A STUDY ON PERFORMANCE OF INDIAN COMMODITY MARKET FOR TOP FOUR COMMODITIES TRADED IN MCX WITH SPECIAL REFERENCE TO SHARE

KHAN

PROJECT REPORT Submitted by JAYADEVAN.T Register No:712811631012

in partial fulfillment for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

IN

DEPARTMENT OF MANAGEMENT STUDIES RVS COLLEGE OF ENGINEERING AND TECHNOLOGY, COIMBATORE 641 402 JULY 2013

RVS COLLEGE OF ENGINEERING AND TECHNOLOGY COIMBATORE 641 402

DEPARTMENT OF MANAGEMENT STUDIES
PROJECT WORK JULY 2013

This is to certify that the project entitled

A STUDY ON PERFORMANCE OF INDIAN COMMODITY MARKET FOR TOP FOUR COMMODITIES TRADED IN MCX WITH SPECIAL REFERENCE TO SHARE KHAN

is the bonafide record of project work done by

JAYADEVAN.T Register No: 712811631012

of MBA during the year 2011-2013

Project Guide

Head of the Department

Submitted for the Project Viva-Voce examination held on -----------------------------

Internal Examiner

External Examiner

DECLARATION

I affirm that the project work titled A STUDY ON PERFORMANCE OF INDIAN COMMODITY MARKET FOR TOP FOUR COMMODITIES TRADED IN MCX WITH SPECIAL REFERENCE TO SHARE KHAN being submitted in partial fulfillment for the award of Master of Business Administration, is the original work carried out by me. It has not formed the part of any other project work submitted for award of any degree or diploma, either in this or any other University.

JAYADEVAN.T (712811631012)

I certify that the declaration made above by the candidate is true

Mr.Rejish David Jose . P Assistant Professor, Department of Management Studies, RVS College of Engineering and Technology

ACKNOWLEDGEMENT I extend my deep sense of gratitude and sincere thanks to our principal Dr.V.Gunaraj, ME., Ph.D., who has given me a wonderful opportunity to undertake the project work.

I wish to express my sincere thanks to Dr.P.V.Prabha MBA., Ph.D., Director, RVS Institute of Management Studies for supporting my project work.

I pay my respectful thanks to our Head of the Department Prof.S.Preetham Sridar, MBA, M.Phil, (Ph.D) for encouraging me throughout the course of the project.

I express my sincere thanks to my project guide Mr.Rejish David Jose.P, Assistant Professor, for the guidance and support in carrying out the project work. I would like to express my sincere thanks to organization guide Mr.Mohandas,Branch Manager, for his valuable support and guidance throughout my project work. I also express my gratitude to all the Faculty members, my Friends and my Parents who have helped me to carry out this work. Last but not least I thank the Almighty for his blessing showed on me during this work.

JAYADEVAN.T

TABLE OF CONTENTS

CHAPTER NO LIST OF TABLES LIST OF FIGURES ABSTRACT I INTRODUCTION

DESCRIPTION

PAGE NO

1 1 13 15 15 15 15 15 16 17 22 25 65 71 72

1.1 ABOUT THE INDUSTRY 1.2 ABOUT THE COMPANY 1.3 ABOUT THE STUDY 1.3.1 OBJECTIVES OF THE STUDY 1.3.2 PERIOD OF THE STUDY 1.3.3 TOOLS AND TECHNIQUES 1.3.4 SORCES OF DATA 1.3.5 LIMITATIONS OF THE STUDY II III IV V VI VII REVIEW OF LITERATURE RESEARCH METHODOLOGY ANALYSIS & INTERPRETATION FINDINGS SUGGESTIONS CONCLUSION BIBLIOGRAPHY

LIST OF TABLES
TABLE NO TITLE PAGE NO 4.1 4.2 4.3 4.4 4.5 4.6 4.7 MOVING AVERAGE OF GOLD ROC OF GOLD RSI OF GOLD MOVING AVERAGE OF CRUDE OIL ROC OF CRUDE OIL 25 29 33 35 39

RSI OF CRUDE OIL MOVING AVERAGE OF SILVER

43 45

4.8 4.9

ROC OF SILVER RSI OF SILVER

49 53

4.10 4.11 4.12

MOVING AVERAGE OF COPPER ROC OF COPPER RSI OF COPPER

55 59 63

LIST OF FIGURES

FIGURE TITLE NO 4.1.1 4.2.1 4.3.1 4.4.1 4.5.1 4.6.1 4.7.1 4.8.1 4.9.1 4.10.1 4.11.1 4.12.1

PAGE NO

Moving Average Chart Of Gold ROC Chart Of Gold RSI Chart Of Gold Moving Average Chart Of crude oil ROC Chart of Crude Oil RSI Chart Of Crude Oil Moving Average Chart Of Silver ROC Chart Of Silver RSI Chart Of Silver Moving Average Chart Of Copper ROC Chart Of Copper RSI Chart Of Copper

28 32 34 38 42 44 48 52 54 58 62 64

ABSTRACT

The project titled A STUDY ON PERFORMANCE OF INDIAN COMMODITY MARKET FOR TOP FOUR COMMODITIES TRADED IN MCX WITH SPECIAL REFERENCE TO SHARE KHAN is carried out by using some of the tools under which the ideal commodities for investment could be choosen to make profit . The First chapter includes three main categories. The first one is introduction about the industry ; second one is introduction about the company and third one, the introduction about the study, which consisting the objective of the study, scope of the study and limitation of the study. Second chapter is the review of literature which includes the articles and study of the various authors. The Third chapter is research methodology, which tells about research design, sampling design and tools used for the study. Fourth chapter is analysis & interpretation and Fifth chapter is finding and suggestions of study. The Sixth chapter consisting of conclusion for the project and followed by references which were used for the study.

3 CHAPTER-1

INTRODUCTION 1.1 ABOUT THE INDUSTRY HISTORY

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 organized 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 Gujarati VyapariMandali 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 organized 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.

STRUCTURE, CONDUCT & CURRENT STATUS Broadly, the commodities market exists in two distinct formsthe over-the-counter (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 standardized contracts, settlements, etc. The exchange-based markets are essentially derivative markets and are similar to equity derivatives in their working, that is, everything is standardized 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 26 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 recognized the National Multi Commodity Exchange (NMCE), Ahmadabad; Multi Commodity Exchange (MCX), National Commodity and Derivative Exchange (NCDEX), Mumbai and Indian Commodity Exchange (ICEX) as nation-wide multi-commodity exchanges. 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 of trade in terms of value. A temporary ban was imposed on futures trading in urad and tur, dal in January 2007 to ensure orderly market conditions. An efficient and well-organised commodities futures market is generally acknowledged to be helpful in price discovery for traded commodities.

Structure of commodity futures markets in India

REGULATING BODY The commodity futures traded in commodity exchanges are regulated by the Government under the Forward Contracts Regulations Act, 1952 and the Rules framed there under. The regulator for the commodities trading is the Forward Markets Commission, situated at Mumbai, which comes under the Ministry of Consumer Affairs Food and Public Distribution Distribution.

Forward Markets Commission (FMC) It is statutory institution set up in 1953 under Forward Contracts (Regulation) Act, 1952. Commission consists of minimum two and maximum four members appointed by Central Govt. Out of these members there is one nominated chairman. All the exchanges have been set up under overall control of Forward Market Commission (FMC) of Government of India.

COMMODITIES TRADED World-over, one will find that a market exits for almost all the commodities known to us. These commodities can be broadly classified into the following: METAL Aluminium, Copper, Lead, Nickel, Sponge Iron, Steel Long (Bhavnagar), Steel Long (Govindgarh), Steel Flat, Tin, Zinc

BULLION

Gold, Gold HNI, Gold M, i-gold, Silver, Silver HNI, Silver M

FIBER

Cotton L Staple, Cotton M Staple, Cotton S Staple, Cotton Yarn, Kapas

ENERGY

Brent Crude Oil, Crude Oil, Furnace Oil, Natural Gas, M. E. Sour Crude Oil

SPICES

Cardamom, Jeera, Pepper, Red Chilli, Turmeric

PLANTATIONS

Arecanut, Cashew Kernel, Coffee (Robusta), Rubber

PULSES

Chana, Masur, Yellow Peas

PETROCHEMICALS

HDPE, Polypropylene(PP), PVC

OIL & OIL SEEDS

Castor Oil, Castor Seeds, Coconut Cake, Coconut Oil, Cotton Seed, Crude Palm Oil, Groundnut Oil, KapasiaKhalli, Mustard Oil, Mustard Seed (Jaipur), Mustard Seed (Sirsa), RBD Palmolein, Refined Soy Oil, Refined Sunflower Oil, Rice Bran DOC, Rice Bran Refined Oil, Sesame Seed, Soymeal, Soy Bean, Soy Seeds

CEREALS

Maize

OTHERS

Guargum, Guar Seed, Gurchaku, Mentha Oil, Potato (Agra), Potato (Tarkeshwar), Sugar M-30, Sugar S-30

INDIAN EXCHANGES The following are the list of exchanges and commodities in which futures contracts are traded in India. S.NO 1 EXCHANGE COMMODITY (both domestic and

India pepper & Spice Trade Association , Pepper Kochi(IPSTA)

international contracts) Gur Gur, Mustard seed its oil & oilcake

2 3

Vijay Beopar chamber Ltd., Muzaffarnagar Rajdhani oil & oilseed exchange ltd, Delhi

4 5 6

Bhatinda Om & oil exchange ltd ,Bhantada The chamber of commerce ,Hapur

Gur Gur , potatoes and Mustard seed

The Meerut Agro Commodity Exchange Gur ltd., Meerut

The Bombay Commodity Exchange Ltd., Oilseed complex Bombay

Rajkot seeds, oil & Bullion Merchants Castrol seed, Ground nut, its oil Association , Rajkot & cake, cottonseed its oil &cake, cotton & RBD Palmolein

The Ahmedabad Commodity Exchange, Castrol seed, cottonseed , its oil Ahmedabad and oilcake

10

The East India Jute &Hussian Exchange Ltd., Hessian & sacking Calcutta

11

The East India cotton Association Ltd., Cotton Calcutta

12 13

The Spices & Oilseeds Exchange Ltd, Sangli Kanpur Commodity Exchange Ltd., Kanpur

Turmeric Rapeseed/Mustard seed, its oil and cake

14

National Board of trade, Indore

Soya seed, Soya oil and Soya meals. Rapeseed/Mustard seed its oil and oilcake and RBD Palmolien

15

The First Commodities Exchange of India Copra/Coconut, its oil& oilcake Ltd., Kochi

16

Central India Commerce Exchange Ltd., Gur and Mustard Seed Gwalior

17 18

E-Sugar India Ltd., Mumbai

Sugar

National Multi Commodity Exchange of Oilseed complex and Rubber , India Ltd., Ahmedabad sugar, Aluminum, nickel ,Zinc, Copper, Lead. tin ,pepper, Gram and Sacking

19

Coffee

Futures

Exchange

India Coffee

Ltd.,Bangalore 20 Surendranagar Cotton oil & Oilseeds, Cotton,.Cotton seed, Kapas Surendranagar 21 22 23 24 E-Commodities Ltd.,New Delhi Bullion Merchants Association , Bikaner Multi Commodity Exchange (MCX), Mumbai National Commodity and Sugar Mustard seed its oil & oilcake Metals &Agri Commodities

Derivation Metals &Agri Commodities

Exchange ( NCDEX), Mumbai 25 National (NMCE) 26 Indian Commodity Exchange ( ICEX) Metals &Agri Commodities Multi Commodity Exchange Metals &Agri Commodities

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Major national commodity exchange. 1) National Multi Commodity Exchange of India Ltd. (NMCE) was promoted bycommodity relevant public institutions, viz., Central Warehousing Corporation (CWC),National Agricultural Cooperative Marketing Federation of India (NAFED), Gujarat Agro-Industries Corporation Limited (GAICL), Gujarat State Agricultural Marketing Board (GSAMB),National Institute of Agricultural Marketing (NIAM), and Neptune Overseas Limited (NOL).While various integral aspects of commodity economy, viz., warehousing, cooperatives,private and public sector marketing of agricultural commodities, research and training wereadequately addressed in structuring of the Exchange, finance was a vital missing link. Punjab National Bank (PNB) took equity of the Exchange to establish that linkage. 2) National Commodity & Derivatives Exchange Limited (NCDEX) is a professionallymanaged on-line multi commodity exchange promoted by ICICI Bank Limited, Life InsuranceCorporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD)and National Stock Exchange of India Limited (NSE). Canara Bank, Credit Rating InformationServices of India Limited (CRISIL), Goldman Sachs, Indian Farmers Fertilizer CooperativeLimited (IFFCO) and Punjab National Bank (PNB) by subscribing to the equity shares havejoined the initial promoters as shareholders of the Exchange. NCDEX is the only commodityexchange in the country promoted by national level institutions. 3) MCX is an independent and de-mutualised multi commodity exchange, promoted bymajor financial institutions like Financial Technologies Ltd., State Bank of India and itsassociates, National Bank for Agriculture and Rural Development (NABARD), National Stock Exchange of India Ltd. (NSE), Fid Fund (Mauritius) Ltd, Corporation Bank, Union Bank ofIndia, Canara Bank, Bank of India, Bank of Baroda, HDFC Bank and SBI Life Insurance Co.Ltd. 4) Indian Commodity Exchange(ICEX) Limited is a screen based on-line derivatives exchange for commodities and has established a reliable, time tested, and a transparent trading platform. It is also in the process of putting in place robust assaying and warehousing facilities in order to facilitate deliveries. It is jointly promoted by Reliance Ex-change Next Infrastructure Limited and MMTC Limited, India bulls Financial Services Ltd., KRIBHCO, Indian Potash Ltd., and IDFC among others, as its partners.

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Multi Commodity Echange.

MCX is the fifth largest commodity futures exchange globally, among all the commodity exchanges considered in the Futures Industry Association (FIA) survey, in terms of the number of contracts traded for the 6MCY11. MCX is the largest commodity exchange in India with 87% market share by turnover while it has also carved out a position among the top five commodity exchanges of the world. As on December 31, 2011, it had 2,153 members on the exchanges platform, with over 296,000 terminals including CTCL spread over 1,572 cities and towns across India.

MCX is the leading commodity exchange in India based on value ofcommodity futures contracts traded. It is a de-mutualised multicommodity association and was incorporated on April 19, 2002 under thename Multi Commodity Exchange of India Private Limited. Subsequently,on May 16, 2002, it was converted into a public company. Consequently,the name was changed to Multi Commodity Exchange of India Limited. Itreceived a fresh certificate of incorporation from the Registrar ofCompanies (RoC) pursuant to the change in name. All the then existingshareholders transferred their shares to the promoter FTIL, on August 25,2003. It received permanent recognition from the Government of India onSeptember 26, 2003, to facilitate nationwide online trading, clearing andsettlement operations of commodities futures transactions.The total value of commodity futures contracts traded on MCX in the ninemonths ended December 31, 2011 and the fiscals 2011, 2010 and 2009was | 119806.9 billion, 98415.0 billion, 63933.0 billion and 45881.0 billion,respectively. According to data maintained by the FMC, these amountsrepresented 87.3%, 82.4%, 82.3% and 87.4% of the Indian commodityfutures industry, respectively, in terms of the value of commodity futurescontracts traded during the same periods.The promoter owns 31.18% of equity share capital while other largershareholders include financial institutions and other entities from thefinancial sector, such as FID Funds (Mauritius) Limited (an affiliate ofFidelity International), Euronext N.V. (an affiliate of NYSE Euronext) andMerrill Lynch Holdings (Mauritius). It has also made strategic

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investmentsin several relatedbusinesses,which may be potential revenue growth drivers. The following chart shows the strategic investments: On June 7, 2005, MCX launched the MCXCOMDEX, which is Indias first composite commodity futures price index, along with three groupindices. The MCXCOMDEX comprises commodities included in the threegroup indices, namely MCXAgri, MCXMetal and MCXEnergy. Thecommodities included in each index have been selected on the basis oftheir economic importance in terms of their physical market size in theIndian economy and the turnover for each of these commodities.

Key commodities traded in MCX

1. Gold As the oldest precious metal known to man, gold has served as a global currency and commodity for thousands of years. Gold is unique as it is both a commodity as well as a financial asset. It is also widely considered as a hedge against inflation. The total above ground stocks of gold is estimated to be around 163,000 tonnes by Gold Fields Minerals Services (GFMS) as on end of 2008. Out of this total stock, 51% is estimated to be present as jewellery, 18% as official reserves, 17% held as investment, 12% used for industrial purposes and 2% is unaccounted for. India is the world's largest consumer of gold. Indians normally buy about 25 per cent of the world's gold, purchasing around 700 - 750 tons of gold every year. Indian gold prices are highly correlated with international prices. However, the fluctuations in the INR-US Dollar exchange rate impacts domestic gold prices and have to be closely followed. The global gold prices are driven by a host of factors such as macro-economic factors like strength of the economy, rising importance of emerging markets, currency movements, and interest rates being the major influencing factors. Supply-demand is also a major influencer, amid rising global investor demand and almost stable supplies. Shifts in official gold reserves, reports of sales or purchases by central banks act as major price influencing factors whenever

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such reports appear. The investment in gold is also influenced by comparative returns from other markets like stock markets, real estate other commodities like crude oil. Domestically, demand and consequently prices to some extent are influenced by seasonal factors like marriages. The rural demand is influenced by monsoon, agricultural output and health of the rural economy. 2. Silver Silver's unique properties make it a very useful 'Industrial Commodity', despite it being classed as a precious metal. Demand for silver is built on three main pillars; industrial uses, photography and Jewellery & silverware accounting for 342, 205 and 259 million ounces respectively in 2002. Just over half of mined silver comes from Mexico, Peru and United States, respectively, the first, second and fourth largest producing countries. The third largest is Australia. Primary mines produce about 27 percentage of world silver, while around 73 percentage comes as a byproduct of gold, copper, lead, and zinc mining. The price of silver is not only a function of its primary output but more a function of the price of other metals also, as world mine production is more a function of the prices of other metals. The tie between silver and economic activity is strong, given that around two-thirds of total silver fabrication is in the industrial and photographic sectors. Often a faster growth in demand against supply leads to drop in stocks with government and investors. Economically viable primary silver mine is a function of the world silver price level.

3. Copper Copper ranks third in world metal consumption after steel and aluminum. It is a product whose fortunes directly reflect the state of the world's economy. Copper is the best non- precious metal conductor of electricity. The metal's exceptional strength, ductility, and resistance to creeping and corrosion, makes it the preferred and safest conductor for building wiring. Copper is also used in power cables, either insulated or uninsulated, for high, medium and low voltage applications. Copper is an essential component of energy efficient motors and transformers and automobiles.

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Copper prices in India are fixed on the basis of the rates that rule on LME the preceding day. The world copper production through exploration of new mines and expansion of existing mines also influence copper prices. Price of copper is also heavily influenced by the economic growth and demand in major consuming countries such as China, Japan, Germany etc. 4.Crude Oil Crude oil is a mixture of hydrocarbons that exists in a liquid phase in natural underground reservoirs. Oil and gas account for about 60 per cent of the total world's primary energy consumption. Almost all industries including agriculture are dependent on oil in one way or other. Oil & lubricants, transportation, petrochemicals, pesticides and insecticides, paints, perfumes, etc. are largely and directly affected by the oil prices.

The prices of crude oil are highly volatile. High oil prices lead to inflation that in turn increases input costs; reduces non-oil demand and lower investment in net oil importing countries. India ranks among the top 10 largest oil-consuming countries. Oil accounts for about 30 per cent of India's total energy consumption. The country's total oil consumption is about 2.2 million barrels per day. India imports about 70 per cent of its total oil consumption and it makes no exports. India faces a large supply deficit, as domestic oil production is unlikely to keep pace with demand. India's rough production was only 0.8 million barrels per day. The oil reserves of the country (about 5.4 billion barrels) are located primarily in Mumbai High, Upper Assam, Cambay, Krishna-Godavari and Cauvery basins. Balance recoverable reserve was about 733 million tonnes (in 2003) of which offshore was 394 million tones and on shore was 339 million tonnes. India had a total of 2.1 million barrels per day in refining capacity. Government has permitted foreign participation in oil exploration, an activity restricted earlier to state owned entities. Indian government in 2002 officially ended the Administered Pricing Mechanism (APM). Now crude price is having a high correlation with the international market price. As on date, even the prices of crude bi-products are allowed to vary 10% keeping in line with international crude price, subject to certain government laid down norms/ formulae. Disinvestment/restructuring of public sector units and complete deregulation of Indian retail petroleum products sector is under way.

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1.2 ABOUT THE COMPANY

Sharekhan Ltd.
Sharekhan is a firm which is working under SSKI (S. S. Kantilal Ishwarlal) Ltd.SSKI was founded in 1922. SSKI is One of Indias Oldest Brokerage Houses having eight decades of experience into: Broker. Institutional Broking Investment Banking Retail Broking

It is one of the Founding members of the Stock Exchange, Mumbai and Pioneer Institutional

SSKI Retail Broking SSKI entered into Retail Broking in 1985. Share khan is the Retail Broking Armof the BIG 80 Years old organization i.e. of SSKI and Sharekhan is the Brand Name given to its Retail Business. SSKI carries out its Retail Broking Activities under Sharekhan Brand Name.

Sharekhan is One of Indias Leading Broking Houses. They Provides a Complete Life-Cycle of Investment Solutions in Equities, Derivatives,Commodities & Depository Services.

Sharekhan is having its retail presence across India through Sharekhan Outlets act as Full Service Investment Solutions Provider, providingyou wide range of services like

Equity & Derivatives Trading on NSE and BSE Online Trading Commodities Trading on MCX & NCDEX Portfolio Management Services

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Depository Services IPO Services Wide Range of Customized Research Products

As a sub member of NSE, BSE, MCX, NCDEX, NSDL and CDSL, which are pioneers in the respective operations, sharekhan is having more than 500 branches in all over India. Share khan, Indias leading stock broker is the retail arm of SSKI, an organization with over eighty years of experience in the stock market with more than 280 share shops in 120 cities and big towns, and premier online trading destination.

Vision To be the best retail brokering Brand in the retail business of stock market. Mission To educate and empower the individual investor to make better investment decisions through quality advice and superior service. To Respond the progressive globalization and achieving international standards. To attain efficiency and effectiveness built on ethical practices. To become No. 1 player in online trading business. To establish largest network of branded broking outlets in the country serving morethan 7,00,000 clients.

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1.3 ABOUT THE STUDY

1.3.1 OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVE To study the performance of Indian commodity market for top four commodities traded in MCX with special reference to Share Khan.

SECONDARY OBJECTIEVES To study the trend of price movement of commodities. To analyse the volatility of selected commodities. To analyse the variation of the closing price for each month in the selected years.

1.3.2

PERIOD OF THE STUDY Time period of the study is 3 consequent financial years from 2010 to 2013.

1.3.3 TOOLS AND TECHNIQUES Moving average Rate Of Change Relative Strength Index

1.3.4

SOURCES OF DATA Data are collected from secondary sources like journals,website etc.

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1.3.5 LIMITATION OF THE STUDY The study is confined only to selected commodities. Data were collected from secondary sources, like journals and websites.

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CHAPTER-II REVIEW OF LITERATURE

There are few studies on the performance and efficiency of Indian commodity derivatives market. Despite a considerable amount of empirical literature, there is no general consensus on whether or not the markets are efficient. The study of Kaminsky (1989) in the context of US Commodity markets suggests that for certain commodity expected to excess returns to future speculation are non-zero, though other researchers also argue that these results do not necessarily imply that markets are inefficient. Mishra (2008) observed that during the period 2003-08 the Indian stocks as well as commodity markets have grown considerably. The studies have explored the advantages of adding commodities to a portfolio of equities in Indian context. Bose (2007) found that Indian stock markets are more volatile as compared to developed markets and Indian commodity future markets are going through many ups and downs and allegations of speculative activity have been made . Slade and Thille (2004) assessed the levels and volatilities (means and standard deviations) of the spot prices of the six commodities that were traded on the London Metal Exchange in the 1990s. The theories that they examined could be grouped into four classes. The first considered how productmarket structure and forwardmarket trading jointly affect the spotmarket game, the second explored the links between product market structure and spotprice stability, the third assessed whether forward trading destabilizes spot prices, and the last related the arrival of new information to price volatility and the volume of trade. They found support for traditional marketstructure models of the price level but not of price stability. In addition, increased forward trading was associated with lower prices. The efficiency test of agricultural commodity future market was also done in China by Wang (2005) and Bingfanke (2005) and the results suggested a long term relationship between the future price and spot price for Soya beans and weak short term efficiency in Soya bean future market. The study also highlighted inefficient future market for wheat and suggested that it may have been caused by over speculation and government intervention. Sahi (2006) studied

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the impact of introducing futures contracts on the volatility of the underlying commodities in India. He found that unexpected increase in futures activity in terms of rise in volumes and open interest has caused increase in cash price volatilities, suggesting that futures trading had a destabilizing effect on spot prices of commodities. A study by Lokare (2007) found that although Indian commodity market is yet to achieve minimum critical liquidity in some commodities, almost all the commodities show an evidence of association between spot and future prices revealing the right direction of achieving the improved operational efficiency, though at a slower rate. However, for a few commodities, the volatility in future price has been substantially lower than the spot price indicating an inefficient utilization of information. Whether commodity futures prices lead spot prices, began with Garbade and Silber (1983) who tested whether a change in the basis of the previous time period was correlated with a change in the spot or futures prices of the current time period. If basis innovations forecast futures returns, then the spot market can be said to lead the futures market. On the contrary, if basis innovations exactly forecast spot returns then this would imply that the spot market is a pure satellite of the futures market. If each set of prices is seen to predict the other it is taken as evidence of bidirectional causality, i.e., a clear case of information flowing from each market to the other and prices being adjusted accordingly. With improvements in econometric techniques these tests have been extended in several directions. These extensions include considering a longer lag structure.

However, Nitesh (2005) studied the implications of soy oil futures in Indian markets using simple volatility measures and concluded that the futures trading was effective in reducing seasonal price volatilities but did not brought down daily price volatilities significantly. Some of the Indian researches have not only studied the efficiency of commodity future markets of India but also analysed its effects on social welfare and inflation on Indian economy. The results showed that commodity future markets are not efficient in the short run. Also the growth in commodity futures markets leads to disadvantages to society in terms of significant increase in inflation (Sahi, Kaizada, 2006). In addition, Gary B. Gorton (2005) and Rouwenhorst (2005) stated that commodity futures are positively correlated with inflation.

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The literature review reflects that there has been some work regarding fluctuation and volatility in commodity market and also many researchers have discussed hedging as risk minimization tool. Review of literature on commodity futures markets indicate that while there has been widespread research on technical questions, the research has had inefficient economic content. There is a need to contribute to the academic literature by studying the relation between commodity spot and future prices. The paper attempts to draw lights on performance and ad efficiency of commodity market with special reference to top six commodities traded in MCX.

According to Sahadevan, the Sagging Agricultural Commodity Exchanges - Growth Constraints and Revival Policy Options: Commodity derivatives have a crucial role to play in managing price risk especially in agriculture dominated economies. However, they have been utilized in a very limited scale in India. As long as prices of many commodities are restrained to certain extent by Government intervention in production, supply and distribution, forwards and futures markets for hedging rice risk in those commodities have only limited practical relevance. A review of the nature of institutional and policy level constraints facing this segment calls for more focused and pragmatic approach from government, the regulator and the exchanges for making the agricultural futures markets a vibrant segment for risk management. According to Peter Gibbon Danish Institute for International Studies, Copenhagen. The commodity question: new thinking on old problems - This paper reviews more and less mainstream policy options in relation to the commodity question in the light both of its

classical definition and of the emerging concern about oligopoly. It begins by updating the evidence concerning commodity price decline and volatility, and examining the implications of these phenomena for macro-economic performance and livelihoods in producing countries. According to Stephen Craig,"The Self-Regulation of Commodity Exchanges: The Case of Market Manipulation."-The paper deals with Price dissemination that every Mandy becomes a monopoly to the local producers, especially once they come to the market. Farmers typically face a short period between the time that they harvest and the time that they can sell the crop. According to Katherine Dusak, Futures Trading and Investor Returns: An Investigation of Commodity Market Risk Premiums. The long-standing controversy over whether speculators in

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a futures market earn a risk premium is analyzed within the context of the capital asset pricing model recently developed by harpe, Lintner, and others. Under that approach the risk premium required on a futures contract should depend not on the variability of prices but on the extent to which the variations in prices are systematically related to variations in the return on total wealth. The systematic risk was estimated for a sample of wheat, corn, and soybean futures contracts over the period 1952 to 1967 and found to be close to zero in all three cases. Average realized holding period returns on the contracts over the same period were close to zero. According to Susan Thomas, Agricultural commodity markets in India-Policy issues for growth: Strengthening institutions in spot and derivative markets for commodities is a necessary ingredient of the liberalization process in agriculture, and can impact upon the lives of millions. This paper, describes the existing market design prevalent on both the spot and the futures markets. This show some evidence on the role played by the nascent futures markets in price discovery. Document the problems of both the spot and the futures markets. The paper offer three policy proposals: using reference rates for strengthening transparency, exploring a greater role for cash settlement, and treating warehouse receipts as securities. According to Chua, Jess H., Gordon Sick, and Richard S. Woodward (1990). "Diversifying with Gold Stocks" The authors extend Jaffes (1989) study by examining the relative investment benefits of investing in gold equities versus gold bullion during the period September 1971 through December 1988. By splitting their sample period into two sub periods, the authors show that the diversification benefits of gold bullion are much more consistent than the diversification benefits of gold equities. In particular, they find that the beta of gold equities more than doubled between the 1970s and 1980s, whereas the beta of gold bullion remained largely unchanged at approximately zero in both periods. Thus, the authors question the diversification benefits of gold equities, particularly over shortinvestment horizons. According to Dusak, Katherine (1973). "Futures Trading and Investor Returns: An Investigation of Commodity Market Risk Premiums." Journal of Political Economy, Vol. 81, No. 6 (November/December): 1387-1406. The long-standing controversy over whether speculators in a futures market earn a risk premium is analyzed within the context of the capital asset pricing model recently developed by Sharpe, Linter, and others. Under that approach the risk premium required on a futures contract should depend not on the variability of prices but on the extent to

23

which the variations in prices are systematically related to variations in the return on total wealth. The systematic risk was estimated for a sample of wheat, corn, and soybean futures contracts over the period 1952 to 1967 and found to be close to zeroin all three cases. Average realized holding period returns on the contracts over the same period were close to zero. According to Edwards, Franklin R., and Jimmy Liew (1999) "Managed Commodity Futures" Journal of Futures Markets, Vol.19, No.4 (June): 377-411. The authors examine the performance of managed commodity futures as represented by public commodity funds, commodity pool operators, and commodity trading advisers. The authors indicates that the costs associated with investing in CPOs and CTAs may be quite large because the funds may incur significant transaction costs, which are added to a number of fees charged to investors, including management fees, profit-based incentive fees, and loads. Despite these relatively high costs, the authors find that the net return to commodity fund investments is frequently relatively attractive. Each individual fund, however, has relatively volatile returns, so the stand-alone performance of managed commodity futures is poor relative to traditional investments. The authors find that, in general, adding a portfolio of CPOs or CTAs to a traditional investment portfolio enhances portfolio performance. In addition, the authors compare the returns to CTAs and CPOs with the returns to the passive Reuters/Jefferies CRB Index and the MLM. The MLM is a dynamic index based on momentum in commodity prices, which is consistent with the strategy followed by many managed futures funds. The authors find a significant positive relationship between the returns to managed futures and the MLM but no significant relationship between managed funds and the CRB. This finding is consistent with the contention that the MLM provides a general indicator of the performance of managed futures. The authors also find, however, that neither the MLM nor the CRB supplants managed futures in their derived efficient portfolios.

24

CHAPTER-III RESEARCH METHODOLOGY

The methodologies used for the study are the following 3.1 Research design The research design used in the study is analytical . In analytical research, the researcher has to use facts or information already available, and analyse these to make a critical evaluation of material. So the research has to analyse the commodity future and spot closing prices, which is a historical data and derive conclusions from it. Universe The segment identified for conducting the study is MCX. Samples are selected on the basis of top traded commodities in MCX. Market capitalisation is the basis for understanding the top traded commodities. Sampling design MCX offers more than 40 commodities across various segments such as Bullion, Ferrous and Non-Ferrous metals, Energy, and a number of Agri-commodities on its platform. Among these, commodities are selected on the basis of top traded in MCX. 3.2 Samples Four commodities are selected, they are: Gold Silver Crude oil Copper

25

3.3 TOOLS FOR ANALYSIS Technical analysis is used for this study. TECHNICAL ANALYSIS Technical analysis is a forecasting method of price movements using past prices, volume, and open interest. Technical analysis includes a variety of forecasting techniques such as chart analysis, pattern recognition analysis, seasonality and cycle analysis, and computerized technical trading systems. However, academic research on technical analysis is generally limited to techniques that can be expressed in mathematical forms, namely technical trading systems, although some recent studies attempt to test visual chart patterns using pattern recognition algorithms. A technical trading system consists of a set of trading rules that result from parameterizations, and each trading rule generates trading signals (long, short, or out of market) according to their parameter values. Several popular technical trading systems are moving averages, channels, and momentum oscillators.

Tools for Technical analysis 3.3.1 Rate of change indicator (ROC) Relative strength index (RSI) Moving average Rate of change indicator (ROC)

The Rate of Change indicator (ROC) is a way of showing how rapidly the price of a particular share (or other financial instrument) is moving. Rate of Change or ROC is a technical indicator that measures the changes between the percentage compared to the most recent price and the price for "n" periods in the past. It is also said that it monitors the momentum of the market. It estimates the markets rate of change comparative to the previous trading intervals. In the highest level, the indicator might say a market is quite overbought. Valleys or troughs also point out an

26

oversold market situation. It has a horizontal median called equilibrium. It is this median that tells us everything we need to know about this type of rate. 3.3.2 Relative strength index (RSI)

The Relative Strength Index (RSI) is one of the powerful Oscillators which indicate market movement much before such movement takes place. Under RSI, gains and losses of the prices over the immediate previous days price for a certain period is calculated Market always moves southward after an overbought situation and it moves northward after an oversold situation. Relative strength also refers to the strength of a security in relation to its sector or the overall market. RSI=100-[100/ (1+RS)] RS = Average of n periods price gains / Average of n periods price losses RSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. 3.3.3 Moving average In statistics, a moving average, also called rolling average, rolling mean or running average, is a type of finite impulse response filter used to analyze a set of data points by creating a series of averages of different subsets of the full data set. A moving average is not a single number, but it is a set of numbers, each of which is the average of the corresponding subset of a larger set of data points. it is used in technical analysis of financial data, like stock prices, returns or trading volumes.

27

CHAPTER-IV
DATA ANALYSIS AND INTERPRETATION TABLE 4.1 MOVING AVERAGE OF GOLD Date Closing price (Rs) 5 Months Moving Average 1.4.2010 1.5.2010 1.6.2010 1.7.2010 1.8.2010 1.9.2010 1.10.2010 1.11.2010 1.12.2010 1.1.2011 1.2.2011 1.3.2011 16295 17125 18385 18852 17770 19134 19035 19807 20919 21127 20334 21348 17685.4 18253.2 18635.2 19333 20004.4 20244.4 20707

28

1.4.2011 2.5.2011 1.6.2011 1.7.2011 1.8.2011 1.9.2011 1.10.2011 1.11.2011 1.12.2011 2.1.2012 1.2.2012 1.3.2012 2.4.2012 1.5.2012 1.6.2012 2.7.2012

20934 22626 22460 21628 23176 27215 26031 27575 28888 27382 28083 27925 28932 29510 29994 29660

20932.4 21273.8 21540.4 21799.2 22164.8 23421 24102 25125 26577 27418.2 27591.8 27970.6 28242 28366.4 28888.8 29204.2

29

1.8.2012 1.9.2012 1.10.2012 1.11.2012 1.12.2012 1.1.2013 1.2.2013 1.3.2013

30014 31342 31415 30952 31563 30888 30599 29740

29622 30104 30485 30676.6 31057.2 31232 31083.4 30748.4

30

FIGURE 4.1.1 Moving Average Chart Of Gold

35000 30000 25000 20000 15000 10000 5000 0 Closing price Moving average

INTERPRETATION

A short term moving average is used to predict near future movement and taking decision for short time period.The closing price is always above the moving average line.It indicates the buying signal for the commodity. But in the starting of 2013 the price started to decline below the moving average , which indicates a selling signal for the commodity.

31

TABLE 4.2 ROC OF GOLD Date 1.4.2010 1.5.2010 1.6.2010 1.7.2010 1.8.2010 1.9.2010 1.10.2010 1.11.2010 1.12.2010 1.1.2011 1.2.2011 1.3.2011 1.4.2011 2.5.2011 1.6.2011 116.8149739 115.6613139 113.7829753 112.0676851 114.4288126 111.5710254 109.9763593 114.2323421 ROC

32

1.7.2011

107.3665089

1.8.2011

102.3713731

1.9.2011

113.9765909

1.10.2011

127.4826682

1.11.2011

124.3479507

1.12.2011

121.8730664

2.1.2012

128.6197685

1.2.2012

126.6044017

1.3.2012

121.1727649

2.4.2012

102.6088554

1.5.2012

111.1444047

33

1.6.2012

107.0172257

2.7.2012

103.8285793

1.8.2012

108.3193339

1.9.2012

106.876046

1.10.2012

112.2363474

1.11.2012

108.5821927

1.12.2012

104.8864792

1.1.2013

105.2310462

1.2.2013

104.1402562

1.3.2013

101.9490904

34

FIGURE 4.2.1 ROC Chart Of Gold

ROC
140 120 100 80 60 40 20 0 ROC

INTERPRETATION

In this ROC chart of gold, the ROC line is above the 120 line in the peroid between 1.9.2011 and 1.2.2012 and it represented a bullish market.Then it started to decline and reached near to a point of 100 ,which represents the bearish market.

35

TABLE 4.3 RSI OF GOLD YEAR 2010-2011 RSI 78.066

2011-2012 2012-2013

71.776 62.853

RSI=100-(100/1+RS) RS=AverageGain/Day Average loss/Day

36

FIGURE 4.3.1 RSI Chart Of Gold

RSI
90 80 70 60 50 40 30 20 10 0 2010-2011 2011-2012 2012-2013

RSI

INTERPRETATION This RSI graph is showing that the RSI values are above 80 mark and keep going upward in 2010-2011. It indicates that market is likely to move upward.But in the financial year 2012-2013 it started to decline and going below to 50 point line. One should take precaution or a risk adverse investor can sell at this movement.

37

TABLE 4.4 MOVING AVERAGE OF CRUDE OIL Date 1.4.2010 1.5.2010 1.6.2010 1.7.2010 1.8.2010 1.9.2010 1.10.2010 1.11.2010 1.12.2010 1.1.2011 1.2.2011 1.3.2011 1.4.2011 2.5.2011 Closing price (Rs) 3751 3814 3464 3523 3654 3449 3591 3630 4098 4358 4500 4628 4845 5055 3641.2 3580.8 3536.2 3569.4 3684.4 3825.2 4035.4 4242.8 4485.8 Moving average

38

1.6.2011 1.7.2011 1.8.2011 1.9.2011 1.10.2011 1.11.2011 1.12.2011 2.1.2012 1.2.2012 1.3.2012 2.4.2012 1.5.2012 1.6.2012 2.7.2012 1.8.2012 1.9.2012

4512 4240 4207 4095 3933 4493 5115 5325 4861 5334 5464 5684 4671 4636 5020 5379

4677.2 4708 4656 4571.8 4421.8 4197.4 4193.6 4368.6 4592.2 4745.4 5025.6 5219.8 5333.6 5202.8 5157.8 5095

39

1.10.2012 1.11.2012 1.12.2012 1.1.2013 1.2.2013 1.3.2013

4890 4697 4905 5076 5182 5017

5078 4919.2 4924.4 4978.2 4989.4 4950

40

FIGURE 4.4.1 Moving Average Chart Of crude oil

6000 5000 4000 3000 2000 1000 0 Closing price Moving average

INTERPRETATION In the financial year 2010-2011,the closing price is above the moving average line and it represents bullish market. And after 2010-2011, there was a frequent change in both the closing and moving average line.In this case the investor may not be able to predict about the future.So he can better sell the commodity.

41

TABLE 4.5 ROC OF CRUDE OIL Date 1.4.2010 1.5.2010 1.6.2010 1.7.2010 1.8.2010 1.9.2010 1.10.2010 1.11.2010 1.12.2010 1.1.2011 1.2.2011 1.3.2011 1.4.2011 2.5.2011 95.73447081 95.17566859 118.3025404 123.7013909 123.1527094 134.1838214 134.9206349 ROC

42

1.6.2011 1.7.2011 1.8.2011 1.9.2011 1.10.2011 1.11.2011 1.12.2011 2.1.2012 1.2.2012 1.3.2012 2.4.2012 1.5.2012 1.6.2012 2.7.2012 1.8.2012 1.9.2012

139.2561983 110.102489 97.29233593 93.48888889 88.48314607 81.17647059 88.88229476 113.3643617 125.5896226 115.5455194 130.2564103 138.9270277 126.5079012 91.31964809 87.06103286 103.2709319

43

1.10.2012 1.11.2012 1.12.2012 1.1.2013 1.2.2013 1.3.2013

100.8436445 89.49487555 82.63546798 105.0096339 109.4909405 103.2270916

44

FIGURE 4.5.1 ROC Chart of Crude Oil

ROC
160 140 120 100 80 60 40 20 0

ROC

INTERPRETATION In this ROC chart, on 1.3.2011,2.5.2011,1.6 2011 & 1.1.2012, the line touched 120 point and on 2.4.2012 the line touched 140 point.And after that the line started to decline and reached near to 80 point mark.So the investor can better sell the commodity.

45

TABLE 4.6 RSI Of Crude Oil

YEAR

RSI

2010-2011 2011-2012 2012-2013

72.068 59.02 45.415

46

FIGURE 4.6.1 RSI Chart Of Crude Oil

RSI
80 70 60 50 40 30 20 10 0 2010-2011 2011-2012 2012-2013 RSI

INTERPRETATION In 2010-2011, the RSI has touched the 80 point line which represents an upward trend. But after that in 2011-2012, it has declined and reached 50 point line, and in 2012-2013 it kept decreasing and going down to 40 point line. A downward trend can be estimated from this.

47

TABLE 4.7 MOVING AVERAGE OF SILVER Date 1.4.2010 1.5.2010 1.6.2010 1.7.2010 1.8.2010 1.9.2010 1.10.2010 1.11.2010 1.12.2010 1.1.2011 1.2.2011 1.3.2011 1.4.2011 2.5.2011 Closing price (Rs) 26935 28304 29292 29604 28636 30915 32962 37105 43009 46311 44361 52631 57140 69135 28554.2 29350.2 30281.8 31844.4 34525.4 38060.4 40749.6 44683.4 48690.4 Moving average

48

1.6.2011 1.7.2011 1.8.2011 1.9.2011 1.10.2011 1.11.2011 1.12.2011 2.1.2012 1.2.2012 1.3.2012 2.4.2012 1.5.2012 1.6.2012

58515 52193 61082 65437 54522 57911 58517 53325 59238 61667 60743 58552 55803

53915.6 56356.4 57922.8 59613 61272.4 58349.8 58229 59493.8 57942.4 56702.6 58131.6 58698

58705 2.7.2012 53513 59200.6 1.8.2012 54924 58055.6

49

1.9.2012 1.10.2012 1.11.2012 1.12.2012 1.1.2013 1.2.2013 1.3.2013

60979 62934 59695 63351 57918 59886 54937

56707 56754.2 57630.6 58409 60376.6 60975.4 60756.8

50

FIGURE 4.7.1 Moving Average Chart Of Silver

80000 70000 60000 50000 40000 30000 20000 10000 0 Closing price Moving average

INTERPRETATION In the financial year 2010-2011,the closing price was above the moving average line and it represented the bullish market. And after 2010-2011, there was a frequent change in both the closing and moving average line.In this case the investor cannot able to predict about the future.So investor can be advised to sell the commodity.

51

TABLE 4.8 ROC OF SILVER Date 1.4.2010 1.5.2010 1.6.2010 1.7.2010 1.8.2010 1.9.2010 1.10.2010 1.11.2010 1.12.2010 1.1.2011 1.2.2011 1.3.2011 1.4.2011 2.5.2011 122.3761 131.0945 146.8285 156.4349 154.9134 170.2442 173.3511 ROC

52

1.6.2011 1.7.2011 1.8.2011 1.9.2011 1.10.2011 1.11.2011 1.12.2011 2.1.2012 1.2.2012 1.3.2012 2.4.2012 1.5.2012 1.6.2012

186.3226 136.0529 112.7011 137.693 124.3317 95.41827 83.7651 100.0034 102.1689 96.98111 94.23873 111.4101

101.1069 2.7.2012 95.36203 1.8.2012 100.3526

53

1.9.2012 1.10.2012 1.11.2012 1.12.2012 1.1.2013 1.2.2013 1.3.2013

92.71751 98.88433 103.607 101.9521 113.5262 108.2316 109.0343

54

FIGURE 4.8.1 ROC Chart Of Silver

ROC
200 150 100 50 0 ROC

INTERPRETATION The chart shows that ROC of Silver is going above 150 line on 2.5.2011, and in this period the customer could hold the share . After that, it started going downward and it touched the 80 point mark on 1.12.2011.So the investor can better sell the commodity.

55

TABLE 4.9 RSI OF SILVER YEAR RSI

2010-2011 2011-2012 2012-2013

90.741 56.014 40.83

56

FIGURE 4.9.1 RSI Chart Of Silver

RSI
100 90 80 70 60 50 40 30 20 10 0 2010-2011 2011-2012 2012-2013

RSI

INTERPRETATION In this chart the RSI of silver touched 90 point on 2010-2011 and in this period, the customer could sell the commodity.But in 2011-2012, the RSI line come down below 60 point,so the investor could hold the commodity.In the year 2012-2013 the RSI come down below 50 point.So the investor can better buy the commodity.

57

TABLE 4.10 MOVING AVERAGE OF COPPER Date 1.4.2010 1.5.2010 1.6.2010 1.7.2010 1.8.2010 1.9.2010 1.10.2010 1.11.2010 1.12.2010 1.1.2011 1.2.2011 1.3.2011 1.4.2011 2.5.2011 Closing Price (Rs) 351.35 327 319.30 301.65 338.35 348.90 362.15 369.10 388.05 439.50 451.90 454.25 425.85 417 327.53 327.04 334.07 344.03 361.31 381.54 402.14 420.56 431.91 Moving Average

58

1.6.2011 1.7.2011 1.8.2011 1.9.2011 1.10.2011 1.11.2011 1.12.2011 2.1.2012 1.2.2012 1.3.2012 2.4.2012 1.5.2012 1.6.2012 2.7.2012 1.8.2012 1.9.2012

408.60 425 431.35 422.55 346.80 384.95 409.90 407.80 418.70 430.80 447.45 451.8 412.85 426.7 422.65 427.2

437.7 431.52 426.14 421.56 420.9 406.86 402.13 399.11 394.4 393.63 410.43 422.93 431.31 432.32 433.92 432.29

59

1.10.2012 1.11.2012 1.12.2012 1.1.2013 1.2.2013 1.3.2013

440.05 423.3 440.85 450.15 444.2 431.10

428.24 425.89 427.98 430.81 436.31 439.71

60

FIGURE 4.10.1 Moving Average Chart Of Copper

500 450 400 350 300 250 200 150 100 50 0

Closing Price Moving Average

INTERPRETATION On 1.1.2011, the closing price touched 450 line, but after that it started to decline. And on 1.3.2011, the line came below the moving average line and touched the 350 mark on 1.9.2011. After that, a frequent variation in both the closing and moving average line was observed. In this case the investor is not in a position to predict about the future.So the investor could sell the commodity.

61

TABLE 4.11 ROC OF COPPER Date 1.4.2010 1.5.2010 1.6.2010 1.7.2010 1.8.2010 1.9.2010 1.10.2010 1.11.2010 1.12.2010 1.1.2011 1.2.2011 1.3.2011 1.4.2011 2.5.2011 103.073858 112.8746177 121.5314751 145.6986574 133.5599232 130.1948983 117.5893967 ROC

62

1.6.2011 1.7.2011 1.8.2011 1.9.2011 1.10.2011 1.11.2011 1.12.2011 2.1.2012 1.2.2012 1.3.2012 2.4.2012 1.5.2012 1.6.2012 2.7.2012 1.8.2012 1.9.2012

112.9775129 105.2957093 96.70079636 95.45253375 93.02146395 81.43712575 92.31414868 100.3181596 95.95294118 97.0673467 101.9524317 129.0224913 117.3658917 100.7196877 104.6346248 100.9433962

63

1.10.2012 1.11.2012 1.12.2012 1.1.2013 1.2.2013 1.3.2013

99.1643454 98.34618393 93.69189907 106.7821243 105.4956644 105.0987815

64

FIGURE 4.11.1 ROC Chart Of Copper

ROC
160 140 120 100 80 60 40 20 0

ROC

INTERPRETATION On 1.2.2011, the ROC line touched 140 mark which indicates that the investor can hold the commodity.And after that, it started to decline. On 1.11.2011, the ROC line touched the 80 point mark. After that one time only it crossed the 120 mark. So the investor can sell the commodity.

65

TABLE 4.12 RSI OF COPPER YEAR 2010-2011 2011-2012 2012-2013 RSI 75.43 45.14 44.77

66

FIGURE 4.12.1 RSI Chart Of Copper

RSI
80 70 60 50 40 30 20 10 0 2010-2011 2011-2012 2012-2013 RSI

INTERPRETATION In the financial year 2010-2011, the RSI line is above 70 point mark.So the investor can sell the commodity. But in 2011-2012 and 2012-2013 the RSI line goes below the 50 point, Which indicates that the investor could think of selling the commodity .

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CHAPTER V 5.1 FINDINGS

1. From the research, the best commodity is found as Gold because RSI average value is high when compared to other commodity. In 2010-2011 the RSI of Gold (78.066) is less than that of Silver (90.741). But in 2011-2012 & 2012-2013 the RSI value of gold is high where compared to other three commodities. 2. But in the end of the month of march 2013 the Gold price declined. During March 2013, there was a heavy down trend in the price of gold. 3. Gold has given 22% annualised return between April 2007 and 2011.So the investors were able to get substantiate return. 4. Moving Average was used to determine the forecasted value of various commodity. 5. Relative Strength Index (RSI) was applied to find the prospective commodity investment opportunity to the investor.

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SEVERAL REASONS FOR VARIATION OF THE PRICE OF COMMODITIES

GOLD MCX gold futures turned out to be a strong safe haven for investment under the conditions of lingering global economic concerns that entailed the financial turmoil in the Euro-zone and the relatively high oil prices. This helped MCX gold futures reach 28,518 per 10 grams, up by more than 37 per cent on a yearly basis at the close of FY 2011-12. Gold price rallied more than +28% in 2010, marking the strongest rise since 1979 when price more than doubled. There are two main reasons driving the metal higher: Sovereign crisis in the European periphery and Quantitavive Easing by the Fed. These two factors will continue to support gold next year. In 2010, gold made a record high of $1,266 as Greece was facing insolvency and the euro was threatened to be disintegrated. Quantitative Easing is an unconventional monetary policy used by the central bank to stimulate the national economy when standard monetary policy has become ineffective .Quantitative Easing can be used to help ensure that inflation does not fall below target. During June 2010 India gold futures are likely to revisit the 19,000-Rupee mark as the overseas trend is seen as bullish, with global investors seeking the safe haven metal due to uncertainty in the global economy. India, the world's top gold buyer saw a sharp drop in June imports, signalling recent record high prices, which indicates dissuading fundamental demand even as the world's largest exchange-traded fund reports record holdings. During February 2011 While presenting the annual budget in the Parliament, India's Finance Minister Pranab Mukherjee proposed 1% central excise duty to be imposed on jewellery and articles of Gold, Silver and precious metals sold under a brand name.

69

India's bullion industry traders have cried foul over a 1% excise duty that the government announced on gold, silver and other precious metals in the annual budget presented in the Parliament .

Indian bullion industry leaders criticised the hike in the central excise duty on jewellery articles of gold, silver and other precious metals.

During March 2011 The recent rebound in the U.S. stock market from the March lows is a negative factor for the precious metals markets, as it shows that investor risk appetite has increased, which does pull away demand for the safe-have precious metals markets. The recent downtrend of price in U.S.. During September 2011 Gold ticked up , having gained from the previous session on German approval of a stronger bailout fund to counter the euro zone debt crisis, but the metal was heading for its worst monthly decline in three years. During March 2013 The metal fell by 6.1 percent to $1,573.27 an ounce in London this year, after 12 straight annual gains, the best run in at least nine decades

70

SILVER Silver has been one of the best-performing commodities in 2010, with prices rising by 83% compared to gold's 28%. As a result, the gold:silver price ratio has fallen steadily this year, hitting a four-year low of 45. Silver rose above $30/oz for the first time in 30 years, as concerns over falling currencies increased investment demand for safe haven assets. Silver posted an average price of $20.19 in 2010, a level only surpassed in 1980, and a marked increase over the $14.67 average price in 2009. World investment rose by an impressive 40% in 2010 to 279.3 million troy ounces (Moz), resulting in a net flow into silver of $5.6 billion, almost doubling 2009s figure. In 2011 - Silver posted an annual average price of $35.12 in 2011, more than double the $14.67 average price for 2009. Global investment in silver bars, coins & medals produced yet another historic high of 282.2 million ounces the equivalent of $10 billion, itself is a record. 2012 - United States Mint Authorized Purchasers (APs) ordered 3,197,000 Bullion American Silver Eagle Coins on January 3rd, the first day they went on sale. That opening day total catapulted January Bullion Eagle sales was higher than half of the monthly totals in 2011. A large portion of silver demand (80%) comes from fabrication, which is expected to rise about 3% to 5% in 2012 to roughly 900 million ounce. Current monetary policy will increase investors appetite for silver and triggering a subsequent price rise.

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CRUDE OIL There are several reasons why todays blog should be of great interest. Last year, the petroleum-related trade deficit totaled $265 billion and accounted for 42 percent of our total deficit in goods. To put this in more personal terms, $265 billion averages to about $850 for every woman, man and child in the U.S. In 2008, when oil prices hit their alltime high, the petroleum-related deficit totaled $386 billion (over $1,260 for each person). That is a lot of money flowing out of the country for a commodity with a volatile price over which we have little control. As per the performance of crude oil traded in december 2010 Crude traded near a two-year high price in New York on speculation that cold weather in the U.S. and Europe will boost demand in industrialized nations. One of the more important factors that has driven changes in our imports and trade deficit over the past several decades is the price of oil. Given recent events in North Africa and the recent jumps in oil prices, today we look more closely at the role of oil prices and the trade deficit. Crude oil production during the period April-March 2012 (provisional) was 38.19 million metric tonne (MMT), as compared with 37.71 MMT during the corresponding period last year Crude oil price rose by nearly 13.8% from January to December in 2010.despite its not as near as the yearly price hike in 2009 of over 78%. When analysing the prospects of crude oil price in 2011,there are several aspects worth considering: worlds demand growth. OPEC,which is responsible for about 40 percent of the world crude oil supply,announced in a recent opec meeting,it will sustain its current quota of 24.845 million which set back in 2008. Europes recovery.

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COPPER MCX Copper prices have spiked up sharply in the last five months since July 2010 and which has given a neckline breakout at Rs 388.05 in Nov 2010 on the closing basis. The Inverted Head and Shoulder formation which has been formed from May 2006 to Oct 2010 In 2011, worlds copper mine production continued to underperform with respect to capacity, and remained at the 2010 level of 16.005 million metric tonnes (MMT). In 2011, the global refined copper production was 19.630 MMT, up from 18.998 MMT in 2010. The global refined copper consumption was 19.988 MMT, compared with 19.375 MMT in the previous year. Electric and electronic products industry has become India's largest copper consuming sector, accounting for 36% of the total Indian copper consumption. Telecom is still India's second largest copper consuming sector, accounting for 20% of the total Indian copper consumption.

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CHAPTER VI SUGGESTIONS
.. 1. By making an analysis of RSI of each commodity for the past 3 financial year , we can say GOLD is the best commodity to invest. But in the end of the month of march 2013,the gold price declined due to certain reasons. There are some supportive issues for the decline of gold price in the trading session, one of it is the rise of the US dollar VS the Euro after rumours about the Euro bank , so we watch a rise in the US dollar and the investors escape to it and they work on selling gold, which lead to a decline in Gold price. So the investor can make investment only after undestanding the factors which adversly affect the gold. 5. Sterlite Industries, Hindalco, and Hindustan Copper are three major producers of Copper in India. From the status of a net importer, India is emerging as a net exporter of Copper on account of a rise in the production of Copper. So the investor can confidently invest in Copper. 6. We can confidentially predict a complete sell out of the gold because of the soverign crisis.So the investor may get a better return at that time. 7. Demand for silver in technology and industries is only going to increase and this may cause an increase in price.There is no substitute for silver in almost all products that it is used in.So the investor will have a better choice for a long term investment . 8. For 2013, it may continue to see robust crude oil prices, with the trading near triple digits. Domestic producers may continue to increase output, and some firms would generate tremendous returns from some of these prospects.So the investor can get better return by making investment in crude oil.

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CONCLUSION The results suggest that the performance of Indian commodity market is not so efficient in last few years. Other than Gold all other concerned commodities showed a negative trend and return fluctuates throughout the period of study. Every commodity spot price move along with future price.At the end of financial year 2013 the price of all commodities started to reduce.To conclude,Gold could be suggested as the best investment option.

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BIBLIOGRAPHY Books: Business statistics published by PALGRAVE MACMILLAN. SONIA TAYLOR Financial management, published by Tata McGraw Hill, 1998. Khan & Jain.

Articles: Bhattacharya,H. (2007), Commodity Derivative Market in India, Economic andpolitical weekly, March issue. Kaminsky Graciela (1989), Efficiency in Commodity Futures Markets Kabra, K. N (2007), Commodity Futures in India, Economic Political Weekly, March

Websites: www.fmc.gov.in www.ncdexindia.com www.wikipedia.com www.mcxindia.com www.commodityindia.com www.investopedia.com www.sharekhan.com www.ftkmc.com www.fmc.gov.in