SHARE BROKING SERVICE SECTOR PROFILE There are several national as well as local players in stock trading services which are providing various services to their customers like online trading, portfolio management system, stock broking etc. Various key players in this sector are: KEY PLAYERS1: 5Paisa.com - Online trading, live stock quotes and market research Advani Share Brokers - Share broking and market research services Anand Rathi Securities - Portfolio management, corporate finance, equity & fixed income brokerage services Brescon Group - Advisory and broking services CIL Securities - Stock broking & merchant banking services CRN India - Trends of stock market, trading tips, chat etc Churiwala Securities - Stock trading, quotes and market analysis DSP Merrill Lynch - Investment banking and brokerage services Dalmia Securities - Stock broking & depository services EquityTrade - Stock trading, company news & market research Gandhi Securities - Stock broking and investment services Hasmukh Lalbhai - Stock trading services Idafa Investments - Stock broking services India Market Access - Offers stock broking, portfolio management and investment banking services Investsmart India - Personal finance advisory & online brokerage services Kisan Ratilal Choksey Shares - Stock broking and e-trading services Kotak Securities - Brokerage services & retail distributor of financial securities Manubhai Mangaldas Securities - Stock broking and market analysis Moneypore - Investment and broking services Motilal Oswal - Online trading, live BSE and NSE quotes Navia Markets - Stock broking, IPO and mutual funds services Parag Parikh - Stock broking and portfolio management Parsoli Corporation - Investment management & stock trading services Pratibhuti Viniyog - Stock broking services Prudential - Investment management services Quantum Securities - Offers broking and portfolio management services. Sivan Securities - offers services related investment banking & stock broking with a focus on South India. Skindia Finance - Brokerage firm focusing on GDR arbitrage, equities & debt Stock Holding Corporation of India - Custody management, safekeeping & stock broking services StockMarkit.com - Stock quotes, news, market indicators etc Sunidhi Consultancy - Stock broking, portfolio management & equity research Techno Shares - Stock broking and portfolio management Valia Consultancy - Stock investment and trading consultancy1 COMPANY PROFILE: SSKI HISTORY: Sevaklal Sevantilal Kantilal Ishwarlal Securities Private Limited. Founded in 1922, it is one of India‟s oldest brokerage houses having over Eighty years of broking experience. Founding member of the Stock Exchange, Mumbai and pioneer institutional broker. SSKI is the only domestic player in a market crowded by 44 multinational securities firm. Foray into institutional broking and corporate finance 20 years ago. SSKI group also comprises Institutional broking division caters to the largest domestic and foreign institutional investors, the corporate finance division focuses on niche areas such as infrastructure, telecom and media. SSKI holds a sizeable portion of the market in each of these segments. Forerunner of investment research in the Indian market, SSKI provide the best research coverage amongst broking houses in India. The company‟s research team was set up in December 1992 and is rated as one of the best in the country. Voted four times as the top domestic brokerage house by Asia money survey, SSKI is consistently ranked amongst the top domestic brokerage houses in India. Retail broking started in 1985. Research group was set up in December 1992. It acts as a pioneer if investment research in the Indian market aimed at generating quick investment ideas. Group interest Investment Banking, Institutional Broking and Retail Broking.It occupies 65% of business share from foreign institutional investors. SSKI named its online division as “Sharekhan” on February 8, 2000 coinciding with the launch of its website. Sharekhan is a share broking and retail broking arm of SSKI, an organization with more than 80 years of trust and credibility in the stock market. Retail Distribution Started In 1998. SSKI is a veteran equities solutions company with over 8 decades of experience in the Indian stock markets. It helps the customers/people to make informed decisions and simplifies investing in stocks. SSKI named its online division as a Sharekhan and it is into retail broking. The business of the company overhauled 6 years ago on February 8, 2000. It acts as a discount brokerage house to a full service investment solution provider. It has specialized research product for the small investors and day traders. Sharekhan has a shop in 170 cities across India. They have talent pool of experienced professionals specially designated to guide customers when they need assistance, which is why investigating with Sharekhan is bound to be a hassle-free experience for customers! The Sharekhan provides its customers First Step program, built specifically for new investors, which guide throughout investing lifecycle. They have 510 share shops across 170 cities in India to get a host of trading related services. ABOUT SHAREKHAN SSKI named its online division as SHAREKHAN and it is into retail broking. It acts as a discount brokerage house to a full service investment solutions provider. It has specialized research product for the small investors and day traders. The site was also launched on February 8, 2000 and named it as www.sharekhan.com The Speed Trade account of Sharekhan is the next generation technology product launched on April 17, 2002. It offers its customers with the trade execution facilities on the NSE and BSE, for cash as well as derivatives, depository services. Ensures convenience in Trading Experience: Sharekhan‟s trading services are designed to offer an easy, hassle free trading experience, whether trading is done daily or occasionally. The customer will be entitled to a host of value added services in the investment process depending on his investing style and frequency offers a suite of products and services, providing the customers with a multi-channel access to the stock markets. It gives advice based on extensive research to its customers and provides them with relevant and updated information to help him make informed about his investment decisions. Sharekhan offers its customers the convenience of a broker-DP. It helps the customers meet his pay in obligations on time thereby reducing the possibility of auctions. The company believes in flexibility and therefore allows accepting late instructions without any extra charge. And execute the instruction immediately on receiving it and thereafter the customer can view his updated account statement on Internet. Sharekhan depository services offer Demat services to individual and corporate investors. It has a team of professionals and the latest technological expertise dedicated exclusively to their Demat department. A customer can avail of Demat, repurchase and transmission facilities at any of the Sharekhan branches and business partners outlets. BRAND NAME The company as a whole in its offline business has named itself as SSKI Securities Private Limited – Sevaklal Sevantilal Kantilal Ishwarlal Securities Private Limited. The company has preferred to name themselves under a blanket family name. But in its online division started since 1997, the company preferred to name itself as “SHAREKHAN”. The Brand name “SHAREKHAN” itself suggests the business in which the company is dealing so that the customer could easily identify the product or service category. SERVICES PROVIDED BY SHAREKHAN Online Services Offline Services Depository Services Equity and Derivatives Trading Fundamental Research Technical Research Portfolio Management Commodities Trading Dial-n-trade Share shops 1. Online Services: 1. Mutual Funds 2. Commodity Futures 3. PMS (Portfolio Management Service) 4. Technical PMS 5. Demat Services 6. Share shops 2. Offline Services: Trading with the help of Dealer 1. Trading without credit 2. By calling to the Share shops 3. Credit facility (Only in Delivery-based) 4. T+2 facility 5. Special website for Offline Clients: www.mysharekhan.com 6. Physical contract notes Types of Account Classic A/c Speed-trade [A] Classic A/c: Features of Classic A/c: Online trading account for investing in Equities and Derivatives via sharekhan.com Integration of: Online trading + Bank + Demat account. Instant cash transfer facility against purchase & sale of shares. Make IPO bookings. You get Instant order and trade confirmations by e-mail Streaming Quotes. Personalized Market Scan with your own customized stock ticker. Single screen interface for cash and derivatives. [B] Speed-trade: Features of Speed-trade: Instant order Execution & Confirmation Single screen trading terminal Real-time streaming quotes, tic-by-tic charts Market summary (most traded scrip, highest value and lots of other relevant statistics) Hot keys similar to a brokers terminal Alerts and reminders Back-up facility to place trades on Direct Phone lines Single screen interface for cash and derivatives [C] Dial-n-trade: Features of Dial-n-trade: Two numbers for placing orders for customers: Toll free number: 1-800-22-7050. For people with difficulty in accessing the toll-free number, a Reliance number 30307600 which is charged at Rs. 1.50 per minute for STD calls.Automatic funds transfer with phone banking (for Citibank and HDFC bank customers. Simple and Secure Interactive Voice Response based system for authentication. No waiting time. Enter TPIN to be transferred to Sharekhan‟s telebrokers. One can also get the trusted, professional advice of Sharekhan‟s telebrokers. After hours order placement facility between 8.00 am and 9.30 am (timings to be extended soon. BANK AFFILIATION Sharekhan has affiliation with 7 banks, which allows its customers to enjoy the facility of instant credit and transfer of funds from his savings bank account to his Sharekhan trading account. The Affiliated banks are as follows: HDFC BANK UTI BANK CITI BANK ORIENTAL BANK OF COMMERCE IDBI BANK UBI BANK CORPORATION BA PROMOTION TOOLS AND ADVERTISEMENT OF SHAREKHAN Promotion Online share trading is totally a new concept in Indian market. Generally investor doesn‟t like to come from conventional way of share trading. Sharekhan has introduced this product in the concept and products are still new in the market. Therefore the company has undertaken extensive promotion campaign to create awareness about the product. Sharekhan adopts the following tools for promoting the product. Internet Tele Marketing Retail Share Shops Franchisee Owners Sales Force Advertising Company advertises its product through TV media on channels like CNBC, Print Media-in leading dailies and outdoors media. It advertises itself as an innovative brand with a cartoon of tiger-called SHERU. Besides attractive and colorful brochures as well as posters are used giving full details about the product. Mails are sent to people togging on to sites like moneycontrol.com and rediff.com. Commodity A commodity is some good for which there is demand, but which is supplied without qualitative differentiation across a market. It is fungible, i.e. the same no matter who produces it. Examples are petroleum, notebook paper, milk or copper. The price of copper is universal, and fluctuates daily based on global supply and demand. Stereo systems, on the other hand, have many aspects of product differentiation, such as the brand, the user interface, the perceived quality etc. And, the more valuable a stereo is perceived to be, the more it will cost. In contrast, one of the characteristics of a commodity good is that its price is determined as a function of its market as a whole. Well-established physical commodities have actively traded spot and derivative markets. Generally, these are basic resources and agricultural products such as iron ore, crude oil, coal, ethanol, salt, sugar, coffee beans, soybeans, aluminum, copper, rice, wheat, gold, silver, palladium, and platinum. Soft commodities are goods that are grown, while hard commodities are the ones that are extracted through mining. Definition of comodity A physical substance, such as food, grains, and metals, which is interchangeable with another product of the same type, and which investors buy or sell, usually through futures contracts. The price of the commodity is subject to supply and demand. Risk is actually the reason exchange trading of the basic agricultural products began. For example, a farmer risks the cost of producing a product ready for market at sometime in the future because he doesn't know what the selling price will be. http://www.investorwords.com/975/commodity.html History of commodity market The modern commodity markets have their roots in the trading of agricultural products. While wheat and corn, cattle and pigs, were widely traded using standard instruments in the 19th century in the United States, other basic foodstuffs such as soybeans were only added quite recently in most markets.[ For a commodity market to be established, there must be very broad consensus on the variations in the product that make it acceptable for one purpose or another. The economic impact of the development of commodity markets is hard to overestimate. Through the 19th century "the exchanges became effective spokesmen for, and innovators of, improvements in transportation, warehousing, and financing, which paved the way to expanded interstate and international trade."[ India Commodity Market India commodity market consists of both the retail and the wholesale market in the country. The commodity market in India facilitates multi commodity exchange within and outside the country based on requirements. Commodity trading is one facility that investors can explore for investing their money. The India Commodity market has undergone lots of changes due to the changing global economic scenario; thus throwing up many opportunities in the process. Demand for commodities both in the domestic and global market is estimated to grow by four times than the demand currently is by the next five years. Commodity Trading Commodity trading is an interesting option for those who wish to diversify from the traditional options like shares, bonds and portfolios. The Government has made almost all commodities entitled for futures trading. Three multi commodity exchanges have been set up in the country to facilitate this for the retail investors. The three national exchanges in India are: Multi Commodity Exchange (MCX) National Commodity and Derivatives Exchange (NCDEX) National Multi-Commodity Exchange (NMCE) Commodity trading in India is still at its early days and thus requires an aggressive growth plan with innovative ideas. Liberal policies in commodity trading will definitely boost the commodity trading. The commodities and future market in the country is regulated by Forward Markets commission (FMC). http://www.indianmba.com/Occasional_Papers/OP62/OP62.jpg FMC Forward Markets Commission (FMC) headquartered at Mumbai, is a regulatory authority which is overseen by the Ministry of Consumer Affairs, Food and Public Distribution, Govt. of India. It is a statutory body set up in 1953 under the Forward Contracts (Regulation) Act, 1952. " The Act provides that the Commission shall consist of not less than two but not exceeding four members appointed by the Central Government out of them being nominated by the Central Government to be the Chairman thereof. Currently Commission comprises three members among whom Shri B.C. Khatua, IAS, is the Chairman, Shri Rajeev kumar Agarwal, IRS and Shri D.S.Kolamkar, IES are the Members of the Commission." http://www.fmc.gov.in/ Multi Commodity Exchange (MCX) Headquartered in the financial capital of India, Mumbai, Multi Commodity Exchange of India Ltd (www.mcxindia.com) is a demutualised nationwide electronic commodity futures exchange set up by Financial Technologies (India) Ltd. with permanent recognition from Government of India for facilitating online trading, clearing & settlement operations for futures market across the country. The exchange started operations in November 2003. MCX has achieved three ISO certifications including ISO 9001:2000 for quality management, ISO 27001:2005 - for information security management systems and ISO 14001:2004 for environment management systems. MCX offers futures trading in more than 40 commodities from various market segments including bullion, energy, ferrous and non- ferrous metals, oil and oil seeds, cereal, pulses, plantation, spices, plastic and fibre. The exchange strives to be at the forefront of developments in the commodities futures industry and has forged strategic alliances with various leading International Exchanges, including Tokyo Commodity Exchange, Chicago Climate Exchange, London Metal Exchange, New York Mercantile Exchange, Bursa Malaysia Derivatives, Berhad and others. Key shareholders Promoted by Financial Technologies (India) Ltd, MCX enjoys the confidence of blue chips in the Indian and international financial sectors. MCX‟s broadbased strategic equity partners include, NYSE Euronext, State Bank of India and its associates (SBI), National Bank for Agriculture and Rural Development (NABARD), National Stock Exchange of India Ltd. (NSE), SBI Life Insurance Co. Ltd., Bank of India (BOI) , Bank of Baroda (BOB), Union Bank of India, Corporation Bank, Canara Bank, HDFC Bank, Fid Fund (Mauritius) Ltd. - an affiliate of Fidelity International, ICICI Ventures, IL&FS, Kotak group, Citi Group and Merrill Lynch. www.mcxindia.com National Commodity and Derivatives Exchange National Commodity & Derivatives Exchange Limited (NCDEX) is an online commodity exchange based in India. It was incorporated as a private limited company incorporated on April 23, 2003 under the Companies Act, 1956. It obtained its Certificate for Commencement of Business on May 9, 2003. It has commenced its operations on December 15, 2003. NCDEX is a closely held private company which is promoted by national level institutions and has an independent Board of Directors and professionals not having vested interest in commodity markets Commodities Traded at NCDEX:- Bullion Silver, Brent Gold KG Minerals Electrolytic Copper Cathode, Aluminum Ingot, Nickel Cathode, Zinc Metal Ingot, Mild steel Ingots Oil and Oil seeds:- Cotton seed, Oil cake, Crude Palm Oil, Groundnut (in shell), Groundnut expeller Oil, Cotton, Mentha oil, RBD Pamolein, RM seed oil cake, Refined soya oil, Rape seeds, Mustard seeds, Caster seed, Yellow soybean, Meal Pulses Urad, Yellow peas, Chana, Tur, Masoor, Grain Wheat, Indian Pusa Basmati Rice, Indian parboiled Rice (IR-36/IR-64), Indian raw Rice (ParmalPR-106), Barley, Yellow red maize Spices Jeera, Turmeric, Pepper Plantation Cashew, Coffee Arabica, Coffee Robusta Fibers and other Guar Gum, Guar seeds, Guar, Jute sacking bags, Indian 28 cotton, Indian 31mm cotton, Lemon, Grain Bold, Medium Staple, Mulberry, Green Cottons, Potato, Raw Jute, Mulberry raw Silk, V-797 Kapas, Sugar, Chilli LCA334 Energy Crude Oil, Furnace oil http://en.wikipedia.org/wiki/National_Commodity_and_Derivatives_Exchange National multi commodity exchange of India ltd In response to the Press Note issued by the Government of India during May'1999, first state-of- the-art demutualised multi-commodity Exchange, National Multi Commodity Exchange of India Ltd. (NMCE) was promoted by commodity-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 were adequately addressed in structuring the Exchange, finance was still a vital missing link. Punjab National Bank (PNB) took equity of the Exchange to establish that linkage. Even today, NMCE is the only Exchange in India to have such investment and technical support from the commodity relevant institutions. These institutions are represented on the Board of Directors of the Exchange and also on various committees set up by the Exchange to ensure good corporate governance. Some of them have also lent their personnel to provide technical support to the Exchange management. The day-to-day operations of the Exchange are managed by the experienced and qualified professionals with impeccable integrity and expertise. None of them have any trading interest. The structure of NMCE is impossible to replicate in India. NMCE is unique in many other respects. It is a zero-debt company; following widely accepted prudent accounting and auditing practices. It has robust delivery mechanism making it the most suitable for the participants in the physical commodity markets. The exchange does not compromise on its delivery provisions to attract speculative volume. Public interest rather than commercial interest guide the functioning of the Exchange. It has also established fair and transparent rule-based procedures and demonstrated total commitment towards eliminating any conflicts of interest. It is the only Commodity Exchange in the world to have received ISO 9001:2000 certification from British Standard Institutions (BSI). NMCE commenced futures trading in 24 commodities on 26th November, 2002 on a national scale and the basket of commodities has grown substantially since then to include cash crops, food grains, plantations, spices, oil seeds, metals & bullion among others. Research Desk of NMCE is constantly in the process of identifying the hedging needs of the commodity economy and the basket of products is likely to grow even further. NMCE has also made immense contribution in raising awareness about and catalyzing implementation of policy reforms in the commodity sector. NMCE was the first Exchange to take up the issue of differential treatment of speculative loss. It was also the first Exchange to enroll participation of high net-worth corporate securities brokers in commodity derivatives market. It was the Exchange, which showed a way to introduce warehouse receipt system within existing legal and regulatory framework. It was the first Exchange to complete the contractual groundwork for dematerialization of the warehouse receipts. Innovation is the way of life at NMCE. http://www.nmce.com/about_us/about_us.jsp Derivatives In finance derivatives is the collective name used for a broad class of financial instruments that derive their value from other financial instruments (known as the underlying), events or conditions. Derivatives are usually broadly categorised by: The relationship between the underlying and the derivative (e.g. forward, option, swap) The type of underlying (e.g. equity derivatives, foreign exchange derivatives, interest rate derivatives or credit derivatives) The market in which they trade (e.g., exchange traded or over-the-counter) Derivatives are used by investors to provide leverage or gearing, such that a small movement in the underlying value can cause a large difference in the value of the derivative speculate and to make a profit if the value of the underlying asset moves the way they expect (e.g. moves in a given direction, stays in or out of a specified range, reaches a certain level) hedge or mitigate risk in the underlying, by entering into a derivative contract whose value moves in the opposite direction to their underlying position and cancels part or all of it out obtain exposure to underlying where it is not possible to trade in the underlying (e.g. weather derivatives) create optionality where the value of the derivative is linked to a specific condition or event (e.g. the underlying reaching a specific price level) Uses Hedging Hedging is a technique that attempts to reduce risk. Derivatives allow risk about the price of the underlying asset to be transferred from one party to another. For example, a wheat farmer and a miller could sign a futures contract to exchange a specified amount of cash for a specified amount of wheat in the future. Both parties have reduced a future risk: for the wheat farmer, the uncertainty of the price, and for the miller, the availability of wheat. However, there is still the risk that no wheat will be available because of events unspecified by the contract, like the weather, or that one party will renege on the contract. Although a third party, called a clearing house, insures a futures contract, not all derivatives are insured against counterparty risk. From another perspective, the farmer and the miller both reduce a risk and acquire a risk when they sign the futures contract: The farmer reduces the risk that the price of wheat will fall below the price specified in the contract and acquires the risk that the price of wheat will rise above the price specified in the contract (thereby losing additional income that he could have earned). The miller, on the other hand, acquires the risk that the price of wheat will fall below the price specified in the contract (thereby paying more in the future than he otherwise would) and reduces the risk that the price of wheat will rise above the price specified in the contract. In this sense, one party is the insurer (risk taker) for one type of risk, and the counterparty is the insurer (risk taker) for another type of risk. Hedging also occurs when an individual or institution buys an asset (like a commodity, a bond that has coupon payments, a stock that pays dividends, and so on) and sells it using a futures contract. The individual or institution has access to the asset for a specified amount of time, and then can sell it in the future at a specified price according to the futures contract. Of course, this allows the individual or institution the benefit of holding the asset while reducing the risk that the future selling price will deviate unexpectedly from the market's current assessment of the future value of the asset. Derivatives serve a legitimate business purpose. For example a corporation borrows a large sum of money at a specific interest rate. The rate of interest on the loan resets every six months. The corporation is concerned that the rate of interest may be much higher in six months. The corporation could buy a forward rate agreement (FRA). A forward rate agreement is a contract to pay a fixed rate of interest six months after purchases on a notional sum of money.  If the interest rate after six months is above the contract rate the seller pays the difference to the corporation, or FRA buyer. If the rate is lower the corporation would pay the difference to the seller. The purchase of the FRA would serve to reduce the uncertainty concerning the rate increase and stabilize earnings. Speculation and arbitrage Derivatives can be used to acquire risk, rather than to insure or hedge against risk. Thus, some individuals and institutions will enter into a derivative contract to speculate on the value of the underlying asset, betting that the party seeking insurance will be wrong about the future value of the underlying asset. Speculators will want to be able to buy an asset in the future at a low price according to a derivative contract when the future market price is high, or to sell an asset in the future at a high price according to a derivative contract when the future market price is low. Individuals and institutions may also look for arbitrage opportunities, as when the current buying price of an asset falls below the price specified in a futures contract to sell the asset. Speculative trading in derivatives gained a great deal of notoriety in 1995 when Nick Leeson, a trader at Barings Bank, made poor and unauthorized investments in futures contracts. Through a combination of poor judgment, lack of oversight by the bank's management and by regulators, and unfortunate events like the Kobe earthquake, Leeson incurred a $1.3 billion loss that bankrupted the centuries-old institution. Types of derivatives OTC and exchange-traded Broadly speaking there are two distinct groups of derivative contracts, which are distinguished by the way they are traded in the market: Over-the-counter (OTC) derivatives OTC are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. Products such as swaps, forward rate agreements, and exotic options are almost always traded in this way. The OTC derivative market is the largest market for derivatives, and is largely unregulated with respect to disclosure of information between the parties, since the OTC market is made up of banks and other highly sophisticated parties, such as hedge funds. Reporting of OTC amounts are difficult because trades can occur in private, without activity being visible on any exchange. According to the Bank for International Settlements, the total outstanding notional amount is $684 trillion (as of June 2008). Of this total notional amount, 67% are interest rate contracts, 8% are credit default swaps (CDS), 9% are foreign exchange contracts, 2% are commodity contracts, 1% are equity contracts, and 12% are other. Because OTC derivatives are not traded on an exchange, there is no central counterparty. Therefore, they are subject to counterparty risk, like an ordinary contract, since each counterparty relies on the other to perform. Exchange-traded derivatives ETD are those derivatives products that are traded via specialized derivatives exchanges or other exchanges. A derivatives exchange acts as an intermediary to all related transactions, and takes Initial margin from both sides of the trade to act as a guarantee. The world's largest derivatives exchanges (by number of transactions) are the Korea Exchange (which lists KOSPI Index Futures & Options), Eurex (which lists a wide range of European products such as interest rate & index products), and CME Group (made up of the 2007 merger of the Chicago Mercantile Exchange and the Chicago Board of Trade and the 2008 acquisition of the New York Mercantile Exchange). According to BIS, the combined turnover in the world's derivatives exchanges totaled USD 344 trillion during Q4 2005. Some types of derivative instruments also may trade on traditional exchanges. For instance, hybrid instruments such as convertible bonds and/or convertible preferred may be listed on stock or bond exchanges. Also, warrants (or "rights") may be listed on equity exchanges. Performance Rights, Cash xPRTs and various other instruments that essentially consist of a complex set of options bundled into a simple package are routinely listed on equity exchanges. Like other derivatives, these publicly traded derivatives provide investors access to risk/reward and volatility characteristics that, while related to an underlying commodity, nonetheless are distinctive. Derivative contract types There are three major classes of derivatives: DERIVATIVES Options Futures Swaps Forwards Put Call Interest Currency Rate Commodit Security y Futures/Forwards Futures/Forwards are contracts to buy or sell an asset on or before a future date at a price specified today. A futures contract differs from a forward contract in that the futures contract is a standardized contract written by a clearing house that operates an exchange where the contract can be bought and sold, while a forward contract is a non-standardized contract written by the parties themselves. Options Options are contracts that give the owner the right, but not the obligation, to buy (in the case of a call option) or sell (in the case of a put option) an asset. The price at which the sale takes place is known as the strike price, and is specified at the time the parties enter into the option. The option contract also specifies a maturity date. In the case of a European option, the owner has the right to require the sale to take place on (but not before) the maturity date; in the case of an American option, the owner can require the sale to take place at any time up to the maturity date. If the owner of the contract exercises this right, the counterparty has the obligation to carry out the transaction. Swaps Swaps are contracts to exchange cash (flows) on or before a specified future date based on the underlying value of currencies/exchange rates, bonds/interest rates, commodities, stocks or other assets. More complex derivatives can be created by combining the elements of these basic types. For example, the holder of a swaption has the right, but not the obligation, to enter into a swap on or before a specified future date. http://en.wikipedia.org/wiki/Derivative _(finance) RESEACH TOPIC : “COMMODITY MARKET TREND IN INDIA’’ PROBLEM STATEMENT: To study Commodity Market Trend in India . OBJECTIVES OF THE STUDY: PRIMARY OBJECTIVE: To know the trends of the commodity market in India with of some specific commodities. SECONDARY OBJECTIVES: To know the seasonal impact on gold. To know the seasonal impact on silver. To know the seasonal impact on crude oil. To know the seasonal impact on copper. LITERATURE REVIEW OF STUDY The biennial publication Commodity Market Review (CMR) analyses important agricultural commodity market developments likely to have significant implications for FAO member countries, both developed and developing. This issue of the Review is devoted to exploring in depth a variety of issues related to global agricultural commodity value chains. Value chains have become more complex as production and processing activities turn out to be increasingly fragmented. Moreover, concentration and the prospective of market power, as well as the emergent scope of food standards add to this complexity. This issue includes articles that focus on both cross-commodity issues, such as strategic trade, foreign direct investment and the effectiveness of technical regulation, as well as on characteristics of individual commodity value chains, such as coffee, cocoa and frozen concentrated orange juice, which are of particular interest in terms of industrial organization RESEACH DESIGN: Descriptive study will take place for this research topic, as the Row data are used in my study. Research design is the plan and structure of investigation so as to obtain the answer to research questions. I have used descriptive research design. As my project will describe the situation of the return on the different commodities, the raw data of the spot prices of the commodities are used. DATA SOURCE: Secondary data has been used in this research. It is mainly collected from the mcxindia.com website and from ncdex.com website and mcx literature. ANALYSIS TOOLS AND TECHNICS: The following methods will be used in this research work. Time series analysis. Secular trend method. Seasonal variation method. 3 monthly Moving average. SCOPE OF THE STUDY: Commodity market is the most emerging and potential market in India. Day by day many new commodities are added for trading in commodity market. Commodity markets provide an avenue for their sale. From knowing the trend of the commodity market, future prediction about return can be determined and by study of the seasonal impact, general time period for investment and withdrawal of it can also be determined. The scopes the e of the study was restricted to the objectives stated earlier. LIMITATIONS OF THE STUDY: The various sources utilized for the study, which include, websites, information from commodity trackers; Market watchers are subject to personal biases. Historical price data of several commodities is not available on the various exchanges and not even at FMC source. It does not become possible for me to take all commodities for the research, due to some constrains. So, I have to take some specific commodities for this research. The limitations of the various methods of the time series analysis, is the main limitation of this research. GOLD TREND Gold is a unique asset based on few basic characteristics. It is primarily a monetary asset, and partly a commodity. It is an internationally recognized asset that is not dependent upon any government‟s promise to pay. INDIAN GOLD MARKET: Gold is valued in India as a savings and investment vehicle and is the second preferred investment after bank deposits. India is the world's largest consumer of gold in jewellery as investment. In July 1997 the RBI authorized the commercial banks to import gold for sale or loan to jewelers and exporters. At present, 13 banks are active in the import of gold. This reduced the disparity between international and domestic prices of gold from 57 percent during 1986 to 1991 to 8.5 percent in 2001. Domestic consumption is dictated by monsoon, harvest and marriage season. Indian jewellery off take is sensitive to price increases and even more so to volatility. In the cities gold is facing competition from the stock market and a wide range of consumer goods. Facilities for refining, assaying, making them into standard bars in India, as compared to the rest of the world, are insignificant, both qualitatively and quantitatively. MARKET MOVING FACTORS: Above ground supply from sales by central banks, reclaimed scrap and official gold loans. Producer / miner hedging interest. World macro-economic factors - US Dollar, Interest rate. Comparative returns on stock markets. Domestic demand based on monsoon and agricultural output Table of gold trend Date return % trend % short term variable 2008 jan 10.3497 2008 feb 5.9487 -0.4806876 6.429387607 2008 march -4.0257 4.80074444 -8.826444444 2008 apr -4.2929 -3.4651389 -0.827761111 2008 may 7.0181 0.09233333 6.925766667 2008 jun 6.4204 -1.2029383 7.623338272 2008 jul -2.0341 6.16480988 -8.198909877 2008 aug -5.6701 -5.4368049 -0.233295062 2008 sep 10.8571 0.05234359 10.80475641 2008 oct -12.8904 3.32190171 -16.21230171 2008 nov 12.4582 -4.6286752 17.08687521 2008 dec 4.3165 0.52433761 3.792162393 2009 jan 5.49975 -2.4813355 7.98108547 2009 feb 7.8914 3.45497863 4.436421368 2009 march -2.5314 3.96573718 -6.497137179 2008 apr -4.0489 -3.2346325 -0.814267521 2009 may 4.4857 0.31907265 4.16662735 2009 jun -2.9156 -0.1639107 -2.751689269 2009 jul 2.4076 -0.4882965 2.895896486 2009 aug 2.1752 -1.8399312 4.015131244 2009 sep 3.9796 2.11254872 1.867051282 2009 oct 1.6304 -3.3734722 5.003872222 2009 nov 10.1908 3.53803333 6.652766667 2009 dec -5.558 Chart of gold trend : gold trend 20 15 10 5 Return % 0 2008 nov 2009 nov 2008 jul 2008 apr 2008 oct 2008 apr 2009 oct 2008 jun 2008 sep 2008 dec 2009 jan 2009 dec 2008 jan 2008 feb 2008 may -5 2009 jul 2009 aug 2008 aug 2009 sep 2009 march 2009 jun 2009 may 2008 march 2009 feb -10 -15 -20 Month return % trend % short term variable INTERPRITATION: The chart of the trend analysis shows the overall trend of the returns, yield on the gold during a span of two years. From the chart it is clear that in most of the time the trend of the gold gives positive returns. And this trend does not moves parallel. It is also seen in the chart that the return remains high between 2008 January , September , November and 2009 November And the return remains low during 2008 October. Short term variation trend indicates that in few cases, it is found that the short term variation is higher, otherwise it remains comparatively minor. Thus ultimately the overall position of the trend of the gold‟s return is satisfactory. SEASONAL VARIANCE It is worth noting to know the seasonal variations for any commodity so that it can be possible to take the benefits of trading for the time period, which can give the maximum return. Seasonal variation analysis also helps to divide the total yield return according to their proportion to the monthly basis so that it become possible to know about the time period which gives the maximum as well as minimum return. Table of gold seasonal index month return % 2 yearly seasonal index avr 2008 2009 JANUARY 10.3497 5.49975 7.924725 23.774175 FERUARY 5.9487 7.8914 6.92005 20.76015 MARCH -4.0257 -2.5314 -3.27855 -9.83565 APRIL -4.2929 -4.0489 -4.1709 -12.5127 MAY 7.0181 4.4857 5.7519 17.2557 JUNE 6.4204 -2.9156 1.7524 5.2572 JULY -2.0341 2.4076 0.18675 0.56025 AUGUST -5.6701 2.1752 -1.74745 -5.24235 SEPETEMBER 10.8571 3.9796 7.41835 22.25505 OCTOMBER -12.8904 1.6304 -5.63 -16.89 NOVEMBER 12.4582 10.1908 11.3245 33.9735 DECEMBER 4.3165 -5.558 -0.62075 -1.86225 Chart of gold seasonal index : INTERPRITATION: The above chart shows the general tendency of the returns, which can be yield from the gold for a specific period of time during the year. They also show that it is wisely to invest for the traders and investors in gold for 2008 October to 2009 February & 2009 July to 2009 November, as the returns during them remains high and it is also clear that the return between 2008 July to 2008 October & 2009 March to June remains not high. Thus, it is not beneficial for the investor to invest during this period. The chart also indicates that the maximum return can be earned in the January and November. The festival of DIWALI generally occurs during the October-November, and it is very much clear that during these months, returns on gold remains comparatively high. Thus, we can say that such kinds of festivals make an impact on the gold. The seasonal index continuously falls towards downward after February to April . Indian budget declared on the last day of February. Thus the events like budget may also make an impact on it. SILVER TREND INTRODUCTION: Silver's unique properties make it a very useful 'Industrial Commodity', despite it being classed as a precious metal. 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. INDIAN SCENARIO: Silver imports into India for domestic consumption in 2002 was 3,400 tons down 25 % from record 4,540 tons in 2001. Open General License (OGL) imports are the only significant source of supply to the Indian market. Non-duty paid silver for the export sector rose sharply in 2002, up by close to 200% year-on-year to 150 tons. Around 50% of India's silver requirements last year were met through imports of Chinese silver and other important sources of supply being UK, CIS, Australia and Dubai. Indian industrial demand in 2002 is estimated at 1375 tons down by 13 % from 1,579 tons in 2001. In spite of this fall, India is still one of the largest users of silver in the world, ranking alongside Industrial giants like Japan and the United States. In India silver price volatility is also an important determinant of silver demand as it is for gold. Table of gold trend YEARS return % TREND SHORT IN % TERM VARIABLE 2008 JAN 11.1931 2008 FEB 14.2784 -2.37399 16.65239 2008 MARCH -9.0181 14.26395 -23.2821 2008 APRIL -1.5709 -7.22132 5.650424 2008 MAY 4.9663 -0.54403 5.510333 2008 JUNE 4.3665 -3.22525 7.591754 2008 JULY 2.82 17.98071 -15.1607 2008 AUG -17.2523 -6.50686 -10.7454 2008 SEP -2.714 -0.89709 -1.81691 2008 OCT -16.4031 -1.43646 -14.9666 2008 NOV -0.7042 -5.75259 5.048385 2008 DEC 9.3275 -3.18659 12.51409 2009 JAN 7.6752 -4.99734 12.67254 2009 FEB 10.202 7.808141 2.393859 2009 MAR -1.0414 6.359936 -7.40134 2009 APR -2.2064 -10.1504 7.944018 2009 MAY 18.2204 4.045932 14.17447 2009 JUNE -10.083 5.510088 -15.5931 2009JULY 2.9225 -8.29569 11.21819 2009 AUG 6.0405 -5.94815 11.98865 2009 SEP 11.3324 8.967503 2.364897 2009 OCT -1.9583 17.59395 -19.5522 2009NOV 7.8094 -34.8152 42.6246 2009 DEC -5.4929 Chart of silver trend silver trend 50 40 30 20 Return % 10 0 2008 AUG 2008 OCT 2009 OCT 2009NOV 2009 AUG 2008 MAY 2009 MAY 2008 FEB 2008 SEP 2008 DEC 2009 FEB 2009 SEP 2009 DEC 2008 NOV 2009 MAR 2009JULY 2009 APR 2008 APRIL 2008 JULY 2009 JAN 2008 JUNE 2009 JUNE 2008 JAN 2008 MARCH -10 -20 -30 -40 month return % TREND IN % SHORT TERM VARIABLE INTERPRITATION: The chart and table, shows the overall trend of the returns, yield on the silver during a span of two years. It is also seen in the chart that the return remains high between 2008 January, February, 2009 February, May, September and the return remains low during 2008 March ,April ,2009 January. Short-term variation trend indicates that Short-term variation in Silver remains higher in the normal cases and the trend does not follow a regular pattern also, so that it is wisely not to do investment decision for the silver on the basis of its trend analysis. Seasonal variable Table of silver seasonal index month return % 2 yearly seasonal index avr 2008 2009 JANUARY 11.1931 7.6752 9.43415 28.30245 FERUARY 14.2784 10.202 12.2402 36.7206 MARCH -9.0181 -1.0414 -5.02975 -15.08925 APRIL -1.5709 -2.2064 -1.88865 -5.66595 MAY 4.9663 18.2204 11.59335 34.78005 JUNE 4.3665 -10.083 -2.85825 -8.57475 JULY 2.82 2.9225 2.87125 8.61375 AUGUST -17.2523 6.0405 -5.6059 -16.8177 SEPETEMBER -2.714 11.3324 4.3092 12.9276 OCTOMBER -16.4031 -1.9583 -9.1807 -27.5421 NOVEMBER -0.7042 7.8094 3.5526 10.6578 DECEMBER 9.3275 -5.4929 1.9173 5.7519 Chart of silver seasonal index INTERPRITATION: From the table it is very much clear, the general tendency of the returns, which can be yield from the silver for a specific period of time during the year. They also show that it is wisely to invest in the silver for the months during November to February, as the returns remains good between these months and the return remains low between March to October, so, it is not beneficial for the investor to invest during this period. It is also clear that November and January are the two months, which yields the maximum returns. The impact of the „DIWALI‟ is also seen here. COPPER TREND Introduction : 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. INDIAN SCENARIO: The size of Indian Copper Industry is around 4 lakh tons, which as percentage of world copper market is 3 %. Birla Copper, Sterilite Industries are two major private producers and Hindustan Copper Ltd the public sector producers. India is emerging as net exporter of copper from the status of net importer on account of rise in production by three companies. Copper goes into various usages such as Building, Cabling for power and telecommunications, Automobiles etc. Two major states owned telecommunications service providers; BSNL and MTNL consume 10% of country's copper production. Growth in the building construction and automobile sector would keep demand of copper high. FACTORS INFLUANCES COPPER MARKET: World copper mine production through exploration of new mine and expansion of existing mine. Economic growth of the major consuming countries such as China, Japan, Germany etc. Growth & development in the Building, electronics and electrical industry. Table of copper trend YEARS RETURN TREND SHORT TERM % VARIABLE 2008 JAN 7.9902 2008 FEB 18.3039 3.389585 14.91431 2008 MARCH 2.5379 5.457291 -2.91939 2008 APRIL 4.0422 1.119931 2.922269 2008 MAY -2.2496 0.172488 -2.42209 2008 JUNE 8.9745 -0.75395 9.728451 2008 JULY -6.0825 11.00993 -17.0924 2008 AUG -4.5792 -6.71737 2.138173 2008 SEP -7.7111 23.38746 -31.0986 2008 OCT -31.8121 -9.23616 -22.5759 2008 NOV -8.6745 -6.87254 -1.80196 2008 DEC -19.2012 -11.5323 -7.66888 2009 JAN 1.7096 0.397382 1.312218 2009 FEB 10.8245 -8.88964 19.71414 2009 MAR 19.3659 -0.11213 19.47803 2009 APR 7.7723 10.14097 -2.36867 2009 MAY 0.4383 -5.20341 5.641706 2009 JUNE 3.6763 0.668744 3.007556 2009JULY 12.2258 -10.2458 22.47157 2009 AUG 9.5384 13.74538 -4.20698 2009 SEP -3.5389 2.533077 -6.07198 2009 OCT 3.4083 -6.1726 9.580896 2009NOV 4.4851 1.684128 2.800972 2009 DEC 6.0746 Chart of copper seasonal index Copper trend 30 20 10 Return % 0 2008 OCT 2008 AUG 2009 AUG 2009 OCT 2008 MAY 2009 MAY 2009NOV 2008 FEB 2008 DEC 2009JULY 2008 SEP 2009 FEB 2008 NOV 2009 SEP 2009 MAR 2008 JULY 2009 APR 2008 APRIL 2009 JAN 2008 JUNE 2009 JUNE 2008 JAN 2008 MARCH -10 -20 -30 -40 month RETURN % TREND SHORT TERM VARIABLE INTERPRITATION: The chart shows the overall trend of the returns, yield on the copper during a span of two years. It is also seen in the chart that the return remains high between 2008 February, 2009 February, March, July , August. and the return remains low during 2008 October , December . The trend of the copper is not seemed to be paralleled moving. Short-term variation trend indicates that Short- term variation in crude oil remains high in few cases, otherwise it remains comparatively minor. it is also clear that the overall trend for the return for the copper remains satisfactory with regards to its comparatively low investments. Table of copper seasonal index RETURN IN 2 YEARLY SEASONAL MONTH % AVERAGE INDEX 2008 2009 JANUARY 7.9902 1.7096 4.8499 14.5497 FERUARY 18.3039 10.8245 14.5642 43.6926 MARCH 2.5379 19.3659 10.9519 32.8557 APRIL 4.0422 7.7723 5.90725 17.72175 MAY -2.2496 0.4383 -0.90565 -2.71695 JUNE 8.9745 3.6763 6.3254 18.9762 JULY -6.0825 12.2258 3.07165 9.21495 AUGUST -4.5792 9.5384 2.4796 7.4388 SEPETEMBER -7.7111 -3.5389 -5.625 -16.875 OCTOMBER -31.8121 3.4083 -14.2019 -42.6057 NOVEMBER -8.6745 4.4851 -2.0947 -6.2841 DECEMBER -19.2012 6.0746 -6.5633 -19.6899 Chart of copper seasonal index 50 copper trend 40 30 20 10 Return % 0 -10 -20 -30 -40 -50 month seasonal index INTERPRITATION: From the table is very much clear, the general tendency of the returns, which can be yield from the copper for a specific period of time during the year. They also show that it is wisely to invest in copper for January to August, as the returns between them remains good and it is also clear that the return between September to December remains lower so, it is not beneficial for the investor to invest during this period. it is also clear that the price of the copper is comparatively lower then other precious metals and the return yield on it is also not bad. Thus small investors can also take advantage of the trading in the copper, especially in during January to June. CRUDE OIL TREND 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 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. INDIAN SCENARIO 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 tones (in 2003) of which offshore was 394 million tones and on shore was 339 million tones. 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. MARKET INFLUANCING PRICE: OPEC output and supply. Terrorism, Weather/storms, War and any other unforeseen geopolitical factors that causes supply disruptions. Global demand particularly from emerging nations. Dollar fluctuations. Refinery fires & funds buying. TABLE OF CRUDE OIL TREND Date retunn % TREND IN % short term variable 2008 JAN -5.4878 20008 FEB 12.8391 -1.068950427 13.90805043 2008 MARCH 0.2463 0.745116239 -0.498816239 2008 APR 11.665 -2.154188034 13.81918803 2008 MAY 19.4019 1.076716239 18.32518376 2008 JUN 13.4802 1.761866667 11.71833333 2008 JULY -12.5226 2.423822222 -14.94642222 2008 AUG -3.0652 -1.375536752 -1.689663248 2008 SEP -7.6863 2.128046154 -9.814346154 2008 OCT -36.7398 -0.143643162 -36.59615684 2008 NOV -14.8527 -0.574893162 -14.27780684 2008 DEC -27.1 -2.711463675 -24.38853632 2009 JAN 20.2481 0.058824786 20.18927521 2009 FEB -1.4894 -0.662264957 -0.827135043 2009 MARCH 4.7277 0.380544872 4.347155128 2009 APR 10.2615 -0.667286325 10.92878632 2009 MAY 7.0796 -0.254690171 7.334290171 2009 JUN 5.1067 2.238917379 2.867782621 2009 JULY -4.5799 -2.042880912 -2.537019088 2009 AUG 9.1491 1.380676353 7.768423647 2009 SEP -3.691 -0.604789744 -3.086210256 2009 OCT 8.0317 0.206794872 7.824905128 2009 NOV -5.6102 0.767051282 -6.377251282 2009 DEC 4.3977 CHART OF CRUDE OIL TREND CRUDE OIL TREND 30 20 10 0 RETURN % 2008 SEP 2008 DEC 2009 FEB 2009 SEP 2009 DEC 20008 FEB 2008 NOV 2009 NOV 2008 APR 2008 OCT 2009 APR 2008 MAY 2008 JULY 2009 MARCH 2009 JULY 2009 AUG 2009 OCT 2008 JAN 2008 AUG 2009 JAN 2008 MARCH 2009 MAY 2008 JUN 2009 JUN -10 -20 -30 -40 MONTH retunn % TREND IN % short term variable INTERPRITATION: The chart shows the overall trend of the returns, yield on the crude oil during a span of two years. From the chart it is clear that in most of the time the trend of the crude oil gives positive returns. It is also seen in the chart that the returns remains high between 2008 February , April , May , June , 2009 January , April and the return remains low during2008 July , October , November , December.The trend of crude oil is seemed moving parallel .Chart also indicates that from the 2009 March to up till now the return yield on crude oil rises continuously. Short-term variation trend indicates that Short-term variation in crude oil remains high. SEASONAL INDEX SEASONAL INDEX OF CRUDE OIL month return 2 years 2 yearly seasonal avr index 2008 2009 JANUARY -5.4878 20.2481 14.7603 7.38015 22.14045 FERUARY 12.8391 -1.4894 11.3497 5.67485 17.02455 MARCH 0.2463 4.7277 4.974 2.487 7.461 APRIL 11.665 10.2615 21.9265 10.96325 32.88975 MAY 19.4019 7.0796 26.4815 13.24075 39.72225 JUNE 13.4802 5.1067 18.5869 9.29345 27.88035 JULY -12.5226 -4.5799 -17.1025 -8.55125 -25.65375 AUGUST -3.0652 9.1491 6.0839 3.04195 9.12585 SEPETEMBER -7.6863 -3.691 -11.3773 -5.68865 -17.06595 OCTOMBER -36.7398 8.0317 -28.7081 -14.35405 -43.06215 NOVEMBER -14.8527 -5.6102 -20.4629 -10.23145 -30.69435 DECEMBER -27.1 4.3977 -22.7023 -11.35115 -34.05345 CHART OF CRUDE OIL SEASONAL INDEX CRUDE OIL SEASONAL INDEX 60 40 20 RETURN % 0 -20 -40 -60 MONTH seasonal index INTERPRITATION: From above chart it is very much clear, the general tendency of the returns, which can be yield from the crude oil for a specific period of time during the year. They also show that it is wisely to invest in crude oil for January to August, as the returns between them remains high and the return between September to December is low so, it is not beneficial for the investor to invest during this period. but in the case of crude oil, it shows minimum returns during these of two years .