest
SYOREF 20-Jul-20 725 -15 -2.03% 736 180 1.31 340 55
725 19.30%
GUARGUM5 20-Jul-20 4,802.00 -98 -2.00% 4,802.00 5 0.24 30 5
4,802.00 20.00%
SYOREF 19-Jun-20 741.2 -14.8 -1.96% 757 4,825 35.76 10,235 1,740
741.2 20.48%
GUARGUM5 19-Jun-20 4,775.00 -74 -1.53% 4,896.00 8,565 408.98 16,340 6,320
4,740.00 63.07%
SYOREF 20-May-20 774 -11.6 -1.48% 787.6 10,965 84.87 23,120 735
773 3.28%
GUARSEED10 20-May-20 3,342.00 -50 -1.47% 3,418.00 11,995 400.87 30,815 -3,120
3,314.00 -9.19%
JEERAUNJHA 19-Jun-20 13,415.00 -185 -1.36% 13,600.00 150 20.12 498 48
13,415.00 10.67%
GUARSEED10 19-Jun-20 3,344.00 -46 -1.36% 3,412.00 6,515 217.86 18,510 2,220
3,320.00 13.63%
CHANA 20-May-20 4,193.00 -54 -1.27% 4,271.00 10,050 421.4 14,890 -1,370
4,186.00 -8.43%
CHANA 19-Jun-20 4,221.00 -54 -1.26% 4,293.00 6,200 261.7 16,050 1,370
4,215.00 9.33%
GUARGUM5 20-May-20 4,746.00 -55 -1.15% 4,870.00 11,255 534.16 28,945 -6,705
4,707.00 -18.81%
RMSEED 20-Jul-20 4,075.00 -46 -1.12% 4,079.00 60 2.44 60 -20

48
4,075.00 -25.00%
TMCFGRNZM 19-Jun-20 5,390.00 -50 -0.92% 5,498.00 225 12.13 975 55
5,390.00 5.98%
TMCFGRNZM 20-May-20 5,388.00 -46 -0.85% 5,490.00 600 32.33 4,910 10
5,362.00 0.20%
JEERAUNJHA 20-May-20 13,640.00 -110 -0.80% 13,740.00 519 70.79 1,587 -33
13,515.00 -2.04%
RMSEED 19-Jun-20 4,081.00 -14 -0.34% 4,100.00 2,650 108.15 9,170 320
4,066.00 3.62%
BARLEYJPR 19-Jun-20 1,545.00 -3 -0.19% 1,545.00 110 1.7 720 90
1,525.50 14.29%
RMSEED 20-May-20 4,073.00 -7 -0.17% 4,089.00 7,180 292.44 13,470 380
4,051.00 2.90%
Value * = Current Market Price x Volume
Traded

49
(iii) Most Active Commodity on NCDEX (Value):
GOLD 05-Jun-20 46,155.00 -372 -0.80% 46,650.00 46,367.51 9,184 4,25,839.24 15,137 -556
46,130.00 -3.54%
CRUDEOIL 18-May-20 1,033.00 -317 -23.48% 1,296.00 1,080.66 2,32,138 2,50,862.85 11,246 877
941 8.46%
NATURALGAS 26-May-20 144.8 -2 -1.36% 146.3 140.94 1,26,226 2,22,376.79 4,325 2,016
136 87.31%
SILVER 05-May-20 41,930.00 -121 -0.29% 42,488.00 42,030.12 16,150 2,03,635.95 3,164 214
41,652.00 7.25%
GOLDM 05-May-20 46,325.00 -225 -0.48% 46,673.00 46,444.10 36,784 1,70,839.98 9,465 -1,030
46,250.00 -9.81%
NICKEL 29-May-20 935.6 -8.1 -0.86% 961.9 945.32 9,111 1,29,192.33 756 49
930.7 6.93%
NATURALGAS 27-Apr-20 135.3 0.1 0.07% 138.8 127.48 76,645 1,22,132.13 42 -1,995
121.9 -97.94%
COPPER 29-May-20 406 0.25 0.06% 411.5 406.89 10,641 1,08,242.83 2,277 25
402.7 1.11%
SILVERM 30-Apr-20 41,945.00 -101 -0.24% 42,490.00 42,039.56 44,619 93,788.15 1,812 -324
41,650.00 -15.17%
ZINC 29-May-20 150.45 0.5 0.33% 153.9 150.82 36,080 54,414.94 9,278 840
148.5 9.95%
GOLDM 05-Jun-20 46,166.00 -357 -0.77% 46,665.00 46,382.74 10,441 48,428.22 6,004 979
46,161.00 19.48%
SILVER 03-Jul-20 42,532.00 -187 -0.44% 43,144.00 42,652.83 3,302 42,251.89 3,102 587
42,259.00 23.34%
SILVERM 30-Jun-20 42,891.00 -154 -0.36% 43,412.00 42,994.72 16,720 35,943.59 3,429 298
42,666.00 9.52%

50
(iv) Most Active Commodity on NCDEX ( Volume):
CRUDEOIL 18-May-20 1,033.00 -317 -23.48% 1,296.00 1,080.66 2,32,138 2,50,862.85 11,246 877
941 8.46%
NATURALGAS 26-May-20 144.8 -2 -1.36% 146.3 140.94 1,26,226 2,22,376.79 4,325 2,016
136 87.31%
SILVERMIC 30-Jun-20 42,997.00 -117 -0.27% 43,498.00 43,117.59 77,031 33,213.91 13,847 591
42,821.00 4.46%
NATURALGAS 27-Apr-20 135.3 0.1 0.07% 138.8 127.48 76,645 1,22,132.13 42 -1,995
121.9 -97.94%
SILVERM 30-Apr-20 41,945.00 -101 -0.24% 42,490.00 42,039.56 44,619 93,788.15 1,812 -324
41,650.00 -15.17%
GOLDM 05-May-20 46,325.00 -225 -0.48% 46,673.00 46,444.10 36,784 1,70,839.98 9,465 -1,030
46,250.00 -9.81%
ZINC 29-May-20 150.45 0.5 0.33% 153.9 150.82 36,080 54,414.94 9,278 840
148.5 9.95%
GOLDPETAL 29-May-20 4,668.00 -15 -0.32% 4,690.00 4,673.43 21,517 1,005.58 11,567 1,110
4,660.00 10.61%
SILVERM 30-Jun-20 42,891.00 -154 -0.36% 43,412.00 42,994.72 16,720 35,943.59 3,429 298
42,666.00 9.52%
SILVER 05-May-20 41,930.00 -121 -0.29% 42,488.00 42,030.12 16,150 2,03,635.95 3,164 214
41,652.00 7.25%
CRUDEOIL 19-Jun-20 1,453.00 -254 -14.88% 1,686.00 1,508.11 10,662 16,079.47 1,199 169
1,422.00 16.41%
COPPER 29-May-20 406 0.25 0.06% 411.5 406.89 10,641 1,08,242.83 2,277 25
402.7 1.11%
GOLDM 05-Jun-20 46,166.00 -357 -0.77% 46,665.00 46,382.74 10,441 48,428.22 6,004 979
46,161.00 19.48%

51
3.2.4 Analysis & Interpretation
a) Cross tabulation between income group and age group.
Case Processing Summary
Cases
Valid Missing Total
N Percent N Percent N Percent
income * age 60 92.3% 5 7.7% 65 100.0%
Table No. 1
Income * age Cross tabulation
age Total
.25 25 to 40 40 to 50 50 above
incom
e
>200000 Count
8 7 0 0 15
% within income 53.3% 46.7% .0% .0% 100.0%
% within age 100.0% 43.8% .0% .0% 25.0%
200000 to
300000
Count
0 9 3 0 12
% within income .0% 75.0% 25.0% .0% 100.0%
% within age .0% 56.3% 25.0% .0% 20.0%
300000 to
375000
Count
0 0 9 6 15
% within income .0% .0% 60.0% 40.0% 100.0%
% within age .0% .0% 75.0% 25.0% 25.0%
375000 & ab Count 0 0 0 18 18
% within income .0% .0% .0% 100.0% 100.0%
% within age .0% .0% .0% 75.0% 30.0%
Total Count 8 16 12 24 60
% within income 13.3% 26.7% 20.0% 40.0% 100.0%
% within age 100.0% 100.0% 100.0% 100.0% 100.0%
Source: Primary Data

52
Inference:
According to the survey most of the investors are falling under their income more than375000
and age group 50 & above are regular investors among other age and income group because it
could be they are more aware about trading system and their annual income also high.
Figure No. 1

53
b) Cross tabulation between income and occupation.
Case Processing Summary
Cases
Valid Missing Total
N Percent N Percent N Percent
income *
occupatio
n
60 92.3% 5 7.7% 65 100.0%
Table No .2
Income * occupation Cross tabulation
occupation Total
Pvt. emp govt emp businessman professional
income >200000 Count 0 0 15 0 15
% within income .0% .0% 100.0% .0% 100.0%
% within occupation .0% .0% 75.0% .0% 25.0%
200000 to
300000
Count
0 0 5 7 12
% within income .0% .0% 41.7% 58.3% 100.0%
% within occupation .0% .0% 25.0% 70.0% 20.0%
300000 to
375000
Count
12 0 0 3 15
% within income 80.0% .0% .0% 20.0% 100.0%
% within occupation 57.1% .0% .0% 30.0% 25.0%
375000 &
above
Count
9 9 0 0 18
% within income
50.0% 50.0% .0% .0% 100.0%
% within occupation
42.9% 100.0% .0% .0% 30.0%
Total Count 21 9 20 10 60
% within income 35.0% 15.0% 33.3% 16.7% 100.0%
% within occupation 100.0% 100.0% 100.0% 100.0% 100.0%

54
INFERENCE:
According to the survey income and occupation among that income falling above 375000 per
alum and occupation pvt .employees are regularly investors because there income may be high
when compare to other income group.
Figure No. 2

55
c) Do you trade in Commodity Futures?
Statistics
Trader1
N Valid 60
Missing 5
Minimum 1.00
Maximum 2.00
Table No. 3
Traders in Commodity futures
Respondent Frequency Percent
Valid
Percent
Cumulative
Percent
Valid regular trader 49 75.4 81.7 81.7
potential
customer
11 16.9 18.3 100.0
Total 60 92.3 100.0
Missing System 5 7.7
Total 65 100.0

56
INFERENCE:
According to the survey commodity traders are high. That is regular traders more significant
among two variables. So it got 49% out of 60 %.
Figure No. 3

57
d) If they trade regularly, why.
Table No .4
Attributes of satisfaction
Options No of Respondent Percentage
Trade on an organized exchange 12
24.48%
Standardized contract terms 17 34.69%
follows of daily settlement
12 24.48%
location of settlement 8 13.33%
Total 49 100%

58
INFERENCE:
According to above definition it is clear that regular investors in commodity futures are satisfied about
its facilities and futures contract. Among all these attributes Standardized contract signifies more
34.69% when compared to other variable.
Figure No. 4

59
e) Do you think futures trading influence the price and price variation?
Influences
Table No 5
Future trading influences price and price variation
Sources Primary Data
N Valid 60
Missing 5
Std. Deviation .49717
Frequency Percent
Valid
Percent
Cumulative
Percent
Valid influences
the price
variation
25 38.5 41.7 41.7
not influence
the price
variation
35 53.8 58.3 100.0
Total 60 92.3 100.0
Total 65 100.

60
INFERENCE:
According to the survey most of the investors believe that price and price variation dose not
influence the price variation. Survey indicated that the major influencing factor that is 35%
says that price does not influence the commodity futures.
Figure No. 5

61
f) If price and price variation influences the fluctuation, how.
Summery
N Valid 25
Missing 40
Minimum 1.00
Maximum 4.00
Table No .6
Attributes of influences in price and price variation
Frequenc
y Percent
Valid
Percent
Cumulative
Percent
Valid seasonal price
variation
10 15.4 40.0 40.0
inter and intra
seasonal fluctuation
in price
5 7.7 20.0 60.0
short term oscillation
in prices
5 7.7 20.0 80.0
average received by
producers and paid
by consumers
5 7.7 20.0 100.0
Total 25 38.5 100.0
Total 65 100.0
Sources Primary Data

62
INFERENCE:
According to the survey most of the investors believe that price and price variation influences
the fluctuation of the market. Survey indicated that the major influencing factors, seasonal price
variation that influence in short term volatility in the market so table shows that 15.4 % among
other variables got for seasonal price variation.
Figure No. 6

63
g) If price and price variation dose not influence commodity futures by various commodity
trading.
Table No .7
Methods of risk avoiding
Table No .8
Price and variation
Respondent Observed
No
.
Expected
No.
(O – E) (O- E )2 ( O-E )2E
By hedging 12 30
By speculation 15
40
By arbitrage
8 30
TOTAL
35 100

64
By hedging 30 30 0 0 0
By speculation 40 30 10 100 3.333
By arbitrage 30 30 - 10 100 3.333
Total 90 90 0 6.666
2
=  (O-E) 2/E =6.666
d. f. = 3-1= 2 Tabulated value = 5.991
Since calculated value of 2
= 6.666 is greater than the tabulated value 5.991, it is
significance. Hence we conclude that the future trading dose not influence the price and price
variation.

65
h) Are you satisfied about future trading in commodity exchange?
Table No. 9
Ranks about satisfaction levels
INFERENCE:
According to the survey most of the investors are satisfied above mentioned options i.e. R1,
R2, R3, R4, R5, R6.
Survey indicated that the major influencing factors for commodity futures are fair price
discovery and transparent trading. So it helps investors to track the current fluctuation in price
and proper price discovery.
R1
10 16.66
R2
15
25
R3
10 16.66
R4
10 16.66
R5 10 16.66
R6 5 8.33
TOTAL 60 100

66
Figure No. 7
Attributes
R1-Transparent trading
R2- Fair price discovery
R3- Automated trading system
R4- Unique identification number
R5- To provide nationwide reach and consistent offering
R6- To bring together the entities that the market can trust
satisfied future trding
10
15
10
10
5
5
future trading
Transparent trading
Fair price discovery
automated trading
system
unique identification
number
to prouide nationwide
reach
to bring trust

67
i) Current regulatory mechanism of commodity futures in India.
Table No: 10
Attributes
R1- Limit on net open position as on the close of the trading hours.
R2- Limit on price fluctuation to allow cooling of market in the event of abrupt upswing or
downswing prices.
R3- Special margin deposit to be collected on outstanding purchase or sales when price
fluctuate.
R4- Minimummaximum prices-these are prescribed to prevent futures prices from falling
below as rising above not warranted prospective supply or demand.
R1 10 16.66%
R2 18
30%
R3 8 13.33%
R4 12 20%
R5 12 20%
Total 60 100%

68
R5- Skipping trading in certain derivatives of the contract, closing the market for a special
period and even closing out the contract.
INFERENCE:
According to the survey most of the investors are satisfied current regulatory
measures that is above mentioned options i.e. R1, R2, R3, R4, and R5.Survey indicated that
the major influencing factors for commodity futures are Minimummaximum prices-these are
prescribed to prevent futures prices from falling below as rising above not warranted
prospective supply or demand. Skipping trading in certain derivatives of the contract, closing
the market for a special period and even closing out the contract. So it helps investors to track
the current regulatory measure in price and proper price discovery.
Figure No. 8

COMMODITY FUTURES AS AN INVESTMENT AVENUE

COMMODITY FUTURES AS AN INVESTMENT AVENUE

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to COMMODITY FUTURES AS AN INVESTMENT AVENUE

Similar to COMMODITY FUTURES AS AN INVESTMENT AVENUE (20)

Recently uploaded

Recently uploaded (20)

COMMODITY FUTURES AS AN INVESTMENT AVENUE