A STUDY ON RELATIONSHIP BETWEEN INDIAN COMMODITY MARKET AND INDIAN STOCK MARKET

By NITHYANANTHAN. P Roll No: 0803MBA0482 Register No: 68108102054 A PROJECT REPORT Submitted to the FACULTY OF MANAGEMENT SCIENCES in partial fulfilment for the award of the degree of MASTER OF BUSINESS ADMINISTRATION

CENTRE FOR DISTANCE EDUCATION ANNA UNIVERSITY CHENNAI CHENNAI 600 025

FEBRUARY 2010

BONAFIDE CERTIFICTE This is to certify that the Project report titled A STUDY ON RELATIONSHIP BETWEEN INDIAN COMMODITY MARKET AND INDIAN STOCK MARKET is the bonafide work of Mr. NITHYANANTHAN. P who carried out the work under my supervision. Certified further that to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

Signature of Student Name Roll No. : NITHYANANTHAN. P : 0803MBA0482.

Signature of Guide Name : SENTHIL KUMAR V M Designation: Assistant Professor Address Dept. of Management Studies Nandha Engineering College Erode

Register No. : 68108102054.

Signature of Project In - Charge Name Designation : SENTHIL KUMAR V M : Assistant Professor

CERTIFICATE OF VIVA-VOCE-EXAMINATION This is to certify that Mr. NITHYANANTHAN. P (Roll No.: 0803MBA0482; Register No.: 68108102054) has been subjected to Viva-voce-Examination on at at the study centre: Nandha Engineering College, Erode.

Coordinator Study Centre Name Designation Address : : : Dr. V B Senthil Kumar Head of the Department Department of Science & Humanities Nandha Engineering College, Erode.

Internal Examiner Name Designation Address : : :

External Examiner Name Designation Address : : :

Date

ACKNOWLEDEGMENT I hereby offer my sincere and profound thanks to Mr. Senthil Kumar.V.M, Assistant Professor, Department of Management Studies, Nandha Engineering College, Erode, who gave me such a challenging project and guided me through out my project including data collection, analysis and presentation of the same. Without him I would not have been able to complete my project successfully. I would also like to thank the Administrative Officer, Nandha Engineering College, Erode, the Head of the Department of Management Studies and other staff members of our study centre Nandha Engineering College, Erode for their valuable support. Further I would like to extend my heartful thanks to the Central Steering Committee (CSC) of Centre for Distance Education, Anna University Chennai and the Project Monitoring Committee of our study centre Nandha Engineering College, Erode for their valuable guidance to make my project as a successful one. I extend my courtesies to the official websites of Bombay Stock Exchange, National Stock Exchange and Multi Commodity Exchange of India for providing me the valuable information and data to carry out this study.

ABSTRACT This project A STUDY ON RELATIONSHIP BETWEEN INDIAN COMMODITY MARKET AND INDIAN STOCK MARKET explore about the direction and degree of relationship between Indian Commodity Market and Indian Stock Market. The main aim of this project is to find out the relationship between Indian Commodity Market and Indian Stock Market and if so then to arrive at meaningful conclusions based on relationship between them. The value of major listed commodities such as Gold, Copper, Aluminium & Crude Oil of Multi Commodity Exchange of India Limited one among premier commodity markets in India and the values of major indices such as SENSEX & NIFTY of Indian stock markets for the particular period had been taken as samples for this study. In this project, the concept of correlation analysis had been used to find out relationship between Indian Commodity Market and Indian Stock Market. The major finding of this project is that there exists meaningful relationship between Indian Commodity Market and Indian Stock Market. And that relationship is of positive in nature; that is Indian Commodity Market follows the route of Indian Stock Market.

TABLE OF CONTENTS

Chapter No. 1 1.1 1.2 1.3 1.4 1.5 1.5.1 1.5.2 1.5.3 1.6 2 3 3.1 3.2 4 5 5.1 5.2 5.3 6

Title description Introduction and Design of the Study Introduction Statement of the Problem Scope of the Study Objectives of the Study Research Methodology Data And Sources Period of the Study Framework of the Study Limitations of the Study Review of Literature Overview of Indian Commodity Market and Indian Stock Market Indian Commodity Market Indian Stock Market Data Analysis and Interpretation Summary of Findings, Suggestions and Conclusion Findings Suggestions Conclusion Bibliography

Page No. 1 1 1 2 2 3 3 4 4 5 6 7 7 16 22 43 43 44 45 46

LIST OF TABLES Table name SENSEX and Gold SENSEX and Crude Oil SENSEX and Copper SENSEX and Aluminium NIFTY and Gold NIFTY and Crude Oil NIFTY and Copper NIFTY and Aluminium An Overview Data Analysis and Interpretation

Table No. 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9

Page No. 26 28 30 32 34 36 38 40 42

CHAPTER 1 INTRODUCTION AND DESIGN OF THE STUDY

1.1. Introduction The relationship between the Commodity Market and the Stock Market has many implications for not only the participants of the markets but also for the policy makers, the producers of the commodity, and, in the case of developing nations, the economy as a whole. This relationship may be studied using various methods and by identifying the lead-lag relationship between the values of representative indices of the markets. In this project work, the dynamics of such relationship among the Commodity Markets and Stocks Markets in India are taken into analyze and study. The background for this particular Project is that the markets like Stock Markets and Commodity Markets are reflecting the countrys economic performance through their day to day performances. Hence the relationship between the above markets is naturally important in the minds of any market participants, including regulators, in understanding / framing appropriate strategies, policies, rules and regulations at any point of time. This project intends to use the secondary data which are published in the various market official websites of Bombay Stock Exchange, National Stock Exchange and Multi Commodity Exchange of India Limited. The investment strategy can be formulated using the findings of this Project. Hence it is necessary that the arriving at meaningful conclusions / findings about the relationship between Indian Commodity Market and Indian Stock Market in view point of the market participants. 1.2. Statement of the Problem The investors / market participants face lot of hurdles in arriving at various decisions on their investment portfolio. Decisions with respect to investment in commodity like Gold, Copper, etc., and various stocks lead them to a confused state. This is due to the lack of clear information presently available in the market on the relationship between Indian Commodity Market and Indian Stock Market.

The problem identified is that so far there are only minimal findings on the relationship between Indian Stock Markets and Indian Commodity Markets. Hence it is necessary to have a study on this using some major contributors of the markets as samples. It is expected that the findings from this Project will help the market participants, including regulators, in understanding / framing appropriate strategies, policies, rules and regulations. This problem identified is confirmed with various participants like individuals, investors, etc.

1.3. Scope of the Study The major scope of this project is to find about relationship between Indian Commodity Market and Indian Stock Market. The samples taken from the Indian Commodity Market and Indian Stock Market for this project are Gold, Copper, Aluminium, Crude Oil, SENSEX and NIFTY. Further the scope of this study includes analysis of eight sets of data formed from the samples indicated as above using Karl Pearsons Coefficient of Correlation method and arriving at meaningful conclusion based on the above analysis 1.4. Objectives of the Study The following are identified as objectives of the Project study. To find out the relationship between Indian Commodity Market and Indian Stock Market. To find out the degree and direction of the relationship between Indian Commodity Market and Indian Stock Market. To arrive at meaningful conclusions on the relationship between Indian Commodity Market and Indian Stock Market.

1.5. Research Methodology As the samples taken from the two markets for a particular period of time and the kind of deliverables to be found out from this study, it is decided that Correlation Analysis methodology can be used for this study. The details those are required for carrying out this study like the type of Data & Sources, Period on which time the data collected / available and Frame works of the Project study are elaborated in the sections as hereunder. 1.5.1. Data and Sources The samples such as the value of major listed commodities such as Gold, Copper, Aluminium & Crude Oil of Multi Commodity Exchange of India Limited one among premier commodity markets in India and the values of major indices such as SENSEX & NIFTY of Indian stock markets are of Secondary in nature; not primarily necessary. The reason for selecting the above commodities is they are major contributor to the day to day trading at the commodity exchanges. Further the reason for selecting the above stock indices is they reflect the day to day trading in the stock exchanges. To say these data are available for public use and these data can be accessed by anybody at anytime. Month wise data is collected for this project. Sources for above mentioned data are furnished hereunder. The values of Gold, Copper, Aluminium and Crude Oil are taken from the official website of Multi Commodity Exchange of India Limited; The value of major index SENSEX is downloaded from the official website of Bombay Stock Exchange The value of major index NIFTY is downloaded from the official website of National Stock Exchange of India Limited

1.5.2. Period of the Study The data as mentioned in the pervious sections from the related sources are collected for the following periods. For Gold Crude Oil Copper Aluminium SENSEX NIFTY : from January 2004 to December 2009 : from February 2005 to December 2009 : from June 2004 to December 2009 : from October 2005 to December 2009 : from January 2004 to December 2009 : from January 2004 to December 2009

It is decided that the last six year data for above samples can be considered for this project; because of the fact that this project intend to use monthly data. However, the data for Crude Oil, Copper and Aluminium is available from February 2005, June 2004 and October 2005 only respectively in the official website of Multi Commodity Exchange of India Limited. 1.5.3. Framework of the Study As the samples taken from the two markets for a particular period of time and the kind of deliverables to be found out from this study, it is decided that Correlation Analysis methodology can be used for this study. The major tool used in this Project study is Karl Pearsons Coefficient of Correlation method. Usgin this method this Project study intends to find out the Coefficient of Correlation for the eight pair of data those are formed from the samples taken for this Project study. The eight pair of data is SENSEX & Gold, SENSEX & Copper, SENSEX & Aluminium, SENSEX & Crude Oil, NIFTY & Gold, NIFTY & Copper, NIFTY & Aluminium, and NIFTY & Crude Oil. Further this Project study intends to use the Coefficient of Correlation to arriving at meaningful conclusion on the relationship between Indian Commodity Market and Indian Stock Market.

1.6. Limitations of the Study This Project study is limited to the samples such as the value of major listed commodities such as Gold, Copper, Aluminium & Crude Oil of Multi Commodity Exchange of India Limited one among premier commodity markets in India and the values of major indices such as SENSEX & NIFTY of Indian Stock Markets. The considered data are secondary in nature; not primary. The used data is this Project study is monthly data only. The data collected from January 2004 to December 2009 only. The findings, suggestions and conclusion are furnished in this Project study are based on the analysis of eight pair of data as listed in the pervious sections. The market affecting factor like political scenarios, natural calamities, international economic events, war, etc are not taken into in this Project study.

CHAPTER 2 REVIEW OF LITERATURE There have been number of theoretical and empirical studies that provide evidence on the relationship between Indian Stock Market and Indian Commodity Market. An elaborative review of the same which was earlier carried out by Industry experts and various Scholars had been carried out. The research and findings of the same had been carefully analyzed and in support of this project study had been obtained. Sushmita Bose (2008) in his study called Commodity Future Market in India A Study of Trends in the Notional Multi Commodity Indices found that there is similar price movement in the Indian Commodity derivatives Market to the Indian financial derivatives Market. He also found that as for correlation with the Indian Stock Market index by the Indian Commodity Market the degree of correlation is positive & fairly high around 70%. He further find that Multi commodity indices, which have higher exposure to metals and energy products, with clear and efficient price dissemination in national and international markets, behave like the Equity indices in terms of efficiency and flow of information. Another Economist, Michel Robe (2008) studied the relationship between Stock Market and Commodity Market in his study called Commodities and Equities: A Market One?. He used dynamic correlation and recursive cointergration techniques and he found that the relation between the returns on the investable Commodity and Equity indices has not changed significantly in the last fifteen years.

CHAPTER 3 OVERVIEW OF INDIAN COMMODITY MARKET AND INDIAN STOCK MARKET 3.1. Indian Commodity Market A Commodity futures market (or exchange) is, in simple terms, defined as a public market where commodities are contracted for purchase or sale at an agreed price for delivery on a specified date. This purchase or sale of commodities must be made through a broker who is a member of an organised exchange and the purchase should be made under the terms and conditions of a standardised futures contract. The gradual evolution of commodity markets in India has been of great significance for both the countrys general economic prosperity and the financial sector in particular. From an investment standpoint, a commodity is considered as an alternate asset class and investing in commodity futures is appealing to investors as commodities have a significantly lower degree of association with other traditional asset classes and offer an effective hedge against inflation. Besides being a unique hedging instrument, it also provides for efficient portfolio management arising from diversification benefits, which result in improved returns to domestic as well as international investors. The commodity futures market as an asset class provides commercial commodity producers and consumers with a means to transfer price risk to speculators who have no direct commercial interest in the commodities themselves. Producers hedge price risk by taking short positions in future contracts on the commodity that they produce. A similar hedge requires consumers to seize long positions in the futures contracts on their consumption commodity. Arbitrageurs and speculators choose to take either long or short positions on a commodity futures contract based on their market perception. Unlike the stock market, which has a net positive supply, commodity futures have a net supply of zero. Thus, there is no long-only market portfolio of commodity futures contracts that investors should use as a default passive strategy. It may not be a surprise that the relationship among various players in the futures

markets can create situations in which long-only strategies may fail to generate consistent risk premiums, even in commodity bull markets. Further, as per the economic theory and empirical evidence, commodity future prices tend to exhibit momentum. Therefore, when a commodity future price exhibits an upward trend, it makes sense to take a long position and vice versa. Evolution and History of the Commodity Markets in India Commodity futures markets largely remain underdeveloped in India. This is in spite of the countrys long history of commodity derivatives trade as compared to the US and UK. A major contributor to this fact is the extensive government intervention in the agricultural sector in the post-independence era. In reality, the production and distribution of several agricultural commodities is still governed by the state and forwards as well as futures trading have only been selectively introduced with stringent regulatory controls. Free trade in many commodity items remains restricted under the Essential Commodities Act (ECA), 1955, and forwards as well as future contracts are limited to specific commodity items listed under the Forward Contracts (Regulation) Act (FCRA), 1952. The evolution of the organised futures market in India commenced in 1875 with the setting up of the Bombay Cotton Trade Association Ltd. Following widespread discontent among leading cotton mill owners and merchants over the functioning of the Bombay Cotton Trade Association, a separate association, Bombay Cotton Exchange Ltd., was constituted in 1983. Futures trading in oilseeds originated with the setting up of the Gujrati Vyapari Mandali in 1900, which carried out futures trading in ground nuts, castor seeds and cotton. 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. In 1921, futures in cotton were organised in Mumbai under the auspices of East India Cotton Association (EICA). Before the Second World War broke out in 1939, several futures markets in oilseeds were functioning in the states of Gujarat and Punjab. Futures markets in Bullion began in Mumbai in 1920, and later, similar markets were established in Rajkot, Jaipur, Jamnagar, Kanpur, Delhi and Calcutta. In due course, several other exchanges were established in the country, facilitating trade in diverse commodities such as pepper, turmeric, potato, sugar and jaggery.

Post independence, the Indian constitution listed the subject of Stock Exchanges and Future Markets under the union list. As a result, the regulation and development of the commodities futures markets were defined solely as the responsibility of the central government. A bill on forward contracts was referred to an expert committee headed by Prof. A.D. Shroff and selected committees of two successive parliaments and finally, in December 1952, the Forward Contracts (Regulation) Act was enacted. The Forward Contracts (Regulation) rules were notified by the central government in 1954. The futures trade in spices was first organised by the India Pepper and Spices Trade Association (IPSTA) in Cochin in 1957. However, in order to monitor the price movements of several agricultural and essential commodities, futures trade was completely banned by the government in 1966. Subsequent to the ban of futures trade, many traders resorted to unofficial and informal trade in futures. However, in Indias liberalisation epoch, as per the June 1980 Khusro committees recommendations, the government reintroduced futures on selected commodities, including cotton, jute, potatoes, etc. Following the introduction of economic reforms in 1991, the Government of India appointed an expert committee on forward markets under the chairmanship of Prof. K.N. Kabra in June 1993. The committee submitted its report in September 1994, championing the reintroduction of futures, which were banned in 1966, and expanding its coverage to agricultural commodities, along with silver. In order to boost the agricultural sector, the National Agricultural Policy 2000 envisaged external and domestic market reforms and dismantling of all controls and regulations in the agricultural commodity markets. It also proposed an expansion of the coverage of futures markets to minimise the wide fluctuations in commodity prices and for hedging the risk arising from extreme price volatilities.

Commodity Futures It is important to understand why commodity futures are required and the role they can play in risk management. It is widely known that the price of commodities, shares and currencies follow a non-linear trend over a period of time. The possibility of adverse price changes in futures increases the risks involved in any business. Derivatives are used to eliminate or reduce price risks arising from unforeseen price changes. A derivative is a financial contract whose price is derived from the price of

an underlying asset. Further, futures contracts are an improved variant of forward contracts. They are agreements to purchase or sell a given quantity of a commodity at a pre-determined price, with settlement expected to take place at a future date. As compared to forwards, futures contracts are standardised in terms of quality and quantity, and the place and date of delivery of the commodity. According to the definition of the Forward Market Commission (FMC), a futures contract is a highly standardised contract with certain distinct features, which include the followings 1. Futures trading are necessarily organised under the auspices of a market association so that such trading is confined to or conducted through members of the association in accordance with the procedures laid down in the rules and byelaws of the association. 2. It is invariably entered into for a standard variety known as the basis variety with permission to deliver other identified varieties known as tenderable varieties. The units of price quotation and trading are fixed in these contracts, and parties to the contracts are not capable of altering these units. 3. The delivery periods are specified. 4. The seller in a futures market has the choice to decide whether to deliver goods against outstanding sale contracts. In case he decides to deliver goods, he can do so not only at the location of the association through which trading is organised but also at a number of other pre-specified delivery centres. 5. In futures markets, the actual delivery of goods takes place only in a minimum number of cases. Transactions are mostly squared up before the due date of the contract and contracts are settled by the payment of differences without any physical delivery of goods taking place. Unlike the physical market, a well developed and effective commodity futures markets facilitate the offset of transactions without impacting physical goods until the expiry of a contract. Futures contracts are designed to deal directly with the credit risk involved in the locking of prices and obtaining forward cover. Futures markets attract hedgers to cover their price risks and encourage competition from other traders who possess market information and price judgment. As observed from the cross-country experiences of active commodity futures market, it helps in efficient price discovery of the respective commodities and does not impair the equilibrium

prices of commodities in the long run. In futures markets, speculators also play a pivotal role in providing liquidity to the markets and may sometimes benefit from the price movements. At the same time, they do not have a systematic casual influence on prices. Commodities are accepted as a separate asset class with a unique and distinct source of return. It is well documented that the statistical properties of commodities yield risk reduction benefits for a portfolio invested mainly in financial assets. An inverse relationship between return and volatility is observed in the commodity markets as compared to the stock markets. This implies that if the commodity market returns are negatively correlated with those of traditional financial assets, the introduction of commodities in those portfolios may result in the diversification of risks. Thus, an investor can take full advantage of the unique statistical properties of commodity investments by adding commodity assets to a financial-only portfolio.

Regulations of Commodity Futures In general, commodity futures trading, merchandising and stockholding of many commodities in India have always been regulated through various legislations such as the Essential Commodities Act (ECA), 1955, Forward Contract (Regulation) Act (FCRA), 1952 and Prevention of Black-marketing and Maintenance of Supplies of Commodities Act, 1980. The FCRA, 1952 envisages a three-tier regulation for commodity futures trading in India. These are (a) an association recognised by the Government of India on the recommendation of the FMC, (b) the FMC and (c) the central government. As per the act, the exchange that organises forward trading in regulated commodities can prepare its own rules (Articles of Association) and bylaws and regulate trading on a day-to-day basis. The FMC approves those rules and byelaws and provides a regulatory overview. The ECA, 1955 came into powers to control production, supply, distribution, etc. of essential commodities for maintaining or increasing supplies and for securing their equitable distribution and availability at fair prices. Using the powers under the ECA, 1955, various departments of the central government have issued control orders for regulating production, distribution and quality of products, movements, etc. pertaining to the commodities that are essential and administered by them.

All types of forward contracts in India are governed by the provisions of FCRA, 1952. The act categorised commodities into three groups based on the extent of regulation: (a) the commodities in which futures trading can be organised under the auspices of a recognised association (b) the commodities in which futures trading is prohibited (c) the free commodities which are neither regulated nor prohibited. However, options in goods are prohibited by the FCRA, 1952 but the ready delivery contracts remain outside its purview. The ready delivery contract, as defined by the act, is the one that provides for the delivery of goods and payment of a price, either immediately or within a period not exceeding 11 days after the date of the contract. All ready delivery contracts where the delivery of goods and/or payment for goods is not completed within 11 days from the date of the contract are defined as forward contracts. The act classifies forward contracts into twospecific delivery contracts and those excluding specific delivery contracts or futures contracts. Specific delivery contracts are forward contracts that provide for the actual delivery of specific qualities or types of goods during a specified time period at a price fixed thereby or to be fixed in the manner thereby agreed and in which the names of both the buyer and the seller are mentioned. Specific delivery contracts are distinguished as transferable and non-transferable. The distinction between the transferable specific delivery (TSD) contracts and non-transferable specific delivery (NTSD) contracts is based on the transferability of the rights or obligations under the contract. Forward trading in TSD and NTSD contracts are regulated by FCRA, 1952. As per section 15 of the act, every forward contract in notified goods (currently 36 commodity items), which is entered into except those between members of a recognised association or through or with any such member, is treated as illegal or void. As per the section 17(1) of the act, 82 items are prohibited from entering into forward contracts. Section 18(1) of the act exempts NTSD contracts from regulatory provisions. However, over the years, regulatory provisions of the act were applied to the NTSD contracts, and 79 commodity items are currently prohibited from NTSD contracts under section 17 of the act. Moreover, another 15 commodity items have been brought under the regulatory provisions of section 15 of the act, out of which trading in NTSD contracts has been suspended for 12 items. At present, the NTSD

contracts in cotton, raw jute and jute goods are permitted only between, through or with the members of the associations specifically recognised for the purpose. The Forward Contract Regulations Act (1952) has been amended over the years. Various committees have worked on and reshaped the act in varying capacities. An example is the Kabra Committee in 1993, which proposed strengthening of the FMC and a few amendments to the Forward Contracts (Regulation) Act, 1952. The major amendments included allowing options in goods, increase in outer limit for delivery and payment from 11 days to 30 days for the contract to remain as a ready delivery contract and registration of brokers with the FMC. The government accepted most of these recommendations and futures trading have been permitted in all recommended commodities except bullion and basmati rice. The FMC has imposed several regulatory measures that are implemented in developed markets such as daily mark to market margining, time stamping of trades, innovation of contracts and creation of a trade guarantee fund, back-office computerisation for the existing single commodity exchange and online trading for the new exchanges, demutualisation for the new exchanges, one-third representation of independent directors on the boards of existing exchanges, etc. Though these measures were intended to promote financial integrity, market integrity and transparency, most of these have met with strong resistance from the trade. The exchanges, therefore, had to be virtually forced into adopting some of the measures by the regulatory dictate. The exchanges have attributed the subsequent fall in the volume of trade to the introduction of these measures. Exchanges such as the Bombay Commodity Exchange and Kanpur Commodity Exchange, which implemented most of these reforms, were literally deserted by all traditional players. The government has taken a landmark decision to deregulate long duration margining contracts (non-transferable specific delivery contracts) from the purview of the Forward Contracts (Regulation) Act, 1952. There is a need for radically pruning the negative list of commodities in which futures trading is not allowed. The reasons, whether right or wrong, which led the government to ban a large number of commodities no longer exist today. Prior to 1960, futures trading used to be conducted in traditional commodities at the conventional places of trading as per the set terms and conditions.

When futures trading in these traditional commodities was prohibited, either non-transferable specific delivery contracts or futures trading in the commodities of minor nature which had no tradition of futures trading were used as a guise for conducting futures trading in traditional commodities. Most of these minor commodities were included in the negative list to prevent such disguised trading. Now that most of these conventional commodities such as edible oil and cotton are legally allowed, the need for using minor commodities as a guise has disappeared. Secondly, futures trading can generally be conducted only in commodities, which have competitive markets. It is necessary that the market forces of demand and supply largely determine the prices. India has already made a transition from being a food importing country to a food surplus country. The Government will have to substantially dilute the administered price mechanisms and integrate the internal food grains market with the global markets. The shortage conditions have changed, in addition to the perception that futures market is volatile, aggravating the impact in a shortage situation. It is appreciated in the policy circles that even in a shortage situation, futures markets help to balance the demand for the commodity and has a salutary impact of reducing intra-seasonal price-spread. The integration of the spot and futures markets is another critical factor for the growth of commodity futures in India. The spot market in commodities is controlled to a large extent by the state governments. There are restrictions on stockholding, turnover and the movement of goods. Variations exist in the duties levied by the different state governments. This fragments the commodity spot markets and impedes the commodity futures markets from reaching the market players outside the boundaries of the states or zones in which the exchanges are located. Despite these largely uncontrollable factors causing fragmented spot markets, it is necessary to address other issues that contribute to this fragmentation. The prices of commodities are influenced by their quality, grade, seasons of production, the quality of storage and warehousing, etc. Unlike securities, commodities are available in different grades and qualities. As commodities are bulky, there are difficulties involved in transportation, which affect spatial integration. These issues can be addressed by introducing a nation-wide warehouse receipt system.

Under the warehouse receipt system, the warehouses which meet the prescribed standards of storage, preservation, testing, grading and certification would be licensed by the Central Regulatory Authority and the warehouse receipts issued by these warehouses would become negotiable. The Central Regulatory Authority would evolve the system of inspection, monitoring and surveillance to ensure that the licensed warehouses comply with the prescribed standards and warehouse receipts issued by them truly reflect the quality, quantity and ownership of the goods. Commodity exchanges could create a marketplace for trading and settlement of warehouse receipts to facilitate hassle-free trading in commodities. This would improve the collateral value of the goods and consequently, the credit flow to the commodity sector, obviating the need for distress sale by farmers and even by some mills, who/which do not have the waiting capacity due to inadequate liquid assets necessary for meeting the immediate consumption/working capital needs. Structure, Conduct and Current Status of the Commodity Futures Markets in India Broadly, the commodities market exists in two distinct formsthe over-thecounter (OTC) market and the exchange-based market. Further, as in equities, there exists the spot and the derivatives segments. Spot markets are essentially OTC markets and participation is restricted to people who are involved with that commodity, such as the farmer, processor, wholesaler, etc. A majority of the derivatives trading takes place through the exchange-based markets with standardised contracts, settlements, etc. The exchange-based markets are essentially derivative markets and are similar to equity derivatives in their working, that is, everything is standardised and a person can purchase a contract by paying only a percentage of the contract value. A person can also go short on these exchanges. Moreover, even though there is a provision for delivery, most contracts are squared-off before expiry and are settled in cash. As a result, one can see an active participation by people who are not associated with the commodity. At present, there are 23 exchanges operating in India and carrying out futures trading activities in as many as 146 commodity items. As per the recommendation of the FMC, the Government of India recognised the National Multi Commodity Exchange (NMCE), Ahmadabad; Multi Commodity Exchange (MCX) and National

Commodity and Derivative Exchange (NCDEX), Mumbai, as nation-wide multicommodity exchanges. MCX commenced trading in November 2003 and NMCE in November 2002 and NCDEX in December 2003. As compared to 59 commodities in January 2005, 94 commodities were traded in December 2006 in the commodity futures market. These commodities included major agricultural commodities such as rice, wheat, jute, cotton, coffee, major pulses (such as urad, arahar and chana), edible oilseeds (such as mustard seed, coconut oil, groundnut oil and sunflower), spices (pepper, chillies, cumin seed and turmeric), metals (aluminium, tin, nickel and copper), bullion (gold and silver), crude oil, natural gas and polymers, among others. Gold accounted for the largest share (31 percent) of trade in terms of value, followed by silver (19 percent), guar seed (11 percent) and chana (10 percent). A temporary ban was imposed on futures trading in urad and tur dal in January 2007 to ensure orderly market conditions. An efficient and wellorganised commodities futures market is generally acknowledged to be helpful in price discovery for traded commodities. The growth in the commodity derivatives trading witnessed in 2005-06 continued through 2006-07. The total volume of trade increased sharply from Rs 1.29 lakh crore in 2003-04 to Rs 27.39 lakh crore in 2006-07 (till December 2006). In the first 9 months of 2006-07, the volume of trade already exceeded the Rs 21.55 lakh crore achieved in the 12 months of 2005-06. The turnover as a proportion of the GDP increased from only 4.7 percent in 2003-04 to 18.3 percent in 2004-05 and further to 76.8 percent in 2005-06. The growth in the volume of trading has been primarily propelled by Multi Commodity Exchange, Mumbai (MCX) and National Commodity Derivatives Exchange, Mumbai (NCDEX). 3.2. Indian Stock Market One of the oldest stock markets in Asia is the Indian Stock market, which began its journey about 200 years ago. The record of the transaction in securities during that phase was quite obscure. The East India Company was the only institution that dominated the existing securities market towards the close of the eighteenth century. Business on corporate stocks in Bank and Cotton presses started in Bombay by 1830s. From 1939 onwards, the trading list widened, although the number of

brokers recognized by the banks and merchants were very few (only six during 184050). The year 1850 marked a rapid transformation in the history of the Indian Stock market through a rapid development of the commercial enterprise and the brokerage business. This resulted in an increased number of brokers (sixty) by 1860. The start of the American Civil War in 1860-61, further increased the number of brokers from 200 to 250. However, the end of the war resulted in a huge slump in the securities market and the brokers continued their transactions in a street (now known as the Dalal Street). In 1887, they formally established the Native Share and Stock Brokers' Association" (which is alternatively known as The Stock Exchange") whose premise in the Dalal Street was inaugurated in 1899. Ahmedabad, the city that comes close to Bombay in terms of cotton business, soon felt the necessity of setting up a Stock exchange and thus the "The Ahmedabad Share and Stock Brokers' Association was formed in 1894. During the period from 1870 to 1908, the prices of shares other than cotton, namely, jute, tea and coal attained a boom state in a sequential fashion. Calcutta, which was then the home town of businesses, felt the urge for a Stock Exchange. Thus, in 1908, the leading brokers formed The Calcutta Stock Exchange Association. The early years of the twentieth century saw rapid industrial revolution in the country along with the Swadeshi Movement. Moreover, the major existing industries of the country experienced a major thrust due to the First World War. In 1907, The Madras Stock Exchange was set up with 100 members but after the War boom was over in 1923, its members receded, thereby making it somewhat non-existent. Later, in 1937, a stock exchange was again established in Madras, which was renamed as Madras Stock Exchange Limited in 1957. Bangalore Stock Exchange Limited was initiated in 1957 and earned its recognition in 1963. During the early sixties, there were just eight recognized stock exchanges in India (these are as mentioned above). Their number remained more or less same for the next two decades. The eighties witnessed the opening up of many Stock Exchanges, namely, Cochin Stock Exchange (1980), Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982), Pune Stock Exchange Limited (1982), Ludhiana Stock Exchange Association Limited (1983), Gauhati Stock Exchange Limited (1984), Kanara Stock Exchange Limited (at Mangalore, 1985), Magadh Stock Exchange Association (at Patna, 1986), Jaipur

Stock Exchange Limited (1989), Bhubaneswar Stock Exchange Association Limited (1989), Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989), Vadodara Stock Exchange Limited (at Baroda, 1990) and recently established exchanges like Coimbatore and Meerut. Thus, at present, there are a total of twenty-one recognized stock exchanges in India, excluding the Over the Counter Exchange of India Limited (OTCEIL) and the National Stock Exchange of India Limited (NSEIL). Till the early 1980s, there was no official index to measure the movement of the stock prices till BSE came up in 1986. BSE came up with Sensex with a basket of 30 stocks, calculated on full market capitalization. But from September 2003, it shifted to free-float market capitalization. In 1992, the Indian stock market underwent a great reformation with the creation of SEBI (Securities and Excha nge Board of India). During this period, the National Stock Exchange (NSE) was set up and electronic trading system was introduced. The NSE launched S&P CNX Nifty in April 1996, based on 50 stocks. Both NSE & BSE have changed the constituents of indices over the time, to reflect liquidity and market capitalization. Further, the Depository Act of 1996, the L C Gupta Committee (1996) on derivatives trading that was passed by the Parliament in December 1999, expanded the definition of securities to include derivatives. This created a strong derivative market and improved market liquidity and efficiency. Thus in India, the process of economic liberalization and thrust on reforms in the financial sector or the stock market in particular, got initiated in 1991. Though, earlier, the Indian stock market was insulated from the impact outside, it is now getting integrated with the world market. With more and more inflow of foreign exchange, the Indian stock market is getting strengthened, thereby further strengthening the Indian economy. Economic growth of the nations is closely linked with the liquidity of the stock market existing in the country. The concept of liquidity that is dealt here is market liquidity, which stands in sharp contrast to the definition of liquidity from the point of view of firm. A market is said to be liquid, if the instrument it trades can easily be bought or sold in quantity with little or no impact on its market prices. The stock markets around the globe contribute to the economic development by imparting liquidity to the capital investments. It is this market that allows entry even to the small savers, who invest their savings for short periods. The liquidity of the stock market

enables them to sell off their shares easily within a short span of time, which has undoubtedly attracted investments in shares. However, the most profitable businesses require long term investments. When the small potential investors reach the comfort zone in terms of investing in long-term equities, they balance their portfolios more towards long term investments and less towards short-term financial investments. This balancing mechanism forces the financial units to shift towards more profitable, productive and long term projects, resulting in higher capital productivity. The higherproductive capital boosts economic growth and raises the returns on equity investments, which further increases the incentives to save and invest and hence, furthers economic growth. The importance of the banking sector in the development of economy is an already accepted notion, but the liquid equity market does not lag behind in this respect. Recent researches have, therefore, begun to focus on the linkages between the stock market and the economic growth. On the positive side, a well-functioning stock market helps in developing the economy through the growth of savings, efficient allocation of investment resources and better utilization of the existing resources. However, on the other hand, the analysts view stock markets as a place, where the owners buy and sell stocks according to their convenience. This often affects the profitability of the firms by affecting the funds available to them. In the process, economic growth gets hampered due to the volatile nature of the stock market. Hence, the aspect of volatility needs to be carefully addressed. Market Volatility & Parameters of Stock Market The factors influencing the stock market affect the volatility of the market in which they are traded. These factors, in turn, are responsible for the development of the stock market in any country and making it comparable with the global markets. Stock market development is a multidimensional concept. It is measured by various parameters like size, liquidity, volatility and concentration of the stock market, its integration with capital and the legal rules in the world market. One of the Benchmark indices for the Indian stock market is the Sensex that captures the price movement of shares. This index is frequently used for describing the state of the market. It deals with 30 stocks, chosen from 13 sectors of the economy that are leaders themselves. These are selected by the index committee in such a way that

these stocks are traded on each and every trading day for the past one year and the company is listed with BSE for more than one year. A rising index is indicative of the fact that investors expect better performance from the companies in the future years. A broader indicator in the Indian context is the Nifty, which compromises of 50 stocks, covering 24 sectors that account for about 60 percent of the market capitalization. A high value is, therefore, indicative of high performance of the economy. In recent times, the BSE Sensex stood at 6000 in Feb 2000 and in April 2006, had just doubled, crossing 12000, which obviously indicated high performance of the economy. Since the Indian stock market is closely interlinked with the global stock markets, each and every change taking place in the international front is sure to affect the movement. During the 21 century, the markets of US, Europe, France, German, Spain, Italy and the UK experienced rapid growth, which is reflected in the Indian indices also. The stock market is highly volatile and there are several factors that affect the performances of the stock markets in general, in any country. The volatility is affected by the changing role of the Foreign Institutional Investors and Foreign Direct Investments, Dematerialization of shares, rolling settlements etc. External factors like world politics and disturbances, politics at the national level, the IT revolution, the information boom by the business news channels and the recent Information Technology revolution are often found to affect the volatility of the stock market to a greater extent. Dynamics of Indian Stock Market Indian Stock Market for more than 150 years has been operating with full grace. However, it took a substantially longer time to get into interaction with the rest of the world and become globally compatible. A long-term time series can help to brief the changing scenario of the Indian stock market over a few decades. To get a vivid sketch on the performance of the Indian stock market, this study concentrates upon two major stock exchanges of India -the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
st

Major Events in Indian Stock Market In 1986 BSE SENSEX was constructed with 1978-79 as the base year. In 1987 SBI Mutual Fund launched the regular income scheme. In 1988 Securities and Exchange Board of India was set up. In 1992 the first Indian company Reliance listed its GDR issue with NYSE. Foreign institutional investors were permitted to invest in Indian securities market. National Stock Exchange was set up. In 1994 Screen-based trading was introduced by NSE. In 1995 BSE online trading system was set into action after replacing open outcry system. In 1999 NIFTY was born. National Securities Depository was created. In 1997 SEBI releases norms for takeovers and acquisitions. BSE introduces screen-based trading. In 1999 automated lending and borrowing mechanism (ALBM) was launched in NSE. Infosys and ICICI banged on the credit to be the first Indian companies to be listed in NASDAQ and NYSE respectively.

CHAPTER 4 DATA ANALYSIS AND INTERPRETATION The samples taken from the Indian commodity market and Indian stock market for this project is limited to Gold, Copper, Aluminium, Crude Oil, SENSEX and NIFTY only. This project uses eight sets of data formed from the samples indicated as below using Karl Pearsons Coefficient of Correlation method and arriving at meaningful conclusions based on the above analysis. The data analysis and its interpretation using Karl Pearsons Coefficient of Correlation method is being done on the following set of data that is samples. SENSEX and Gold SENSEX and Crude Oil SENSEX and Copper SENSEX and Aluminium NIFTY and Gold NIFTY and Crude Oil NIFTY and Copper NIFTY and Aluminium Before exploring into the detailed analysis and interpretation, Karl Pearsons Coefficient of Correlation method & its interpretation are explained as below.

Karl Pearsons Coefficient of Correlation Method Given a set of N pair of observation (X 1 ,Y 1 ), (X 2 ,Y 2 ),.(X n ,Y n ) relating to two variables X and Y, Coefficient of Correlation between X and Y, denoted by the symbol R is defined as R = (X-XI)(Y-YI)/ (X-XI)2 (Y-YI)2 - - - Equation (4.1) Where, XI Mean of X YI Mean of Y R Lies between -1 and +1 By using the equation (4.1) and the interpretation of the value of R, the relationship between the Indian Commodity Market and Indian Stock Market can be found and reasonable conclusions can be arrived at.

SENSEX and Gold Table 4.1 refer to the value of SENSEX (index in number) and the value of Gold (Amount in Rs. Lakh) for the period from January 2004 to December 2009.

Table: 4.1 SENSEX and Gold

Month Jan 2004 Feb 2004 Mar 2004 Apr 2004 May 2004 Jun 2004 Jul 2004 Aug 2004 Sep 2004 Oct 2004 Nov 2004 Dec 2004 Jan 2005 Feb 2005 Mar 2005 Apr 2005 May 2005 Jun 2005 Jul 2005 Aug 2005 Sep 2005 Oct 2005 Nov 2005 Dec 2005 Jan 2006 Feb 2006 Mar 2006 Apr 2006 May 2006 Jun 2006 Jul 2006 Aug 2006 Sep 2006 Oct 2006 Nov 2006 Dec 2006 Sensex (X) 5,695.67 5,667.51 5,590.60 5,655.09 4,759.62 4,795.46 5,170.32 5,192.08 5,583.61 5,672.27 6,340.29 6,602.69 6,555.94 6,713.86 6,492.82 6,154.44 6,715.11 7,193.85 7,635.42 7,805.43 8,634.48 7,892.32 8,788.81 9,397.93 9,919.89 10,370.24 11,279.96 12,042.56 10,398.61 10,609.25 10,743.88 11,699.05 12,454.42 12,961.90 13,696.31 13,786.91 Gold(Y) 43,087.69 55,979.21 91,095.09 96,130.46 115,895.78 166,025.19 316,462.21 368,535.23 547,177.89 607,849.12 880,116.80 724,531.15 549,586.34 554,577.04 692,900.02 513,792.54 696,960.07 848,613.35 994,230.52 953,765.39 2,414,181.78 2,199,385.07 2,608,423.58 4,894,473.86 6,556,802.61 5,758,718.57 7,748,336.67 7,475,297.91 10,150,417.59 7,717,549.93 10,028,712.99 8,074,195.27 8,681,169.95 7,805,387.14 7,008,183.53 4,840,012.05 Month Jan 2007 Feb 2007 Mar 2007 Apr 2007 May 2007 Jun 2007 Jul 2007 Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May 2008 Jun 2008 Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb 2009 Mar 2009 Apr 2009 May 2009 Jun 2009 Jul 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 Sensex (X) 14,090.92 12,938.09 13,072.10 13,872.37 14,544.46 14,650.51 15,550.99 15,318.60 17,291.10 19,837.99 19,363.19 20,286.99 17,648.71 17,578.72 15,644.44 17,287.31 16,415.57 13,461.60 14,355.75 14,564.53 12,860.43 9,788.06 9,092.72 9,470.31 9,424.24 8,891.61 9,708.50 11,403.25 14,625.25 14,493.84 15,670.31 15,666.64 17,126.84 15,896.28 16,926.22 17,360.61 Gold(Y) 5,645,149.58 6,308,839.10 7,022,558.62 4,408,963.36 5,381,761.44 4,719,385.77 4,829,088.89 4,229,747.79 5,810,271.62 8,285,033.18 10,386,144.10 7,759,148.93 16,669,925.31 14,260,015.15 13,868,565.59 10,250,063.16 10,579,252.85 13,113,103.07 20,076,066.06 16,215,325.61 21,524,528.53 16,871,983.04 13,718,417.16 16,907,140.81 21,051,503.32 23,338,041.32 27,457,088.19 15,955,495.10 14,787,281.64 13,883,118.96 11,108,629.67 9,010,227.10 14,016,511.44 13,916,734.13 19,219,496.25 21,338,603.36

Data analysis Equation (4.1) can be used for data analysis. Reproducing the equation is as below. R = (X-XI)(Y-YI)/ (X-XI)2 (Y-YI)2 - - - Equation (4.1) Using the basic mathematical calculations, the following values are arrived. (X-XI)(Y-YI) = 1142296402022.18 (X-XI)2 = 1327526735.70 (Y-YI)2 = 3423152136717550.00 By applying the values in Equation (4.1), R = +0.54 Interpretation R lies in the range of +0.50<=R<0.75. As per the Karl Pearsons Coefficient of Correlation method & its interpretation, there exists moderate positive correlation between the values of SENSEX and the values of Gold. That is if the SENSEX is in upward movement then the price of Gold also will be in the upward direction. In other terms it can be said that Indian Commodity Market closely follows the movement of Indian Stock Market

SENSEX and Crude Oil Table 4.2 refer to the value of SENSEX (index in number) and the value of Crude Oil (Amount in Rs. Lakh) for the period from February 2005 to December 2009. Table: 4.2 SENSEX and Crude Oil
Month Feb 2005 Mar 2005 Apr 2005 May 2005 Jun 2005 Jul 2005 Aug 2005 Sep 2005 Oct 2005 Nov 2005 Dec 2005 Jan 2006 Feb 2006 Mar 2006 Apr 2006 May 2006 Jun 2006 Jul 2006 Aug 2006 Sep 2006 Oct 2006 Nov 2006 Dec 2006 Jan 2007 Feb 2007 Mar 2007 Apr 2007 May 2007 Jun 2007 Jul 2007 Sensex (X) 6,713.86 6,492.82 6,154.44 6,715.11 7,193.85 7,635.42 7,805.43 8,634.48 7,892.32 8,788.81 9,397.93 9,919.89 10,370.24 11,279.96 12,042.56 10,398.61 10,609.25 10,743.88 11,699.05 12,454.42 12,961.90 13,696.31 13,786.91 14,090.92 12,938.09 13,072.10 13,872.37 14,544.46 14,650.51 15,550.99 Crude Oil(Y) 57,630.65 132,362.24 275,824.58 403,515.63 1,025,834.10 1,955,893.08 2,740,941.84 2,688,590.89 2,010,215.72 1,450,380.75 1,029,696.14 948,291.30 1,194,250.92 1,330,380.32 738,551.33 651,179.87 424,607.95 614,862.02 836,074.24 1,275,558.91 1,679,149.03 1,699,163.27 1,640,493.16 2,529,211.67 2,730,830.15 3,325,369.62 2,538,789.71 2,444,850.23 2,791,854.09 3,512,484.88 Month Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May 2008 Jun 2008 Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb 2009 Mar 2009 Apr 2009 May 2009 Jun 2009 Jul 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 Sensex (X) 15,318.60 17,291.10 19,837.99 19,363.19 20,286.99 17,648.71 17,578.72 15,644.44 17,287.31 16,415.57 13,461.60 14,355.75 14,564.53 12,860.43 9,788.06 9,092.72 9,470.31 9,424.24 8,891.61 9,708.50 11,403.25 14,625.25 14,493.84 15,670.31 15,666.64 17,126.84 15,896.28 16,926.22 17,360.61 Crude Oil(Y) 4,071,387.43 3,176,323.04 4,684,780.59 5,154,108.34 5,153,276.59 4,671,822.02 4,468,044.92 5,275,426.22 5,446,577.38 9,230,304.00 11,287,930.81 10,822,279.05 7,502,891.61 8,953,858.65 6,138,823.07 5,377,674.75 6,771,616.16 7,938,402.13 6,849,426.38 10,782,770.57 9,238,346.15 9,712,546.90 11,477,869.10 12,887,544.02 11,608,057.38 9,671,127.28 10,851,078.38 10,802,349.01 8,091,152.08

Data analysis Equation (4.1) can be used for data analysis. Reproducing the equation is as below. R = (X-XI)(Y-YI)/ (X-XI)2 (Y-YI)2 - - - Equation (4.1) Using the basic mathematical calculations, the following values are arrived. (X-XI)(Y-YI) = 365659472151.93 (X-XI)2 = 791248096.45 (Y-YI)2 = 832791532296900.00 By applying the values in Equation (4.1), R = +0.45 Interpretation R lies in the range of +0.25<=R<0.50. As per the Karl Pearsons Coefficient of Correlation method & its interpretation, there exists low positive correlation between the values of SENSEX and the values of Crude Oil. That is if the SENSEX is in upward movement then the price of Crude Oil also will be in the upward direction but not that much. In other terms it can be said that Indian Commodity Market follows the movement of Indian Stock Market.

SENSEX and Copper Table 4.3 refer to the value of SENSEX (index in number) and the value of Copper (Amount in Rs. Lakh) for the period from June 2004 to December 2009.

Table: 4.3 SENSEX and Copper

Month Jun 2004 Jul 2004 Aug 2004 Sep 2004 Oct 2004 Nov 2004 Dec 2004 Jan 2005 Feb 2005 Mar 2005 Apr 2005 May 2005 Jun 2005 Jul 2005 Aug 2005 Sep 2005 Oct 2005 Nov 2005 Dec 2005 Jan 2006 Feb 2006 Mar 2006 Apr 2006 May 2006 Jun 2006 Jul 2006 Aug 2006 Sep 2006 Oct 2006 Nov 2006 Dec 2006 Jan 2007 Feb 2007 Mar 2007 Apr 2007 May 2007 Sensex (X) 4,795.46 5,170.32 5,192.08 5,583.61 5,672.27 6,340.29 6,602.69 6,555.94 6,713.86 6,492.82 6,154.44 6,715.11 7,193.85 7,635.42 7,805.43 8,634.48 7,892.32 8,788.81 9,397.93 9,919.89 10,370.24 11,279.96 12,042.56 10,398.61 10,609.25 10,743.88 11,699.05 12,454.42 12,961.90 13,696.31 13786.91 14090.92 12938.09 13072.1 13872.37 14544.46 Copper(Y) 2,150.53 30.49 619.56 245.51 1,469.04 504.10 382.71 1,719.90 1,237.89 5,103.32 301.53 7,540.22 37,613.04 30,283.46 32,253.97 24,070.30 39,538.08 72,325.26 61,016.21 70,036.80 155,299.74 263,915.16 824,249.86 1,908,015.18 2,206,019.43 1,816,113.62 2,069,399.47 1,741,533.62 1,860,260.80 2,759,647.39 1941184.81 3109797.36 3145448.63 3682018.39 5188834.3 5253177.05 Month Jun 2007 Jul 2007 Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May 2008 Jun 2008 Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb 2009 Mar 2009 Apr 2009 May 2009 Jun 2009 Jul 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 Sensex (X) 14650.51 15550.99 15318.6 17291.1 19837.99 19363.19 20286.99 17648.71 17578.72 15644.44 17287.31 16415.57 13461.6 14355.75 14564.53 12860.43 9788.06 9092.72 9470.31 9424.24 8891.61 9708.5 11403.25 14625.25 14493.84 15670.31 15666.64 17126.84 15896.28 16926.22 17360.61 Copper(Y) 4903241.7 3906874.38 4457745.89 3075007.71 3207586.78 3175309.05 2433187.29 3576212.67 4312334.88 3387136.71 3551766.88 3098724.05 2682307.89 3236470.02 2988559.79 3291336.01 4018916.43 3495672.39 2388655.89 3479376.76 3106711.55 4247623.63 6053344.65 6042841.5 7611567.1 7502573.59 9371733.53 7741091.42 6855829.36 6687494.02 5160840.01

Data analysis Equation (4.1) can be used for data analysis. Reproducing the equation is as below. R = (X-XI)(Y-YI)/ (X-XI)2 (Y-YI)2 - - - Equation (4.1) Using the basic mathematical calculations, the following values are arrived. (X-XI)(Y-YI) = 463402504969.27 (X-XI)2 = 1136357737.40 (Y-YI)2 = 377698121642356.00 By applying the values in Equation (4.1), R = +0.71 Interpretation R lies in the range of +0.50<=R<0.75. As per the Karl Pearsons Coefficient of Correlation method & its interpretation, there exists moderate positive correlation between the values of SENSEX and the values of Copper. That is if the SENSEX is in upward movement then the price of Copper also will be in the upward direction. In other terms it can be said that Indian Commodity Market closely follows the movement of Indian Stock Market

SENSEX and Aluminium Table 4.4 refer to the value of SENSEX (index in number) and the value of Aluminium (Amount in Rs. Lakh) for the period from October 2005 to December 2009. Table: 4.4 SENSEX and Aluminium
Month Oct 2005 Nov 2005 Dec 2005 Jan 2006 Feb 2006 Mar 2006 Apr 2006 May 2006 Jun 2006 Jul 2006 Aug 2006 Sep 2006 Oct 2006 Nov 2006 Dec 2006 Jan 2007 Feb 2007 Mar 2007 Apr 2007 May 2007 Jun 2007 Jul 2007 Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May 2008 Jun 2008 Jul 2008 Aug 2008 Sep 2008 Sensex (X) 7,892.32 8,788.81 9,397.93 9,919.89 10,370.24 11,279.96 12,042.56 10,398.61 10,609.25 10,743.88 11,699.05 12,454.42 12,961.90 13,696.31 13,786.91 14,090.92 12,938.09 13,072.10 13,872.37 14,544.46 14,650.51 15,550.99 15,318.60 17,291.10 19,837.99 19,363.19 20,286.99 17,648.71 17,578.72 15,644.44 17,287.31 16,415.57 13,461.60 14,355.75 14,564.53 12,860.43 Aluminium(Y) 25.22 1,221.61 1,825.05 7,736.27 3,608.81 17,382.46 64,487.58 102,201.44 36,994.79 35,066.32 36,969.76 61,578.81 32,788.34 47,171.98 40,687.60 61,318.55 76,538.01 182,755.65 66,965.75 76,146.15 54,846.55 33,742.68 29,986.37 43,924.32 41,902.22 28,000.56 10,941.88 46,541.11 70,600.65 84,508.59 25,307.67 42,332.85 34,271.17 105,884.06 41,504.25 38,458.58 Month Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb 2009 Mar 2009 Apr 2009 May 2009 Jun 2009 Jul 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 Sensex (X) 9,788.06 9,092.72 9,470.31 9,424.24 8,891.61 9,708.50 11,403.25 14,625.25 14,493.84 15,670.31 15,666.64 17,126.84 15,896.28 16,926.22 17,360.61 Aluminium(Y) 26,694.18 26,175.95 45,653.99 45,683.57 30,122.10 43,722.29 70,063.13 71,753.50 263,663.03 276,706.76 592,556.47 322,638.75 295,053.10 207,078.77 387,736.97

Data analysis Equation (4.1) can be used for data analysis. Reproducing the equation is as below. R = (X-XI)(Y-YI)/ (X-XI)2 (Y-YI)2 - - - Equation (4.1) Using the basic mathematical calculations, the following values are arrived. (X-XI)(Y-YI) = 5988340313.83 (X-XI)2 = 502904909.58 (Y-YI)2 = 644823821628.16 By applying the values in Equation (4.1), R = +0.33 Interpretation R lies in the range of +0.25<=R<0.50. As per the Karl Pearsons Coefficient of Correlation method & its interpretation, there exists low positive correlation between the values of SENSEX and the values of Aluminium. That is if the SENSEX is in upward movement then the price of Aluminium also will be in the upward direction u not that much. In other terms it can be said that Indian Commodity Market follows the movement of Indian Stock Market

NIFTY and Gold Table 4.5 refer to the value of NIFTY (index in number) and the value of Gold (Amount in Rs. Lakh) for the period from January 2004 to December 2009.

Table: 4.5 NIFTY and Gold

Month Jan 2004 Feb 2004 Mar 2004 Apr 2004 May 2004 Jun 2004 Jul 2004 Aug 2004 Sep 2004 Oct 2004 Nov 2004 Dec 2004 Jan 2005 Feb 2005 Mar 2005 Apr 2005 May 2005 Jun 2005 Jul 2005 Aug 2005 Sep 2005 Oct 2005 Nov 2005 Dec 2005 Jan 2006 Feb 2006 Mar 2006 Apr 2006 May 2006 Jun 2006 Jul 2006 Aug 2006 Sep 2006 Oct 2006 Nov 2006 Dec 2006 Nifty (X) 1,809.75 1,800.30 1,771.90 1,796.10 1,483.60 1,505.60 1,632.30 1,631.75 1,745.50 1,786.90 1,958.80 2,080.50 2,057.60 2,103.25 2,035.65 1,902.50 2,087.55 2,220.60 2,312.30 2,384.65 2,601.40 2,370.95 2,652.25 2,836.55 3,001.10 3,074.70 3,402.55 3,557.60 3,071.05 3,128.20 3,143.20 3,413.90 3,588.40 3,744.10 3,954.50 3,966.40 Gold(Y) 43,087.69 55,979.21 91,095.09 96,130.46 115,895.78 166,025.19 316,462.21 368,535.23 547,177.89 607,849.12 880,116.80 724,531.15 549,586.34 554,577.04 692,900.02 513,792.54 696,960.07 848,613.35 994,230.52 953,765.39 2,414,181.78 2,199,385.07 2,608,423.58 4,894,473.86 6,556,802.61 5,758,718.57 7,748,336.67 7,475,297.91 10,150,417.59 7,717,549.93 10,028,712.99 8,074,195.27 8,681,169.95 7,805,387.14 7,008,183.53 4,840,012.05 Month Jan 2007 Feb 2007 Mar 2007 Apr 2007 May 2007 Jun 2007 Jul 2007 Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May 2008 Jun 2008 Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb 2009 Mar 2009 Apr 2009 May 2009 Jun 2009 Jul 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 Nifty (X) 4,082.70 3,745.30 3,821.55 4,087.90 4,295.80 4,318.30 4,528.85 4,464.00 5,021.35 5,900.65 5,762.75 6,138.60 5,137.45 5,223.50 4,734.50 5,165.90 4,870.10 4,040.55 4,332.95 4,360.00 3,921.20 2,885.60 2,755.10 2,959.15 2,874.80 2,763.65 3,020.95 3,473.95 4,448.95 4,291.10 4,636.45 4,662.10 5,083.95 4,711.70 5,032.70 5,178.40 Gold(Y) 5,645,149.58 6,308,839.10 7,022,558.62 4,408,963.36 5,381,761.44 4,719,385.77 4,829,088.89 4,229,747.79 5,810,271.62 8,285,033.18 10,386,144.10 7,759,148.93 16,669,925.31 14,260,015.15 13,868,565.59 10,250,063.16 10,579,252.85 13,113,103.07 20,076,066.06 16,215,325.61 21,524,528.53 16,871,983.04 13,718,417.16 16,907,140.81 21,051,503.32 23,338,041.32 27,457,088.19 15,955,495.10 14,787,281.64 13,883,118.96 11,108,629.67 9,010,227.10 14,016,511.44 13,916,734.13 19,219,496.25 21,338,603.36

Data analysis Equation (4.1) can be used for data analysis. Reproducing the equation is as below. R = (X-XI)(Y-YI)/ (X-XI)2 (Y-YI)2 - - - Equation (4.1) Using the basic mathematical calculations, the following values are arrived. (X-XI)(Y-YI) = 337157679340.11 (X-XI)2 = 109993643.19 (Y-YI)2 = 3423152136717550.00 By applying the values in Equation (4.1), R = +0.55 Interpretation R lies in the range of +0.50<=R<0.75. As per the Karl Pearsons Coefficient of Correlation method & its interpretation, there exists moderate positive correlation between the values of NIFTY and the values of Gold. That is if the NIFTY is in upward movement then the price of Gold also will be in the upward direction. In other terms it can be said that Indian Commodity Market closely follows the movement of Indian Stock Market

NIFTY and Crude Oil Table 4.6 refer to the value of NIFTY (index in number) and the value of Crude Oil (Amount in Rs. Lakh) for the period from February 2005 to December 2009. Table: 4.6 NIFTY and Crude Oil
Month Feb 2005 Mar 2005 Apr 2005 May 2005 Jun 2005 Jul 2005 Aug 2005 Sep 2005 Oct 2005 Nov 2005 Dec 2005 Jan 2006 Feb 2006 Mar 2006 Apr 2006 May 2006 Jun 2006 Jul 2006 Aug 2006 Sep 2006 Oct 2006 Nov 2006 Dec 2006 Jan 2007 Feb 2007 Mar 2007 Apr 2007 May 2007 Jun 2007 Jul 2007 Nifty (X) 2,103.25 2,035.65 1,902.50 2,087.55 2,220.60 2,312.30 2,384.65 2,601.40 2,370.95 2,652.25 2,836.55 3,001.10 3,074.70 3,402.55 3,557.60 3,071.05 3,128.20 3,143.20 3,413.90 3,588.40 3,744.10 3,954.50 3,966.40 4,082.70 3,745.30 3,821.55 4,087.90 4,295.80 4,318.30 4,528.85 Crude Oil(Y) 57,630.65 132,362.24 275,824.58 403,515.63 1,025,834.10 1,955,893.08 2,740,941.84 2,688,590.89 2,010,215.72 1,450,380.75 1,029,696.14 948,291.30 1,194,250.92 1,330,380.32 738,551.33 651,179.87 424,607.95 614,862.02 836,074.24 1,275,558.91 1,679,149.03 1,699,163.27 1,640,493.16 2,529,211.67 2,730,830.15 3,325,369.62 2,538,789.71 2,444,850.23 2,791,854.09 3,512,484.88 Month Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May 2008 Jun 2008 Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb 2009 Mar 2009 Apr 2009 May 2009 Jun 2009 Jul 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 Nifty (X) 4,464.00 5,021.35 5,900.65 5,762.75 6,138.60 5,137.45 5,223.50 4,734.50 5,165.90 4,870.10 4,040.55 4,332.95 4,360.00 3,921.20 2,885.60 2,755.10 2,959.15 2,874.80 2,763.65 3,020.95 3,473.95 4,448.95 4,291.10 4,636.45 4,662.10 5,083.95 4,711.70 5,032.70 5,178.40 Crude Oil(Y) 4071387.43 3176323.04 4684780.59 5154108.34 5153276.59 4671822.02 4468044.92 5275426.22 5446577.38 9230304 11287930.81 10822279.05 7502891.61 8953858.65 6138823.07 5377674.75 6771616.16 7938402.13 6849426.38 10782770.57 9238346.15 9712546.9 11477869.1 12887544.02 11608057.38 9671127.28 10851078.38 10802349.01 8091152.08

Data analysis Equation (4.1) can be used for data analysis. Reproducing the equation is as below. R = (X-XI)(Y-YI)/ (X-XI)2 (Y-YI)2 - - - Equation (4.1) Using the basic mathematical calculations, the following values are arrived. (X-XI)(Y-YI) = 112432369238.30 (X-XI)2 = 66520462.02 (Y-YI)2 = 832791532296900.00 By applying the values in Equation (4.1), R = +0.48 Interpretation R lies in the range of +0.25<=R<0.50. As per the Karl Pearsons Coefficient of Correlation method & its interpretation, there exists low positive correlation between the values of NIFTY and the values of Crude Oil. That is if the NIFTY is in upward movement then the price of Crude Oil also will be in the upward direction but not that much. In other terms it can be said that Indian Commodity Market follows the movement of Indian Stock Market

NIFTY and Copper Table 4.7 refer to the value of NIFTY (index in number) and the value of Copper (Amount in Rs. Lakh) for the period from June 2004 to December 2009.

Table: 4.7 NIFTY and Copper

Month Jun 2004 Jul 2004 Aug 2004 Sep 2004 Oct 2004 Nov 2004 Dec 2004 Jan 2005 Feb 2005 Mar 2005 Apr 2005 May 2005 Jun 2005 Jul 2005 Aug 2005 Sep 2005 Oct 2005 Nov 2005 Dec 2005 Jan 2006 Feb 2006 Mar 2006 Apr 2006 May 2006 Jun 2006 Jul 2006 Aug 2006 Sep 2006 Oct 2006 Nov 2006 Dec 2006 Jan 2007 Feb 2007 Mar 2007 Apr 2007 May 2007 Nifty (X) 1,505.60 1,632.30 1,631.75 1,745.50 1,786.90 1,958.80 2,080.50 2,057.60 2,103.25 2,035.65 1,902.50 2,087.55 2,220.60 2,312.30 2,384.65 2,601.40 2,370.95 2,652.25 2,836.55 3,001.10 3,074.70 3,402.55 3,557.60 3,071.05 3,128.20 3,143.20 3,413.90 3,588.40 3,744.10 3,954.50 3,966.40 4,082.70 3,745.30 3,821.55 4,087.90 4,295.80 Copper(Y) 2,150.53 30.49 619.56 245.51 1,469.04 504.1 382.71 1,719.90 1,237.89 5,103.32 301.53 7,540.22 37,613.04 30,283.46 32,253.97 24,070.30 39,538.08 72,325.26 61,016.21 70,036.80 155,299.74 263,915.16 824,249.86 1,908,015.18 2,206,019.43 1,816,113.62 2,069,399.47 1,741,533.62 1,860,260.80 2,759,647.39 1941184.81 3109797.36 3145448.63 3682018.39 5188834.3 5253177.05 Month Jun 2007 Jul 2007 Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May 2008 Jun 2008 Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb 2009 Mar 2009 Apr 2009 May 2009 Jun 2009 Jul 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 Nifty (X) 4,318.30 4,528.85 4,464.00 5,021.35 5,900.65 5,762.75 6,138.60 5,137.45 5,223.50 4,734.50 5,165.90 4,870.10 4,040.55 4,332.95 4,360.00 3,921.20 2,885.60 2,755.10 2,959.15 2,874.80 2,763.65 3,020.95 3,473.95 4,448.95 4,291.10 4,636.45 4,662.10 5,083.95 4,711.70 5,032.70 5,178.40 Copper(Y) 4903241.7 3906874.38 4457745.89 3075007.71 3207586.78 3175309.05 2433187.29 3576212.67 4312334.88 3387136.71 3551766.88 3098724.05 2682307.89 3236470.02 2988559.79 3291336.01 4018916.43 3495672.39 2388655.89 3479376.76 3106711.55 4247623.63 6053344.65 6042841.5 7611567.1 7502573.59 9371733.53 7741091.42 6855829.36 6687494.02 5160840.01

Data analysis Equation (4.1) can be used for data analysis. Reproducing the equation is as below. R = (X-XI)(Y-YI)/ (X-XI)2 (Y-YI)2 - - - Equation (4.1) Using the basic mathematical calculations, the following values are arrived. (X-XI)(Y-YI) = 134151072109.54 (X-XI)2 = 94584794.92 (Y-YI)2 = 377698121642356.00 By applying the values in Equation (4.1), R = +0.71 Interpretation R lies in the range of +0.50<=R<0.75. As per the Karl Pearsons Coefficient of Correlation method & its interpretation, there exists moderate positive correlation between the values of NIFTY and the values of Copper. That is if the NIFTY is in upward movement then the price of Copper also will be in the upward direction. In other terms it can be said that Indian Commodity Market closely follows the movement of Indian Stock Market

NIFTY and Aluminium Table 4.8 refer to the value of NIFTY (index in number) and the value of Aluminium (Amount in Rs. Lakh) for the period from October 2005 to December 2009. Table: 4.8 NIFTY and Aluminium
Month Oct 2005 Nov 2005 Dec 2005 Jan 2006 Feb 2006 Mar 2006 Apr 2006 May 2006 Jun 2006 Jul 2006 Aug 2006 Sep 2006 Oct 2006 Nov 2006 Dec 2006 Jan 2007 Feb 2007 Mar 2007 Apr 2007 May 2007 Jun 2007 Jul 2007 Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May 2008 Jun 2008 Jul 2008 Aug 2008 Sep 2008 Nifty(X) 2,370.95 2,652.25 2,836.55 3,001.10 3,074.70 3,402.55 3,557.60 3,071.05 3,128.20 3,143.20 3,413.90 3,588.40 3,744.10 3,954.50 3,966.40 4,082.70 3,745.30 3,821.55 4,087.90 4,295.80 4,318.30 4,528.85 4,464.00 5,021.35 5,900.65 5,762.75 6,138.60 5,137.45 5,223.50 4,734.50 5,165.90 4,870.10 4,040.55 4,332.95 4,360.00 3,921.20 Aluminium(Y) 25.22 1,221.61 1,825.05 7,736.27 3,608.81 17,382.46 64,487.58 102,201.44 36,994.79 35,066.32 36,969.76 61,578.81 32,788.34 47,171.98 40,687.60 61,318.55 76,538.01 182,755.65 66,965.75 76,146.15 54,846.55 33,742.68 29,986.37 43,924.32 41,902.22 28,000.56 10,941.88 46,541.11 70,600.65 84,508.59 25,307.67 42,332.85 34,271.17 105,884.06 41,504.25 38,458.58 Month Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb 2009 Mar 2009 Apr 2009 May 2009 Jun 2009 Jul 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 Nifty(X) 2,885.60 2,755.10 2,959.15 2,874.80 2,763.65 3,020.95 3,473.95 4,448.95 4,291.10 4,636.45 4,662.10 5,083.95 4,711.70 5,032.70 5,178.40 Aluminium(Y) 26,694.18 26,175.95 45,653.99 45,683.57 30,122.10 43,722.29 70,063.13 71,753.50 263,663.03 276,706.76 592,556.47 322,638.75 295,053.10 207,078.77 387,736.97

Data analysis Equation (4.1) can be used for data analysis. Reproducing the equation is as below. R = (X-XI)(Y-YI)/ (X-XI)2 (Y-YI)2 - - - Equation (4.1) Using the basic mathematical calculations, the following values are arrived. (X-XI)(Y-YI) = 1762872696.82 (X-XI)2 = 43114369.22 (Y-YI)2 = 644823821628.16 By applying the values in Equation (4.1), R = +0.33 Interpretation R lies in the range of +0.25<=R<0.50. As per the Karl Pearsons Coefficient of Correlation method & its interpretation, there exists low positive correlation between the values of NIFTY and the values of Aluminium. That is if the NIFTY is in upward movement then the price of Aluminium also will be in the upward direction but not that much. In other terms it can be said that Indian Commodity Market closely follows the movement of Indian Stock Market

An Overview Data Analysis and Interpretation In the previous sections, data analysis and interpretation had been carried out using the Karl Pearsons Coefficient of Correlation method for the eight pair of data drawn from the samples of Indian Commodity Market and Indian Stock Market. Table 4.9 as shown below depicts an overview of the findings of the above.

Table: 4.9 An overview Data Analysis and Interpretation

Samples from Stock market Sensex Sensex Sensex Sensex Nifty Nifty Nifty Nifty Samples from Commodity market Gold Crude oil Copper Aluminium Gold Crude oil Copper Aluminium R value +0.54 +0.45 +0.71 +0.33 +0.55 +0.48 +0.71 +0.33

Interpretation Moderate positive correlation Low positive correlation Moderate positive correlation Low positive correlation Moderate positive correlation Moderate positive correlation Low positive correlation Low positive correlation

In case of SENSEX and Gold, R lies in the range of +0.50<=R<0.75. As per the Karl Pearsons Coefficient of Correlation method & its interpretation, there exists moderate positive correlation between the values of SENSEX and the values of Gold. That is if the SENSEX is in upward movement then the price of Gold also will be in the upward direction. In other terms it can be said that Indian Commodity Market closely follows the movement of Indian Stock Market. In case of SENSEX and Crude Oil, R lies in the range of +0.25<=R<0.50. As per the Karl Pearsons Coefficient of Correlation method & its interpretation, there exists low positive correlation between the values of SENSEX and the values of Crude Oil. That is if the SENSEX is in upward movement then the price of Crude Oil also will be in the upward direction but not that much. In other terms it can be said that Indian Commodity Market follows the movement of Indian Stock Market. In case of SENSEX and Copper, R lies in the range of +0.50<=R<0.75. As per the Karl Pearsons Coefficient of Correlation method & its interpretation, there

exists moderate positive correlation between the values of SENSEX and the values of Copper. That is if the SENSEX is in upward movement then the price of Copper also will be in the upward direction. In other terms it can be said that Indian Commodity Market closely follows the movement of Indian Stock Market. In case of SENSEX and Aluminium, R lies in the range of +0.25<=R<0.50. As per the Karl Pearsons Coefficient of Correlation method & its interpretation, there exists low positive correlation between the values of SENSEX and the values of Aluminium. That is if the SENSEX is in upward movement then the price of Aluminium also will be in the upward direction u not that much. In other terms it can be said that Indian Commodity Market follows the movement of Indian Stock Market. In case of NIFTY and Gold, R lies in the range of +0.50<=R<0.75. As per the Karl Pearsons Coefficient of Correlation method & its interpretation, there exists moderate positive correlation between the values of NIFTY and the values of Gold. That is if the NIFTY is in upward movement then the price of Gold also will be in the upward direction. In other terms it can be said that Indian Commodity Market closely follows the movement of Indian Stock Market. In case of NIFTY and Crude Oil, R lies in the range of +0.25<=R<0.50. As per the Karl Pearsons Coefficient of Correlation method & its interpretation, there exists low positive correlation between the values of NIFTY and the values of Crude Oil. That is if the NIFTY is in upward movement then the price of Crude Oil also will be in the upward direction but not that much. In other terms it can be said that Indian Commodity Market follows the movement of Indian Stock Market. In case of NIFTY and Copper, R lies in the range of +0.50<=R<0.75. As per the Karl Pearsons Coefficient of Correlation method & its interpretation, there exists moderate positive correlation between the values of NIFTY and the values of Copper. That is if the NIFTY is in upward movement then the price of Copper also will be in the upward direction. In other terms it can be said that Indian Commodity Market closely follows the movement of Indian Stock Market.

In case of NIFTY and Aluminium, R lies in the range of +0.25<=R<0.50. As per the Karl Pearsons Coefficient of Correlation method & its interpretation, there exists low positive correlation between the values of NIFTY and the values of Aluminium. That is if the NIFTY is in upward movement then the price of Aluminium also will be in the upward direction but not that much. In other terms it can be said that Indian Commodity Market closely follows the movement of Indian Stock Market.

CHAPTER 5 SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLUSION 5.1. Findings The major findings of this Project study are as furnished hereunder. There is relationship in between the listed commodity of Gold, Crude Oil, Copper and Aluminium in the Multi Commodity Exchange of India Limited with the index of SENSEX in Bombay Stock Exchange. There is relationship in between the listed commodities of Gold, Crude Oil, Copper and Aluminium in the Multi Commodity Exchange of India Limited with the index of NIFTY in National Stock Exchange of India Limited. The relationships are in the positive direction. The samples such as Gold, Crude Oil, Copper and Aluminium listed in Multi Commodity Exchange of India Limited closely follow the direction of SENSEX and NIFTY. It implies that Indian Commodity Market closely follows the direction of Indian Stock Market. The direction of the market movements of both the Indian Commodity Market and Indian Stock Market are always same. If Indian Stock Market is in upward direction, Indian Commodity Market moves in the same upward direction. If Indian Stock Market is in downward direction, Indian Commodity Market moves in the same downward direction.

5.2. Suggestions Some of the suggestions are furnished hereunder based on the interpretation and findings from this Project study. The market participants including regulators can take note of this Project study in understanding / framing appropriate strategies, policies, rules and regulation. Individual investment strategies can be drawn up as to where can be invested whether in Stock Market and Commodity Market. As Indian Commodity Market close follows up the Indian Stock Market, liquidity position in both the markets are same. So appropriate decisions can be arrived. Various policies in Indian Stock Market and Indian Commodity market can be arrived at based on findings of this Project study. Direction of Indian Commodity Market and Indian Stock Market is same; however rate of return of these two markets may vary thus this Project study suggests that further study can be made by considering the findings of this Project study as base.

5.3. Conclusion This Project study had been undertaken as per the suggestion furnished in the official website of Multi Commodity Exchange of India Limited. The main aim of this Project was to explore about the direction and degree of relationship between Indian Commodity Market and Indian Stock Market. The value of major listed commodities such as Gold, Copper, Aluminium & Crude Oil of Multi Commodity Exchange of India Limited one among premier commodity markets in India and the values of major indices such as SENSEX & NIFTY of Indian stock markets for the particular period had been taken as samples for this Project study. The project used the Karl Pearsons Coefficient of Correlation method to find out relationship between Indian Commodity Market and Indian Stock Market. The major conclusion of the Project study is that there exists meaningful relationship between Indian Commodity Market and Indian Stock Market. And that relationship is of positive in nature; that is Indian Commodity Market follows the path of Indian Stock Market. It is expected that the findings and suggestions as above explained in the previous sections will definitely help the stake holders including the regulators.

CHAPTER 6 BIBLIOGRAPHY Misra Bishnupriya (2008) Indian Stock Market, New Delhi, Vikash Publications. Vanita Tripathi (2008) Size Effect in Indian Stock Market, New Delhi, Vikash Publications. Velmurugan.P (2010) Indian Commodity Market (derivatives & Risk Management), New Delhi, Vikash Publications. Niti Nandini Chatnani (2009) Commodity Markets: Operations, Instruments and Applications, New Delhi Tata MCGraw - Hill Publications. J N Dhankar (2005) The Indian Commodity - Derivatives Market in Operation, New Delhi, Vikash Publications. Dhandapani Alagiri (2008) Commodity Markets: Recent Developments, New Delhi, Vikash Publications. L. Dee Belveal (2000) Charting Commodity Market Price Behaviour, New Delhi, Vikash Publications. David Brown, Kassandra Bently (2008) All about Stock Market Strategies, New Delhi Tata MCGraw - Hill Publications. Sunil parameshwaran (2007) Equity Shares, Preferred Shares and Stock Market Indices, New Delhi Tata MCGraw - Hill Publications. Will Slatyer (1997) The Speculative Strategist: High Returns from Controlled Risk Strategies in Stock and Futures Markets, New Delhi Tata MCGraw - Hill Publications. www.stockmarketguide.in www.bseindia.com www.nseindia.com www.ssrn.com www.mcxindia.com www.ncdex.com