The document outlines the structure and functioning of commodity markets, including types of commodities such as agricultural products and metals, and highlights the role of exchanges like NCDEX and MCX in facilitating trade. It emphasizes the potential of the agro economy in India, noting its significant contribution to GDP and poverty alleviation, and discusses risks faced by commodity producers and users due to price volatility. Additionally, it details various trading strategies, including hedging and arbitrage, to manage these risks effectively.

2. Commodity Markets defined
• Commodity:
Any tangible item that can be bought and sold.
• SPOT MARKET-Mandis
• FUTURES MARKET-Exchanges

4. Inflation adjusted returns in
the developed markets
• Returns greater than bonds
and almost equivalent to
stocks
• Risk is lower than investing in
stocks
U.K.U.S.
U.S.

5. Major International Exchanges
COMMEX
Agricultural: corn, soybean, oats, wheat etc
Metals :gold,silver
Precious Metals and Energy
Goldman Sachs Commodity Index
Fertilizer.Dairy,etc
Gold,Silver
Base Metals,Plastics

8. Indian Scenario
• More than 100 years old market
• Regional exchanges
- Bombay Cottons Exchange
- India Pepper and Spice Trade Association
- National Board of Trade etc.
• Year 2003
- Landmark year
- Organized Trading at National Level

9. Premier Exchanges
• Organized National level exchanges
• Professionally managed
• Demutualised setup

10. T h e C o m m o d itie s
G o ld
S ilv e r
P re c io u s M e ta ls
S te e l
C o p p e r
N ic k e l
T in
B a s e M e ta ls
C e re a ls
P u ls e s
S p ic e s e tc
A g ric u ltu re
C ru d e O il
E n e rg y
S o y a O il
C a s to r S e e d s
M u s ta rd O il
O ils a n d O il S e e d s
C o tto n
S u g a r
S o fts
 More than 70 commodities listed in a short span of 2 years
 Record Volume seen in many commodities

11. NCDEX MCX
Promoters
ICICI Bank,LIC,
NABARD,NSE,PNB,CRISIL,
Canara Bank,IFFCO
Financial Technologies
(India) Ltd., SBI, HDFC
Bank, Union Bank of India,
B O I, BOB, Canara Bank,
Corp. Bank and more.
Expiry 20th
of contract month for
most of the commodities or
as specified
15th
or 5th
of the contract
month,as specified for the
particular commodity
Actively
traded
commodities
Agro- commodities,Mild
Steel ingots
Gold,Silver,Crude Oil

12. Average volumes of
commodities traded
Commodity Exchange Avg.volume per day
Gold MCX 5,42,800 kgs
Silver MCX 10,55,730 kgs
Crude MCX 5,03,700 bbl
Refined Soya Oil NCDEX 21,000 MT
Soybean, Guar seed NCDEX 12,000 MT
Mild Steel Ingots NCDEX 6,100 MT
Spices(jeera,turmeric,chilly,pepper) NCDEX 1,800 MT
Chana,Urad,Wheat NCDEX 30,000 MT
Sugar M NCDEX 10,500 MT
Guar gum NCDEX 1,37,000 MT
Medium staple cotton NCDEX 1,500 bales

13. R e g u l a t i o n
B r o k e r s / T r a d e r s
E x c h a n g e s
F o r w a r d s M a r k e t C o m m i s i o n
M i n i s t r y O f C o n s u m e r A f f a i r s

14. The Potential-AGRO ECONOMY
• Constitutes 22% of GDP
• Provides food to 1Billion people
• Sustains 65% of the population :
helps alleviate poverty
• Produces 51 major Crops
• Provides Raw Material to
Industries
• Contributes to 1/6th
of the export
earnings.

15. Participants
Participants
Hedgers
Hedgers
Arbitragers
Arbitragers
Investors
Investors
Gain from price
differentials
Gain from price
differentials
Individuals
Actively Managed Funds
Individuals
Actively Managed FundsProducer
Producer
User
User
Importer
Importer
Exporter
Exporter

16. The Commodity Hedger
• Risks faced by Commodity Users and Producers
• Price Volatility
• Types of Hedges
• Corporates currently benefitting from the market

17. Risks faced by Commodity
Users and Producers
Commodity enterprises faces two types of Risks
• PRICE RISK
• QUANTITY RISK(eg from weather)
HEDGING REDUCES PRICE RISK

18. Price Volatility
- Prices of commodities volatile
due to
- Demand Supply mismatch
- Erratic Monsoon
- Import – Export restrictions
- Spoilage during storage
- Substitute demand etc.
Wheat
730
750
770
790
810
830
850
870
6/7/20049/7/2004
07/13/200407/16/200407/20/200407/23/200407/27/200407/30/20043/8/20046/8/200410/8/200408/13/200408/17/200408/20/200408/24/200408/27/200408/31/20043/9/20047/9/200410/9/200409/14/200409/17/2004
Date
Price/Qtl
12%12%
RiseRise
13%13%
FallFall
Sugar M-30 (NCDEX)
1550
1600
1650
1700
1750
1800
1850
1900
1950
2000
11/01/2004 11/16/2004 11/30/2004 12/14/2004 12/30/2004 01/13/2005 01/28/2005
Date
Price/Qtl
23.66 %
Rise

19. Types of Hedges
Long hedge
Hedge against increase in
cotton prices(e.g. Textile
companies)
Short hedge
Hedge against decrease in
prices(e.g.Steel ,Rubber,Oil
producers)

20. Commodity – Tool of Hedging
Wheat
Physical Stock 200
Tons @ 750/qtl
Price down to 680/qtl
Loss of Rs. 70/qtl
200 tons sold in Futures
@ 800/qtl
Settlement at 680qtl
Profit of Rs. 120qtl
Profit of Rs 50 qtl

21. Corporates currently
benefitting from the market

23. Portfolio Diversification
Correlation Coefficient in the Indian Markets
GOLD SILVER STOCKS BONDS
GOLD 1 0.89 0.206 0.741
SILVER 1 -0.099 0.146
STOCKS 1 0.112
BONDS 1
• Diversification
reduces risk
• Downside risk is
limited -Residual
Value

24. Types of Arbitrage
• Calendar Spread Arbitrage
• Inter exchange Spread Arbitrage
• International Spread Arbitrage
• Spot Future Arbitrage

25. Calendar Spread Arbitrage
• Exploiting the convergence of price between two contract.
• Example -
Chana 20 Dec05 1900 1901
Chana 20 Jan05 1954 1955
Spread between the two contract months is 53
On expiry -
Chana 20 Dec05 1910 1911
Chana 20 Jan05 1912 1913
Spread between the two contract months is 2

26. International Spread Arbitrage
• Prices in India are derived from International prices.
• Exploiting the mismatch in parity
NYMEX Crude 60.35
INR 46.23
Fair Value (Rs.) 2790
MCX Crude (Rs.) 2820
Difference 30

27. Spot – Future arbitrage
• Steps in Arbitrage Process
•1) Spot Purchase and spontaneous future sale
•2) Goods warehoused within 4 to 5 days and payment to
• Supplier towards spot purchase
•3) Goods certified in next 5 days
•4) Goods dematerlization in next 2 days
•5) Delivery on the expiry of Future Contract
•6) Release of Client fund along with his profit.

28. Obligation of Client
No taxation obligation (Sales Tax etc.) is being done on part of client.
We have our sales tax registration at every state in name of Navratan
Comdex Pvt Ltd. So whatever are the taxation formalities, we will
complete on behalf of client.
Risk Parameter
No risk is involved in spot future arbitrage since profit in the arbitrage
sauda is locked at its initiation itself. There might be a slight diversion of
Annualized Approximate Return due to uncontrolled upward move of
commodity prices since we have to call MTM Loss Money for the time
prices come down again. But the absolute amount of profit will not be
changed anyhow.

29. Formalities
If a client wants to do arbitrage, client has to open a Trading Account
and a Demat Account with us. Trading Account is required to initiate
futures sauda and Demat Account is necessary to get demat goods
in client account. Except this no other obligation is due on client part.
Investment
Client has to pay his purchase cost of goods along with all expenses
(warehousing charges, spot commission, our commission, we will
incur on his behalf. The client will pay further, specified margin for
the future sale sauda.

30. Milestones achieved
• NCDEX unveils India's first agriculture index.
• NCDEX peak daily turnover of 4271cr.
• MCX clocks record volume in Crude Oil contracts.
Peak Daily Volume of 9,26,500 Barrels
• MCX registered 602kgs of physical deliveries of
GOLD february contract

31. Sample Contract Specification
Specifications GOLD SUGAR
Trading unit 1 kg 10MT
Quotation/Base
Value
Rs/10gms Rs/100kg
Market Price Rs 7760 Rs 1800
Lot Value Rs 776000 Rs 180000
Total Margin * 5% 10%
Delivery unit 1 kg 10 MT
* Margin is changed from time to time depending upon volatility ,time to expiry etc.

32. Client Registration Form (CRF)
• Individual / HUF
Documents Required
• Photo with signature across.
• Name , Address, Tel. No.
• Birth Date & Occupation.
• Bank A/c details
• IT PAN No. or 49A / Form 60
• Introducer’s Name &
Signature
• Signature of Client
• Manager (Person in charge)
Signature
• Non –Individual --Company/
Firms/ Trust
Documents Required
• Certified true copy of Board Resolution
• Certified true copy of Audited Final A/cs
for the latest year.
• Copy of IT Return, if possible
• Certified true copy of MOA/ AOA /
Partnership Deed / Trust Deed
• Details of 2 key persons
* Photo with signature across
* Name, Address, Tel. No.
* Birth Date & Designation
* Copy of any one of the specified
documents
* Signature of key person.

33. The Edge
• Early movers in the commodities business
• Integrated wealth management solutions across
global financial markets
• Propriety Global economic and investment strategy
research
• Sophisticated asset allocation and risk modeling
processes
• Seasoned team of professionals
• Local strength –Underpinned by network of national
offices
• Multiple dealing terminals for better Client servicing