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Commodity Markets

Index

Definition

Commodity As Asset Class

Commodity Uniqueness

Classification of Commodities

Indian Commodity Market Size

Commodities Offered for Trading

Why Commodities

How to Invest

Commodity - Definition
A commodity is any good or service produced by human labour
and offered as a product for general sale on the market
- Karl Max
Characteristics

Commodity is anything movable (a good) that has


following characteristics

Fungible, i.e. the same no matter who produces it

Derivatives, i.e. involves further processing into


number of products

Economic cost, i.e. production of it involves some cost

Commodities in Real Life


Wheat in your bread
Petrol in your vehicle
Coffee on your table
Sugar in your sweets
Chana in your chhole
Gold in your necklace
and so on .
Commodities are everywhere

Index

Definition

Commodity As Asset Class

Commodity Uniqueness

Classification of Commodities

Indian Commodity Market Size

Commodities Offered for Trading

Why Commodities

How to Invest

Commodities

Commodity As Asset Class


In financial parlance, assets are economic resources that is capable of
being owned or controlled to produce value
Commodity too has gained importance currently as independent asset
class
Commodity, being the natural goods are independent of other asset classes
Assets Classes
Equities
Fixed Income

:
:

Real Estate
Commodities

Performer during economic expansion & an out


Performs at the later stage of recession
:

performer over very long term

Performs during early expansion

Performance spread evenly over the economic

cycle

Index

Definition

Commodity As Asset Class

Commodity Uniqueness

Classification of Commodities

Indian Commodity Market Size

Commodities Offered for Trading

Why Commodities

How to Invest

Commodity Unique points of diversification


1. Seasonality

A major force in the commodities markets

2. Correlation
Unlike other asset class, commodities are
positively and negatively correlated within
&
outside the group which is unique to
commodities
only
3. Weather
No other asset class are so much influenced
by weather patterns
4. Hedge
Provides natural hedge against war,
inflation, other asset portfolios, recessions
-GOLD

etc. example

Commodity Performance

Commodity Performance

Contribution in global landscape


Global Vs. India
Global commodity has relatively long history
Size is 9 times larger than India

India

Commodity Trading ( Value in Million USD)


Global
India

2009
14831317
1469673

2008
11712611
1067984

Source:FMC,Way2Wealth Research

Commodity futures, though active since 19th


century was banned later in 1970s
Commodity volumes shoots up significantly
after re-launch in 2003
MCX emerged as worlds Sixth largest
exchange
Volumes on Indian exchanges are increasing
at CAGR of 73.7 percent

Global growth in Commodities 2004-09

Share of Asia has jumped


more than 5 times

Global growth in Commodities 2008-09

Chinese exchanges
has seen
two fold increase
in volume

Index

Definition

Commodity As Asset Class

Commodity Uniqueness

Classification of Commodities

Indian Commodity Market Size

Commodities Offered for Trading

Why Commodities

How to Invest

Commodities

Classification of Commodities
Bullion
Gold
Silver
Palladium
etc
Agriculture
Grains
Pulses
Edible oils/seeds
Spices etc

Commodities
Base Metals
Copper
Zinc
Aluminum
Nickel
Tin

Energy
Crude oil
Heating oil
Natural gas
Furnace oil
Etc.

Index

Definition

Commodity As Asset Class

Commodity Uniqueness

Classification of Commodities

Indian Commodity Market Size

Commodities Offered for Trading

Why Commodities

How to Invest

Commodities

Commodity Indian Structure


FMC The Regulator
Commodity Exchanges

National
Exchanges

NCDEX

NMCE

Regional
Exchanges

MCX

Leadership position with >90% share

NBOT

20 Other Regional
Exchanges

Indian Growth so far


Significant rise in
volume since
launch of
exchanges in 2013

Volume Growth in Indian Exchanges


700
> 65% CAGR Growth

600
500
400
300

MCX
Leader in Metals & Energy

200
100
0
2007

2008

2009
MCX

2010
2011
NCDEX TOTAL

2012

2013

Source:FMC,Way2Wealth Research

Segment wise % Share of Commodities


Bullion and other metals
Other than bullion metals
Agriculture
Energy
Others

31.5

36.1

57.9

64.6

68.2
0.3
0.0

55.38.4
0.1

35.8
6.3
0.0

23.1
12.3
0.0

56.7
11.9 31.4

40.8
23.2
15.7
20.3
0.0 -

NCDEX
Leader in Agri

Returns in Indian commodities

Almost 45 commodities are available for trading in both NCDEX & MCX
Though few have been de-listed during high inflation times, re-listing also has happened
Bullion, Base metals, energy & Agri are the major contributors in terms of volumes

Index

Definition

Commodity As Asset Class

Commodity Uniqueness

Classification of Commodities

Indian Commodity Market Size

Commodities Offered for Trading

Why Commodities

How to Invest

Commodities

Why Invest in Commodities


Commodity provides true diversification in financial portfolio
Commodity act as hedge against risks involved in business
Rising income will ensure Inflation which in turn will ensure bull
market in commodites

Explosion of population and shriking agricultural land would leave


commodity scarce

Returns chasing funds & investors (traders, investor &HNI) will


make it vibrant
Consumption / Spending in infrastructure / GDP growth will lead to
depletion of metals
Secular bull market in commodities is likely to continue

Who Can Invest


Hedgers : Risk Management

o Consumers Refineries, food processing companies


o Traders, exporters, importers
o Producers farmers, Integrated producers

Speculators: High Volatility Higher Leverage


o Retail investors, Commodity spot trader
o Institutional, Corporate & proprietary traders
Arbitrageurs : Safe Opportunist
o Spot future arbitrage
o Spread Strategies
o Intra and inter market arbitrage
Investors: Portfolio diversifier
o Individuals, Pension & Mutual Funds
o Corporate bodies

Index

Definition

Commodity As Asset Class

Commodity Uniqueness

Classification of Commodities

Indian Commodity Market Size

Commodities Offered for Trading

Why Commodities

How to Invest

Commodities @ Way2Wealth

How to Invest
Procedure for Trading in Commodities

Open Demat & Trading A/C


Filling KYC (Know Your Customer)
Documents required : Pan Card, Address Proof, Networth, Cancelled cheque
(MICR), Photo etc

To get familiar with this asset class, start reading research reports and
monitor advisory and execution

Acquire full knowledge of risk involved in futures

Mark to Market
Daily Pay-in & pay-out
Margin requirements
Contract expiry & rollover
Leverage, profit & loss etc

Index

Definition

Commodity As Asset Class

Commodity Uniqueness

Classification of Commodities

Indian Commodity Market Size

Commodities Offered for Trading

Why Commodities

How to Invest

Commodities

Research @ Way2Wealth
Methodology - Analysis
Fundamental
Supply-n-demand, crop survey, climatic changes, policies, logistics,
specifications, delivery stocks, physical market linkages, Cartel move, etc
Technical
Chart patterns, indicators etc
Derivative
Volume and Open Interest Change, Contract duration, rollover, Relative
analysis with other markets etc
Statistical
Arima modelling, Correlation & regression study, Deviation, Time series,
Seasonality, Ratio study etc.

Research Products @ Way2Wealth


Products

Strategies

Arbitrage / Spreads
Hedging All commodities
Trading / Investment advisory

Reports

Daily
Weekly
Special
Events
Commodity Profiles

Special Support

Need based special coverage of non futures commodities like Coal,


Chemicals, Naptha, Freight, Carbon credits etc. (on cost basis)

Products @ Way2Wealth
Trading Products

Based on Fundamental / Technical / Derivatives & Algorithm


Plain vanilla Trading
Customised Trading

Investing Products

Algorithm or statistical based


Trend chasing, Money management principle, premium brokerage
Strong execution skills

Thank you