Transcript Document

Commodity Markets
July 2010
Way2Wealth Commodities Pvt. Ltd.
making investing simpler, more understandable and profitable
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
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 @ Way2Wealth
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
:
Performer during economic expansion & an out
performer over very long term…
Performs at the later stage of recession…
Real Estate
:
Performs during early expansion…
Commodities
:
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
 Commodities @ Way2Wealth
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
etc. example -GOLD
Commodity – Performance
Returns Over Different Asset Classes in 4 Yrs.
100
88.46
90
80
69.51
73.72
75.95
70
60
50
40
31.55
30
20
10
0
-1.44
-10
SENSEX
NIFTY
CNX 500
Source:Bloomberg,Way2Wealth Research
NCDEX
AGRI INDEX
INR
MCX
METAL
INDEX
Commodity – Performance
Various Asset Classes Perform ance
260
240
220
200
180
160
140
120
100
80
60
Oct-05
May-06
Dec-06
NCDEX Ag Index
Jul-07
Nifty
Feb-08
Sep-08
USDINR
Apr-09
Nov-09
MCX Metal Index
Contribution in global landscape
Indian Share in Global Commodity Market
Global Vs. India
9%
 Global commodity has relatively long history
 Size is 9 times larger than India
India
91%
Global
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 1970’s
 Commodity volumes shoots up significantly
after re-launch in 2003
 MCX emerged as world’s Sixth largest
exchange
 Volumes on Indian exchanges are increasing
at CAGR of 73.7 percent
Global growth in Commodities 2004-09
Global Com m odity F&O -2009
Global Com m odity F&O -2004
12%
20%
23%
12%
68%
65%
Source : WEF
Am erica
Asia
Europe+ME
Source : WEF
Share of Asia has jumped
more than 5 times
Am erica
Asia
Europe+ME
Global growth in Commodities 2008-09
Exchangew ise Volum e Share Com m odity F&O -2009
Exchangew ise Volum e Share Com m odity F&O -2008
7%
5%
6%
18%
5%
9%
33%
11%
9%
13%
DCE
38%
8%
Source: WFE
CME
SHFE
18%
20%
Source: WFE
ZCE
ICE
MCX
LME
DCE
Chinese exchanges
has seen
two fold increase
in volume
CME
SHFE
ZCE
ICE
MCX
LME
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
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 @ Way2Wealth
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 2003
Volume Growth in Indian Exchanges
700
> 65% CAGR Growth
600
500
400
300
200
MCX
Leader in Metals & Energy
100
0
2004
2005
2006
MCX
2007
2008
NCDEX TOTAL
2009
2010
Source:FMC,Way2Wealth Research
Segment wise % Share of Commodities
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Bullion and other metals
31.5
36.1
57.9
64.6
56.7
40.8
Other than bullion metals
23.2
Agriculture
68.2
55.335.8
23.1
11.9 15.7
Energy
0.3
8.4
6.3
12.3
20.3
Others
0.0
0.1
0.0
0.0
31.4
0.0 Source:FMC,Way2Wealth Research
* 2008-09 other segment includes energy& other metals
NCDEX
Leader in Agri
Indian Growth during 2004-09
Exchange wise commodity Volumes in 2004
Exchange wise commodity Volumes in 2009
12%
38%
62%
88%
MCX
NCDEX
MCX
NCDEX
Indian Growth during 2004-09
India Commodity Wise Market Share in 2009
India Commodity Wise Market Share in 2004
0%
9%
17%
12%
31%
15%
13%
1%
0%
67%
15%
20%
Gold
Silver
Crdue oil
Copper
Total agri
Others
Gold
Silver
Crdue oil
Copper
Total agri
Others
Returns in Indian commodities
Returns Across Various Com m odities in 5 Yrs.
600
485.86
500
400
300
200
100
142.80
92.86
62.54
94.21
87.12
22.25
9.25
3.83
51.16
23.60
4.96 9.65
0
Mentha Oil
Turmeric
Jeera
Pepper
Soybean
Soy Oil
Guar Gum
Guar Seed
Lead
Aluminium
Zinc
Crude oil
Silver
Gold
-100
Copper
-12.36
-45.21
Source:Bloomberg,Way2Wealth Research

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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 @ Way2Wealth
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 (Way2Wealth)
 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 @ Way2Wealth
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
The People @ Way2Wealth
 Sunil Ramrakhiani
- COO
More than 15 years in industry. Founder member – NCDEX, Member of product committee,
Regular speaker in various forum
 Vinay Tiwary
- Sales Head
More than 8 years in industry. Have worked with prominent exchange as product head for
bullions.
 Shantanu Bhardwaj
- Head Business Analytics & Product Development
More than 8 years in industry. Conceptualise & Launched pulses & Guarseed contracts in
NCDEX. Have worked as Regional Manager –west in IL&FS Investsmart.
 Brajendra Talesara
- Head Dealing & Arbitrage desk
More than 12 years experience in industry. Strong execution skills. Have worked in Anand
Rathi, Investsmart etc.
The People @ Way2Wealth
 K N Rahaman
- Research Head
More than 10 years in Industry. Former Research Head in Agriwatch & Investsmart.
Consultancy Projects done for ADB, JBIC, ICICI, OXFAM, DUPONT etc. Member of All India
crop forecasting committee (industry) for pulses & oilseeds.
 Prasad MSR
- Research Analyst
More than 6 years in industry as Research analyst for various commodities. Have worked
with IL&FS Investsmart, Transgraph etc
 Krishna Reddy
- Research Analyst
More than 6 years in industry as Research Analyst for various commodities. Have worked in
IL&FS investsmart
Thank you
Team Commodities