Futures of Commodity market in India

Presented by:-
Neeraj kumar
RS1903A52
10907209
 Derivative

Derivatives are financial contracts of pre-

determined fixed duration, whose values are
derived from the value of an underlying
primary financial instrument, commodity or
index, such as: interest rates, exchange rates,
commodities, and equities
 Features of derivatives
Derivatives are contracts that have no independent
value

They derive their value from their underlying assets

They are used as “ risk shifting” or hedging

instruments
Players in the derivative market
Hedgers:
Hedgers face risk associated with the price of an asset.
They use futures or options markets to reduce or
eliminate this risk.
Speculators :
They are people who wish to bet on future movements
in the price of the asset. Future and Options contracts
can give them an extra leverage; that is, they can
increase both the potential gains and losses in a
speculative venture.
Cont….

Arbitrageurs:
Arbitrageurs are in business to take advantage of a
discrepancy between prices in two different markets.
For eg. If they see the futures price of an asset getting
out of line with the cash price, they will take offsetting
positions in the two markets to lock in a profit.
Kinds of derivatives
On the basis of underlying assets
Financial derivatives
Commodity derivatives = my topic
Index derivatives
Common financial derivatives
forward contracts

Futures

Options

swaps
Derivatives in India
The futures contract at NSE is based on S&P
CNX Nifty # Index.

It has a maximum of 3-month expiration cycle.

Three contracts are available for trading I.e. with

1 month, 2 months and 3 months expiry.
 Commodity Markets - Overview
 Four licenses recently issued by Govt. of India to set-up
National Online Multi Commodity Exchanges – to ensure
a transparent price discovery and risk management
mechanism
 List of commodities for futures trade – increased from 11
in 1990 to over 100 in 2003
 Reforms with regard to sale, storage and movement of
commodities initiated
 Shift from administered pricing to free market pricing –
WTO regime
 Overseas hedging has been allowed in metals
 Petro-products marketing companies have been allowed to
hedge prices
 Institutionalization of agriculture
 About MCX
National Level Online Multi Commodity Futures Exchange

Key Promoters –
 Financial Technologies (India) Ltd, State Bank of India, Union
Bank
 Corporation Bank, Bank of India, Canara Bank,

 State Bank of Indore ,Bank of Baroda

Operations from 300 cities with over 775 members & 3000 TWS

First Indian Exchange to enter into an agreement with an International

Exchange (TOCOM)

Facilitating Cost effective and economic technology.

Commodity Ecosystem
 MCX Business Associates
Statutory Auditor - M/s. Deloitte, Haskins & Sells
Internal Auditor- M/s V.Shankar Aiyer & Company
Network services - HCL Comnet Ltd.(VSAT)S
VSNL (Internet)
Tata Tele (Leased line)
Reliance gateway ( Wireless )
Clearing Banks - BOI, HDFC, IndusInd, UBI & UTI
Quality Certification SGS, Geochem , Dr. Amin Lab.,
Agencies Rubber Board
Warehouses – CWC, Gujarat, Kerala, Tamilnadu and
UP
Bullion Logistics – Group 4 and Brinks Arya
Participants in Commodity Futures
Farmers/ Producers

Merchandisers/ Traders

Importers

Exporters

Consumers/ Industry

Commodity Financers

Agriculture Credit providing agencies

Corporate having price risk exposure in commodities

 India’s Place in World Market

COMMODITY INDIA WORLD SHARE RANK

RICE (PADDY) 240 2049 11.71 THIRD
WHEAT 74 599 12.35 SECOND
PULSES 13 55 23.64 FIRST
GROUNDNUT 6 35 17.14 SECOND
RAPESEED 6 40 15.00 THIRD
SUGARCANE 315 1278 24.65 SECOND
TEA 0.75 2.99 25.08 FIRST
COFFEE(GREEN) 0.28 7.28 3.85 EIGTH
JUTE AND JUTE FIBERS 1.74 4.02 43.30 SECOND
COTTON (LINT) 2.06 18.84 10.09 THIRD
 Business Potential
Conservative Global Multiplier
Size of Physical Multiplier
Commodities Market
(Rs. Crore) (Rs. Crore)
(Rs. Crore)
( In 3 years) (In 3 – 5 Years)
Gold & Silver Rs. 43000 cr 20 Times 50 Times
Rs. 8,30,000 cr Rs. 21,50,000 cr
Edible Oils Rs. 30000 cr 10 Times 20 Times
Rs. 3,00,000 cr Rs. 6,00,000 cr
Metals Rs.11000 cr 10 Times 20 Times
Rs. 1,10,000 cr Rs. 2,20,000 cr
Total Rs. 84,000 cr Rs. 12,40,000cr Rs. 29,70,000cr
 Uses of commodity market in future
 Price discovery for commodity players
 A farmer can plan his crop by looking at prices prevailing in the futures
market

 Hedging against price risk

 A farmers can sell in futures to ensure remunerative prices
 A processor/ manufacturing firm can buy in futures to hedge against
volatile raw material costs
 An exporter can commit to a price to his foreign clients

Easy availability of finance

Based on hedged positions commodity market players (farmers, processors,
manufacturers, exporters) may get easy financing from the banks
 Future of Commodity Market
India - Largest Consumer - Producer - Exporter - Importer
Large size intermediaries penetrate commodities market
Banks to Finance commodities – Futures a secured route
RBI permits Banks to hedge their bullion risk through
Futures Exchange – Other commodities to follow
Using Exchange Network for various products & Services
BPO & Trade Interest will attract International players
Hub for value added services & food processing
New class of commodity Traders & Value Investors
 Futures of commodity market

India to become Hub of Global Trading in Commodities

 It is a US $ 600 billion Opportunity
THANK YOU