MCX SX - 40 Project

A STUDY ON MCX SX 40, WITH SPECIAL REFERENCE TO BASE METAL &
PRECIOUS METAL

SAMBHRAM ACADEMY OF MANAGEMENT STUDIES, BANGALORE Page 1

CHAPTER 1
INTRODUCTION

1.1 COMMODITY MARKET A OVERVIEW

"Its important to recognize that expanding the circle of opportunity and
increasing the democratic potential of our own society, as well as those across the
world, is a continuing process of inclusion."
Hillary Rodham Clinton

Indias commodity derivatives market is in its nascent stage of development. To
unlock the latent potential of the market, it is imperative to bring the unreached and
small stakeholders within its ambit. In a developing economy such as India, where a
sizeable section of the population is rendered vulnerable by the commodity price
volatility, the price risk management and price discovery functions of a commodity
derivatives exchange can have substantive impacts on livelihoods across commodity
value chains. Inclusion has been the major plank of our business philosophy. We
believe that market development should lead to the economic empowerment of the
commodity market ecosystems stakeholders. All our inclusion endeavors are
underpinned by domain expertise, extensive research and stakeholder engagements.
This has also enabled us to forge new relationships and build stronger bonds with
existing market participants on the foundation of trust arising from transparency,
accountability and efficiency. Various studies have established that MCX performs an
important role in efficient price risk management and price discovery, creates a well-
organized commodities ecosystem, reduces information asymmetry, etc. A Million
Jobs & A Million More Opportunities - A study by the Tata Institute of Social
Sciences in 2012 has established that the MCX ecosystem directly and indirectly
generates a large number of employment/self-employment/business opportunities that
were not in existence before the exchange came into being. MCX establishes direct
linkages with the ecosystem, which has led to a growth in employment, income, and
market infrastructure.
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MCX has been playing a significant role in democratizing commodity value chains,
developing the requisite infrastructure and processes, de-risking livelihoods, creating
market literacy and awareness, introducing innovative products and services,
enhancing entrepreneurial opportunities, and sensitizing the concerned stakeholders
and authorities through our evidence-based policy advocacy initiatives. Moreover,
with an aim to include farmers in to the modern commodity market ecosystem, MCX
reaches out to them through its social inclusion initiative, Gramin Suvidha Kendra.
Enabling Inclusion. Creating Livelihoods. will remain vital to MCX, as it is the key
to growth.

The maturity profile of various commodity market participants has been undergoing a
change with growing awareness that better risk management practices leads to an
increase in competitiveness, profitability and better firm valuation. This has led to the
emergence of a new risk management philosophy amongst Indian companiesboth
big and smallthat use commodity derivatives exchanges to create new shareholder
wealth.

Several studies commissioned by the Government of India from time to time since
1998 have recognized that Commodity Futures Market is an indispensable ingredient
of market infrastructure in the country. Besides discharging their primary objective of
providing an efficient platform for price discovery and risk management, India's
commodity derivatives exchanges have helped farmers to make decisions on selection
of crops for sowing and deciding the time for selling of their crops by disseminating
commodity futures prices through electronic ticker boards. Moreover, these
exchanges generate considerable employment both direct and indirect. A joint study
by a leading global management consultancy and Indias leading social sciences
Institute, and commissioned by Indias largest industry association has estimated that
India's commodity exchanges generate approximately 1.5 million jobs.

Despite the fact that India's commodity derivatives market has been witnessing
phenomenal growth and has been contributing directly and indirectly to the Indian
economy, it is still at a very nascent stage as compared to countries such as USA and
China. Given the huge resource base within the country supported aptly by the culture
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of entrepreneurship and trading, the potential is huge. Thus, there is a need to
modernize India's commodity derivatives market to further stimulate trading interest
in commodity futures.

The Government should devise effective ways to eliminate anomalies in India's
commodity derivatives market. This market still operates under the outdated Forward
Contracts (Regulation) Act (FC(R)A), 1952 while the markets have moved on. Many
of the contracts that have gained global prominence did not exist in 1952. Within the
constraints imposed by the existing statute, the markets regulator, Forward Markets
Commission (FMC) has been successful in regulating the futures market and
controlling manipulation by dynamically using the available market regulation tools.
However, the statutory powers under the existing FC(R)A are far below those
required and expose the FMC to judicial challenge for its regulatory and just actions
taken in the interest of the market and economy.

Amendments to FC(R)A have been ready for many years now. FC(R)A Amendment
Bill 2010 (Amendment Bill) has already been recommended by the Parliamentary
Standing Committee of the Ministry of Consumer Affairs, Food and Public
Distribution, on 19 December, 2011 and is awaiting passing by the Parliament. The
Amendment Bill will give the market's regulator, the FMC, the powers that befit a
regulator of a major commodity market, and enable systematic development of the
market. The Amendment Bill will also open the door to the introduction of
commodity options and new commodity classes such as intangibles. The Government
of India may also consider permitting banks, mutual funds and foreign institutional
investors to trade on India's commodity derivatives markets. This would widen and
deepen the markets further.

The global commodity derivatives markets are way ahead of the Indian commodity
derivatives market in terms of the products on offer as well as the regulatory
oversight. There is a need to bring the Indian commodity derivatives market at par
with its global counterparts. To sustain the growth witnessed by India's commodity
derivatives market there is an urgent need to for parliament to convert the
Amendment Bill into law. The national commodity exchanges have been engaging
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with various stakeholders of the commodity trade to communicate the need and
benefits of the Amendment Bill.

1.2 BASE METAL INDUSTRY AN OVERVIEW

Indian Aluminium Industry was first established in the year 1808 and it took almost
46 years to make its production commercially viable. The research work of the
country took several years and resulted in extracting the Aluminium from the ore. On
earth Aluminium is third most available element constituting almost 7.3% by mass.
Currently Aluminium is also the second most used metal in the world after steel. Due
to the fact that consistent growth of Indian economy at a rate of 8%, the demand for
metals, used for various sectors, is also on the higher side. As a result, the Indian
Aluminium Industry is also growing consistently as in the year 2012 the aluminium
industry in India saw a growth of about 8.35%.

In the year 1938 the production of Aluminium started in India when the Aluminum
Corporation of India's plant was commissioned. The plant was set up with a financial
and technical collaboration with Alcan, Canada which had a capacity of producing
2,500 tonnes per annum. In the year 1959 the Hindustan Aluminum Corporation
(Hindalco) was set up; which had a capacity of producing 20,000 tonnes per annum.
A public sector enterprise Malco which had a capacity of 10,000 tonnes per annum
was commissioned in 1965. Then later in the year 1987, National Aluminium
Company (NALCO) was commissioned to produce Aluminium with a capacity of
producing 0.218 million tonnes.

Indian Aluminium Industry Government started regulating and controlling during the
1970's. Restrictions in entry and price distribution controls were common in the
Aluminium Industry. Aluminium Control Order has been implemented where the
aluminium producers had to sell 50% of their products for electrical usages in the
country. Later in 1989, the order was removed as the government decontrolling was
revoked. In the year 1991 with de-licensing of industry, the liberal import of
technologies and capital goods was started. The liberalization resulted in a growth rate
of 12% of the industry, comparing to the growth rate of 6% during the 1980.
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Indias economy is the 9th largest worldwide with a tendency of constant growth.
This is a result of the continuous liberation of Indias controlled economy after 1991.
The state still interferes strongly with private corporations but is also on a course
towards an extensive liberalization of the economy. Ever since 1997 the focus of
economic reforms has been an alleviation of foreign trade. As a result the foreign
trade volume has more than quadrupled in the past ten years.

The Indian industry will increase its production of primary aluminium to 1,23 million
tons in the course of the current business year. The Indian aluminium branch is being
dominated by the few big producers of primary aluminium: Hindalco (Hindalco
Industries Ltd), Indal (Indian Aluminum Co Ltd), Nalco (National Aluminum Co
Ltd), Balco (Bharat Aluminum Co Ltd) and Malco (Madras Aluminum Co Ltd).
The booming economic power that India is has grown in its importance for all
European countries in the past decade and has become a welcome business partner for
the world. Bilateral trade is growing strongly, despite Indias high import taxes for
industrial goods, which still slow it down. Both sides are working towards a free trade
agreement and a respective decision in 2008. In matters concerning climate protection
the EU and India want to work closer together in the future. Water supply and the
ecological mining of bauxite, as well as the following recultivation of the soil are
tasks which the industry and the government will have to face.

1.3 PRECIOUS METAL INDUSTRY AN OVERVIEW

The gold production requires long lead times, with new mines taking up to 10 years to
become operational. As a result, a rally in gold prices doesnt translate easily into an
increase in production. Platinum and palladium are more scarce. Unlike most metals,
which are found on every continent, they are found mainly in South Africa, Russia,
the United States and Canada, and are expensive to extract and refine Gold and silver
are the best known precious metals. They have been mined, smelted and fashioned
into jewelry and coins from antiquity to the present day. They also have numerous
industrial applications, with gold being a key component in the information
technology and telecommunications industries and silver playing an essential role in
batteries, photography and the manufacture of solar energy panels. Unlike gold and
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silver, platinum and palladium have relatively recent histories. When Spanish
Conquistadors discovered platinum in the 16th century, in what is now Ecuador, they
thought it was silver that had not ripened. They named it little silver, or platina, and
left it to age. Platinum was first categorized as a precious metal in 1751, and English
physician William Hyde Wollaston obtained the first pure sample of the element in
1801. Two years later, Wollaston isolated palladium (a member of the Platinum group
of metals) as a separate material from platinum ore.
Although their uses are largely industrial the automobile catalytic converter is the
largest source of demand platinum and palladium are also fashioned to create
jewelry and coins. Demand for Precious metals Jewelry and industrial use The major
drivers of demand for precious metals are jewelry, industrial use (electronics,
automotive, medical / dental) and investment, although the demand from each
segment varies by the type of material. Gold Demand in 2010 reached a 10-year high
of more than 3,800 tons (valued at approximately $150 billion), lifted by jewelry,
coin and bar purchases in India and China. While India is the worlds largest market
for gold jewelry, second-place China posted a higher rate of growth in 2010 largely
driven by recent increases in buying for investment purposes, and demand from
Chinas growing technology manufacturing sector. Reflecting concerns about the U.S.
dollar weakness and domestic inflation concerns, Chinas and Indias central banks
have also recently become net purchasers of gold.

India is the largest market for gold jewelry in the world, consuming a staggering 746
tons of gold in 2010. China is the fastest-growing market for gold jewelry in the
world, accounting for 400 tons of demand in 2010.

1.4 METAL TRADING AT MCX SX 40

The fast changing global economic situation in the post-crisis period has resulted in a
high volatility in aluminium prices, reflected in an annualized volatility of 20% in
MCX aluminium futures prices during 2013. Hence, it is pertinent for aluminium
stakeholders to guard against price risks by participating in exchange-traded
aluminium futures. In this context, one can avail the benefits of aluminium futures
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trading available in the form of different size variants on MCX platform i.e. of 5 MT
contract and 1 MT contract.

The global aluminium industry is an extremely competitive and highly consolidated
sector with six of the largest producers (Chalco, RUSAL, Alcoa, Rio Tinto, China
Power Investment Corporation and Norsk Hydro) accounting for over 40 percent of
global output, according to RUSAL.

Over the years the use of copper has witnessed growth in electrical, transport,
Consumer durables, engineering, construction, telecommunication etc. sectors. In the
present survey the demand has been projected up to 2024-25 in the above sectors
keeping in view the economic growth in future. The domestic demand works out to be
2.3 million tonnes. To meet the demand in future the copper industry has already
geared up. The supply projection of 2.8 million tonnes by 2024-25will satisfy the
domestic demand in addition to exports demand.

Indian gold jewellery industry is the largest globally, valued at ~USD 40 billion
(including recycled volumes), driven by a gamut of cultural, social and demographic
factors. Traditionally, Asian investors have a passion for gold because it is seen as a
reliable store of value in times of uncertainty that is always highly liquid, When it
comes to gold, the great strength of the Multi Commodity Exchange in Mumbai is the
1.1 billion-strong Indian market. India is the biggest consumer of gold in the world,
according to MCX figures. Traditionally a physically-oriented market, the
subcontinent is also rapidly becoming home to some of golds busiest futures
contracts. MCXs gold and gold mini contracts have each more than doubled in size
over the last year, while interest in the gold contracts offered by its local rival,
National Commodity and Derivatives Exchange, has been sliding downwards.
Beyond the usual investment reasons, Indian investors are attracted to gold because of
its cultural significance. Jewelry made of gold has a number of important social and
religious meanings for Indians, making Indians the biggest gold consumers in the
world800 tons a year, according to MCX figures.

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1.5 FACTORS INFLUENCING THE MARKET

Aluminium prices in India are fixed on the basis of the rates that rule on the
international spot market, and Indian Rupee and US Dollar exchange rates.

Economic events such as national industrial growth, global financial crisis,
recession, and inflation affect metal prices.

Commodity-specific events such as the construction of new production facilities or
processes, new uses or the discontinuance of historical uses, unexpected mine or
plant closures (natural disaster, supply disruption, accident, strike, and so forth),
or industry restructuring, all affect metal prices.

Trade policies set by the Government (implementation or suspension of taxes,
penalties, and quotas) affect supply as they regulate (restricting or encouraging)
material flow.

Geopolitical events involving governments or economic paradigms and armed
conflict can cause major changes.

As societies develop, their demand for metal increases based on their current
economic position, which could also be referred as National Economic Growth
Factor.

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CHAPTER 2
REVIEW OF THE LITERATURE & RESEARCH DESIGN

In the previous chapter, theoretical aspects of commodity market in Indian as well as
global context is described. This chapter is to review the literature available in relation
to this study. Further it also deals with the design of the study. Research design is a
purposeful scheme of action proposed to be carried out in a sequence during the
research process focusing the problems and the tools to tackle those problems.

2.1 REVIEW OF LITERATURE

In the subsequent paragraphs, an attempt has been made to review some of the
selected research works carried out by scholars in connection with the perspective of
commodity market and the methodology employed by them to track down their
relative impact over the derivative market & economy.

N. Janardan Rao (2005), in his study Commodity Market On the Growth Path
defines the present commodity market situation with a future perspective, it shows
that the recent bull trend in the commodities markets is creating new hopes in the
investors about their growth prospects. The last two decades have seen an all time low
in the prices of many of the commodities. These low prices are resulting in growing
consumer demand and investments.

Karla Barton (2005), in her study The Concern of the Commodity Industry defines
that the concern of commodity market participants regarding the application of
Second Basel Accord to firms active in the commodity markets.

N. Janardan Rao (2005), in his study Commodity Exchanges: The Growth
Imperatives defines that Commodity exchanges offer many economic benefits in the
form of greater price discovery, risk transfer between heterogeneous market
participants, rationalization of the transaction costs and better margins for the
producers. The explosive growth in the world commodities market has initiated the
setting up of several multi-commodity exchanges in India.
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Raj Kumar (2005), in his study Indian Commodities Market Issues and
Challenges defines that the negative correlation of commodities with respect to
stocks and bonds makes it possible to increase the return on a portfolio. The
increasing need for commodity price risk management is attracting a huge customer
base for the commodity risk management products. The increasing volumes of
commodity derivatives demand efficient regulation with respect to numerous trading
aspects of these instruments.

Luliana Ismailescu (2005), in her study The Benefits of Commodity Investment
defines that the advent of commodity indices and the growth in the commodity
linked assets have increased the commodity based investment products and
encouraged the investors to opt for direct commodity investments. And thats because
still, the risk return pattern in the commodities market are hardly known to the wide
range of investors.

Fischer Black (1975), in his study The Pricing of Commodity Contracts says that
The contract price on a forward contract stays fixed for the life of the contract, while a
futures contract is rewritten every day. The value of a futures contract is zero at the
start of each day. The expected change in the futures price satisfies a formula like the
capital asset pricing model. If changes in the futures price are independent of the
return on the market, the futures price is the expected spot price. The futures market is
not unique in its ability to shift risk, since corporations can do that too. The futures
market is unique in the guidance it provides for producers, distributors, and users of
commodities.

Suchismita Bose (2006), in her study The Indian Derivative Market Revisited says
that Derivatives products provide certain important economic benefits such as risk
management or redistribution of risk away from risk-averse investors towards those
more willing and able to bear risk. Derivatives also help price discover. Given Indias
experience in informal derivatives trading, the exchange traded derivatives were quick
to pick up substantial volumes. This paper presents accounts of the major
developments in the Indian commodity, exchange rate and financial derivatives
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markets, and outlines the regulatory provisions that have been introduced to minimize
misuse of derivatives.

UNCTAD (2009) in the study Development Impact of Commodity Exchanges in
Emerging Markets says that commodity exchange and specific commodity
contracts can be successfully established under a broad range of market conditions.
Exchanges have functioned in economies that are open, but also in economies that are
restricted. They have been established in the context of economic reform, political
transition, and as a function of ongoing market development. Exchanges have
developed in countries where smallholder production is the predominant mode, and in
others where there is a duality between smallholder and commercial production.
Contracts have been developed for commodities that are grown mainly for
consumption in the domestic market, and also for commodities that are mainly
exported to international markets.

Nilanjan Ghosh (2009) in his study Issues and Concerns of Commodity Derivative
Market in India the research and policy community as also the stakeholders of
commodity markets on the issues and concerns of commodity derivative markets in
India, as also set an agenda for research. As can be discerned from the arguments
presented above, issues of commodity markets are multidimensional. Such concerns
cannot merely be addressed in a reductionist framework of financial economics only,
but entail deep thinking in institutional economics, social anthropology, quantitative
methods, as also information systems and data mining. This requires a trans-
disciplinary research framework.

2.2 RESEARCH DESIGN

2.2.1 Statement of the problem
The commodity market in India has witnessed major problems due to the poor
economy, lack of industrial infrastructure and the government regulatory policies.
Prior to the establishment of MCX SX 40 Indian commodity market was prone to
higher degree of risk in relation to the settlement of commodity transactions. The
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unavailability of varied commodity futures contracts across segment including
bullion, ferrous and non-ferrous metals, energy, agri-based and agricultural
commodities were the major drawback of commodity market. In the high risk and
volatile market the absence of hedging instrument like, Futures, Forward, Option,
Swaps, etc were there with the establishment of commodity market in India.

The Indian metal Industry has widely affected by price discrimination and fluctuation
due the availability of the alumina in particular geographic location. There were no
standard structure for the pricing of aluminium and its alloy. The trading volumes of
aluminium in the economy were at very low pace, due to unstructured market. The
primary consumers like, Automobile industry, Logistic, and Packaging etc faces the
problem due to huge gap in demand and supply of finished alloy. The composite
strength of aluminium industry in past MCX era was limited to specific location, the
absence of integrated, optimized and technical support along with poor R&D has
adversely affected the industry in the country. The investment of retail investors in
aluminium sector were not upto satisfaction level prior to the MCX SX 40.

2.2.2 Scope of the study

The scope of the study is limited to analysis of Spot price & Future price variation of
Base metal and Precious metal (i,e. Aluminium, Copper, Gold, Platinum) in the Multi
Commodity Exchange SX 40. The analysis is undertaken using the Spot and
Future trading price of data for the recent five years 2009 2013. Derivative trading
volume analysis is broad area of the study. But due to constraint, the scope of the
study is restricted only to five year trading figure at MCX SX 40. By the analysis an
attempt is made to analyze the growth and development phase of commodity market
in context to Indian economy. The study also throws light upon the paradigm shift of
retail investor from Equity market to Commodity market.

2.2.3 Objectives of the study

The objectives of the study are as under :-
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To Study the Business cycles and their relationship with the commodity economy.

To Analyze the effect of Spot & Future Price in relation to Base Metal & Precious
Metal (Aluminium, Copper, Gold, and Platinum).

To analyze the Commodities trading volume of Base and Precious metal and their
impact on economy.

To explore different Commodity cycles and developing countries and their impact
on the economy.

To find out whether the commodity economy is decoupled from the financial
sector.

Recent trends in global commodity prices and regulatory responses.

To classify the Evolving contours of global regulatory regimes to govern
derivatives .

2.2.4 HYPOTHESIS OF THE STUDY

NULL HYPOTHESIS (H
0
):- There is no significant variation in Spot and
Future price of Base and Precious Metal.

ALTERNATIVE HYPOTHESIS (H
1
):- There is significant variation in Spot
and Future price of Base and
Precious Metal.

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2.2.5 LIMITATIONS

The study covers the aluminium trading for only five years. i,e. 2009 2013.

The study is limited to only Aluminium trading at MCX SX 40.

The detail study could not be done due to time constraint.

2.2.6 CHAPTER SCHEME

The study on MCX SX 40 is organized into five chapters.
Chapter 1 provides an overview of the Indian commodity market which explore the
Base and Precious metal industry and trading at the commodity market, Chapter 2
reviews the literature and the research design in relation to the study, Chapter 3
outlines the industry profile and company profile, Data analysis & interpretation are
carried out at Chapter 4, Finally, Chapter 5 penultimate the summary of findings,
suggestions and conclusions.

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CHAPTER 3
PROFILE OF THE INDUSTRY/COMPANY

In the previous chapter, the literature review and research design are described. Review of the
literature discussed the available in both Indian and Foreign authors in relation to this study.
This chapter is to review the industry profile and company profile.

3.1 INDUSTRY PROFILE

3.1.1 BASE METAL

The base metals mainly comprise of Aluminium, copper, lead and zinc etc along with
associated metals and may be classified as Deficit Category. Even though country is
presently self-sufficient in aluminium, copper and zinc metal production, but in the
long-run, availability of indigenous ores will be a cause of concern because of limited
ore reserves. In addition, there are strategic minerals / metals which are largely
imported. Hence, this group of metals assumes great importance from the point of
view of raw material security for industrial development.

Aluminium is the third most abundant element in the Earths crust. In nature however
it only exists in very stable combinations with other materials. Aluminium is now one
of the most widely used metals, but one of the hardest to refine due to its reactivity
with other elements. Aluminum had discovered in stating of 18th century when Sir
Humphrey Davy (Britain) established the existence of aluminium and named it. And
in mid of 18th centaury Henri SainteClaire Deville (France) improves Wohlers
method to create the first commercial process. The metals price, initially higher than
that of gold and platinum, drops by 90% over the following 10 years. The price is still
high enough to inhibit its widespread adoption by industry. Two unknown young
scientists, Paul Louis Toussaint Hroult (France) and Charles Martin Hall (USA),
invent a new electrolytic process, the HallHroult process, On industrial scale since
1886 when Hall and Hroult independently discovered how to produce aluminum
through electrolysis, which is the basis for all aluminium production today.
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The Indian Copper Industry is classified into two broad categories manufacturers of
refined copper (copper cathodes & rods) and manufacturers of copper products. The
refined copper manufacturers are custom smelters viz, Sterlite Industries and Birla
Copper which process imported copper concentrate to produce copper cathodes and
rods which can be further processed into bars, rods and wires. There are limited
copper deposits in the country owned by the government-owned Hindustan Copper
Limited, which was the only producer in India until 1995. Since then the industry has
transformed significantly with the entry of Sterlite Industries and Birla Copper, now
owned by Hindalco. Of the three manufacturers of refined copper, Hindustan Copper
Limited is the only primary producer which mines and refines copper.

The copper bearing minerals can be classified into 3 groups. The first group contains
primary or hypogene minerals which are formed by processes related to igneous
activities. They are mainly sulphides like chalcopyrite, bornite, energite etc. The
second group comprises the minerals formed by chemical weathering of exposed
sulphide minerals of copper. These are mainly oxides such as Malachite, Azurite,
Chrysocolla, etc. The third group is secondary supergene sulphides. These minerals
are generally formed by copper leached sulphide exposed near the surface of the
earth. Chalcocite, Covellite, Cubanite, etc. are included in this group.

3.1.2 RESERVE AND RESOURCES POSITION

The global requirement for the aluminium is estimated at around 7.4 million tons,
against the consumption in India as only around 110,000 tons. India has nearly 10%
of the world's bauxite reserves and a growing aluminum sector that leverages this.
Demand in the domestic market is expected to grow by 8-10% India is expected to
have an installed aluminum capacity of 1.7 to 2 million tons per annum by 2020.In the
year 2005 the consumption of Aluminium in India of 0.7 kg per person was very low
in keeping with the countries low GDP. However the low per India capita
consumption of aluminum is in fact an opportunity for growth in Aluminium
consumption against the back drop of fast growing economic conditions in India.
However, aluminum consumption has increased 12.6% in 2006 to around 1.08mt.
Consumption is estimated to have increased to a 5 year CAGR of 12.9%. Secondary
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Aluminium demand also shot up to 0.6 MT in the last few years.

India has limited copper ore reserve contributing about 2 % of world reserves. Under
Exploration: Only 20,000 sq.km. area explored out of a potential 60,000 sq.km
Reserve to production and reserve to resource ratio very low. Mining production is
just 0.2% of worlds production, whereas refined copper production is about 4% of
worlds production. It ranks 4th in smelter production and 8th in refined consumption
globally. Indian Refining capacity higher than local demand net exporter of refined
copper. Opportunity to increase ore production through expansion and green field
exploration. Indian Reserves of Copper Ore India has very limited known reserves of
copper ore exploitable for copper production, almost all of it owned by Hindustan
Copper; a government owned company. India has known reserves of copper which is
equivalent to just five years of copper production. India thus has to depend on outside
sources for copper ore.

3.1.3 MAJOR MARKET PLAYER S

a) Base Metal (Aluminium):-

Hindustan Aluminum Company Limited (HINDALCO) :- The Hindustan
Aluminum Corporation Limited was established in 1958 by the Aditya Birla Group.
The company has annual sales of US$ 15 billion and employs around 20,000
people.

It has various Aluminum products with a market share of 42% in primary
Aluminum, 20% in extrusions, 63% in rolled products, 31% in wheel and 44% in
foils.

National Aluminum Company Limited (NALCO) :- The NALCO limited was
incorporated in the year 1981, The unit in Odisha at places like Angul and
Damanjodi. Nalco at present, is concentrating on a capex programme to increase its
production from 345000 tonnes to 460000 tonnes FY .The main units of NALCO are
at Damanjodi (Mines & Refinery complex) and Nalconagar, Angul (Smelter &
Power Plant Complex). The Bauxite mines called Panchpatmalli Mines are
situated atop a set of five mountains called Panchpatmalli.
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Bharat Aluminum Company Limited (BALCO):- The BALCO is an Indian
Aluminum company. It was in the public sector until 2001, when it was taken over
by Vedanta Resources, a company which is listed on the London Stock Exchange.
It was incorporated in 1965 as a Public Sector Undertaking. It is the first public
sector enterprise in India which started producing Aluminum in 1974. Till 2001,
BALCO was a public sector enterprise owned 100% by Government of India. In
2001, GoI divested 51% equity and management control in favor of Sterlite
Industries India Limited.

Madras Aluminum Company Limited (MALCO):- MALCO is headquartered in
Mettur, India. MALCOs equity shares are listed and traded on the NSE and BSE. It
owns 93.9% of MALCOs share capital and has management control of the
company.

Vedenta Aluminum Limited (VAL):- Vedanta Aluminum is headquartered in
Jharsuguda, state of Orissa. Vedanta owns 70.5% of the share capital of Vedanta
Aluminum and Sterlite owns the remaining 29.5% share capital of Vedanta
Aluminum. Vedanta Aluminum produces ingots, billets & wire rods that are sold in
the markets around the world. Vedanta Aluminum Limited (VAL) has acquired
24.5% stake in L & T subsidiary Raykal Aluminum. Based on achieving certain
milestones, VAL will fully acquire Raykal Aluminum in phases.

b) Base Metal (Copper) :-

Hindustan copper Ltd. (HCL): HCL has smelters and refineries at Khetri Nagar
in Rajasthan and at Ghatsila in Jharkhand and a continuous cast wire rod plant at
Taloja in Maharashtra. The total installed smelting capacity of the plants of HCL is
About 51,500 tpy. The capacity of HCLs Continuous Cast Copper Wire Rod Plant
(CCWR) at Taloja is 60,000 tpy.

Sterlite Industries Ltd.: The Sterlite's Copper smelter plant with an installed
capacity of 4, 00,000 tpy of copper anodes, is located at Tuticorin in the coastal belt
of Tamil Nadu. It was commissioned in November, 1996 and is based on 'Isasmelt'
technology using imported concentrates. smelting process adopted in the Sterlite
PRECIOUS METAL


Industries (India) Ltd., Tuticorin, Tamil Nadu.

Hindalco Industries Ltd, (Birla Copper) : The company's smelter commissioned in May,
1998 is located at Lakhigam Vaghera in Dahej Taluka of Bharuch District, Gujarat and is
having a capacity of 5,00,000 tpy copper cathode . It is based on Outokumpu (Finland)
technology.

3.1.4 PRECIOUS METAL

The precious metals includes Gold, Silver, Platinum etc have declined sharply during
2013. The World Banks precious metals price index averaged 17 percent lower for
the entire 2013. The decline marked a reversal of 11 straight years of increasing pre-
cious metal prices and reflects changing perceptions of global risk and inflation, given
golds status as a safe-haven asset. Silver prices averaged 23 percent lower, while
gold and platinum prices declined 15 and 4 percent , respectively, on average for the
year.
Against a background of low and falling inflation, improvements in the global
economic outlook, strong equity market performance, and expectations of the start of
normalization in U.S. monetary policy gold has lost its appeal to investors who rushed
out of the gold exchange-traded funds (ETFs). The holdings of gold by ETFs are
down 33 percent for the year according to data from Bloomberg. In contrast, holdings
of silver and platinum (where physical demand is more important) were up by 2 and
71 percent, respectively. Gold withdrawals were sharpest 2013H1 when outflows
were on order of 5-6 percent per month. The rate of outflows slowed down to about 2
percent per month in the remainder of the year and picked up again in December as
the U.S. Federal Reserve announced its decision to pare back its asset purchases
starting in 2014.As Indias imports of gold have abated, premiums for physical gold
have reportedly climbed to over $100 per oz over the global prices indicating still
strong consumer demand for gold.

Chinas strong physical demand for gold been exceptionally strong in 2013 and it has
overtaken India as the worlds largest gold consumer, according to Thomson Reuters
GFMS survey. Chinese demand grew by 32 percent year-over-year in 2013 and it has
PRECIOUS METAL


increased five-fold since 2003. The weakness in precious metals prices is expected to
persist and the index is expected to average additional 13 percent in 2014 (with gold,
silver, and platinum down by 14, 12, and 6 percent, respectively) as institutional
investors will continue to consider them less attractive safe haven alternatives.
Prices are expected to stabilize in 2015 and decline 1.8 percent for the year. Most
risks are on the downside due to the tapering of bond purchases by the U.S. Federal
Reserve and likely increases in interest rates. Moreover, Indias restrictions on gold
imports to curb its current account deficit may put additional downward pressure on
prices. In addition, continually robust demand from China might not be enough to
counterbalance weak physical demand from India and investors

3.1.5 ISSUES OF BASE & PRECIOUS METAL MARKET

World economic growth.
Demand from countries particularly China and India.
Demand growth rate electronics and telecom industry.
LME, COMEX and Shanghai Copper inventories.
Decline in the real price erode the margins of the firm.
US Dollar movements against other major currencies such as EUR, GBP.
Government regulation on imports and duties.
Interference of government and various associations.
The industry faces the pressure to improve return on investment.

3.1.6 FUTURE PROSPECTUS

The future of the aluminium industry is intrinsically related to the issue of global
warming and emission of greenhouse gases. Production of aluminium is an energy
intensive process and as per the International Aluminium Institute (IAI), new stocks
of aluminium accounts for 1% of total greenhouse gas emissions by humans.
Therefore, a key focus of the industry is the reduction in emissions by promoting
aluminium recycling and expanding use of the metal in automobiles, trains and
aircrafts. Estimates provided by the IAI depict that every kilogram of a heavier
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material that is replaced by aluminium results in the reduction of 22 kilograms of
carbon dioxide over the lifetime of the vehicle. Globally, recycling of aluminium
products is being emphasized as a facilitator of future growth of the industry. Products
such as cans, aluminium foils, plates and automotive components can be easily
recycled thereby saving energy and reducing greenhouse emissions; it is interesting to
note that more than 63% of all aluminium cans are recycled worldwide. Recycling of
aluminium uses only 5% of the energy required for primary production and emits just
5% of the greenhouse gases.

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3.2 COMPANY PROFILE

3.2.1 INTRODUCTION

Indian stock market marks to be one of the oldest stock market in Asia. It dates back
to the close of 18th century when the East India Company used to transact loan
securities. In the 1830s, trading on corporate stocks and shares in Bank and Cotton
presses took place in Bombay. Though the trading was broad but the brokers were
hardly half dozen during 1840 and 1850. Stock exchanges are structured marketplace
where affiliates of the union gather to sell firm's shares and other securities. India
Stock Exchanges can either be a multinational firm or mutual group. Stock Exchanges
are an organized marketplace, both corporation or mutual organization, where
members of the organization gather to trade company stocks and other securities. The
members may act either as agents for their customers, or as principals for their own
accounts.

In India it was an informal group of 22 stockbrokers began trading under a banyan
tree opposite the Town Hall of Bombay from the mid-1850s, each investing a (then)
princely amount of Rupee 1. This banyan tree still stands in the Horniman Circle
Park, Mumbai. In 1860, the exchange flourished with 60 brokers. In fact the 'Share
Mania' in India began with the American Civil War broke and the cotton supply from
the US to Europe stopped. Further the brokers increased to 250. The informal group
of stockbrokers organized themselves as the The Native Share and Stockbrokers
Association which, in 1875, was formally organized as the Bombay Stock Exchange
(BSE).

BSE was shifted to an old building near the Town Hall. In 1928, the plot of land on
which the BSE building now stands (at the intersection of Dalal Street, Bombay
Samachar Marg and Hammam Street in downtown Mumbai) was acquired, and a
building was constructed and occupied in 1930.
MCX SX - 40 is Indias leading commodity futures exchange and offer trading in a
wide range of commodity futures. SX40 is the Flagship index of MCX Stock
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Exchange (MCX-SX). It is a free-float based index of 40 large-cap liquid stocks,
representing diverse sectors of the economy. It refers to our industry as the
commodity futures industry. Futures contracts are derivative products that provide
means for hedging and asset allocation and are prevalent in nearly all sectors of the
global economy. The asset underlying futures contracts could be a physical asset
(such as an agricultural commodity) or a financial asset (such as interest rates, foreign
exchange products and stock indices). A commodity (as traded on an exchange) is an
undifferentiated product whose market value arises from the owners right to sell the
product rather than the right to use the product. Examples of commodities currently
traded globally on exchanges include crude oil, gold, copper and various agricultural
products such as wheat, corn and soybeans. Commodity futures contracts are
commitments to make or accept delivery of a specified quantity and quality of a
commodity at a set time in the future for a price established at the time the
commitment is made. The buyer agrees to take delivery of the underlying commodity,
while the seller agrees to make delivery. In practice, futures markets are rarely used to
actually buy or sell the physical commodity being traded and only a small number of
contracts traded worldwide each year result in delivery of the underlying commodity.
Instead, traders generally offset (a buyer will liquidate by selling the contract, the
seller will liquidate by buying back the contract) their futures positions before their
contracts mature.

Commodity futures contracts are primarily made available through a centralized
trading or computerized matching process, with bids and offers on each contract
traded publicly. Through this process, a prevailing futures market price is reached for
each commodity futures contract, based primarily on the laws of anticipated supply
and demand. Many markets abroad also offer trading in options contracts in
commodities. Options are contracts that provide the buyer the right and the seller the
obligation to buy or sell, respectively, a futures contract at a certain price for a limited
period of time. Under the current Indian regulations, we are not permitted to offer
trading in commodity options. Commodities traded on commodity futures exchanges
are required to be delivered near the specified contract expiry date, depending on the
delivery option, and at the fixed settlement price (due date rate), ignoring all changes
in the market prices. As such, trading in commodity futures allows hedging to protect
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against serious losses in a rising or declining market, speculation for gain in a rising
or declining market and utilizing the arbitrage opportunities available. An effective
and efficient market for trading in commodity futures requires the following:-

Volatility in the prices of the underlying commodities;
Large numbers of buyers and sellers with diverse profiles (e.g., hedgers and
speculators);
Fungibility of the underlying physical commodities;
Efficient and liquid exchange platform; and
Robust risk management and surveillance system.

3.2.2 COMMODITY INDICES

The MCXCOMDEX, which is the Indias first composite commodity futures price
index, along with three group indices. The MCXCOMDEX comprises commodities
included in the three group indices, namely MCXAgri, MCXMetal and MCXEnergy.
The commodities included in each index have been selected on the basis of their
economic importance in terms of their physical market size in the Indian economy
and the turnover for each of these commodities on our Exchange. The following
shows the composition of each index:-

MCXAgri: MCXAgri comprises agricultural commodities such as, soy oil, mentha
oil, chickpea (chana), crude palm oil and cotton seed meal (kapasia
khalli).

MCXMetal: MCXMetal comprises gold, silver copper, aluminium, nickel, zinc
and lead.

MCXEnergy: MCXEnergy presently comprises only crude oil and natural gas.
her energy commodities may be added as they are introduced on
our Exchange.

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3.2.3 OBJECTIVES

SX40 has been designed with the following objectives:
To be the true benchmark of the underlying equity market with well-diversified
representation of overall market sentiments.
To act as a performance benchmark for fund managers.
To facilitate accurate replication of the index and be the preferred index for creation
of index linked products like index funds, ETFs, etc.
To uniquely position the index for efficient derivatives trading owing to superior
liquidity parameters with a diversified representation of the market (using ICB, the
global industry classification system of the FTSE Group).

3.2.4 COMMODITY EXCHANGES IN INDIA

There are currently 21 commodity exchanges and associations which are recognized
by the Government of India and authorized to organize and regulate futures trading in
various commodities. Of these exchanges, 16 are regional or localized exchanges,
which are spread across India. Most of these regional exchanges practice the open-
outcry system. Some of these regional exchanges trade in just a few commodities.
The five national multi-commodity exchanges, namely MCX, NCDEX, NMCE,
ICEX and ACE offer electronic trading in numerous commodity futures contracts.
Four of these exchangesMCX, NCDEX, NMCE and ICEX accounted for 98.8%
of the turnover of commodity futures contracts traded in India during the fiscal 2012.

These five national multi-commodity exchanges (including ACE, which was started
in October 2012) accounted for 99.5% of the turnover of commodity futures contracts
traded in India for the nine months ended December 31, 2010. Multi Commodity
Exchange of India Limited (MCX). Our Company received permanent recognition
from the Government of India to facilitate nationwide online trading, clearing and
settlement operations for commodity futures markets in September 2003. Trading
commenced on our Exchange in November 2003. According to data maintained by
the FMC, for the fiscals 2009 and 2010, and the nine months ended December 31,
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2010, our Company had 87.4%, 82.3% and 83.3% of the market share of the Indian
commodity futures exchange industry, respectively, in terms of the value of
commodities traded in futures markets during the relevant period. According to FMC
data, 40 commodities were traded on MCX for the nine months ended December 31,
2010.

National Commodity and Derivatives Exchange Limited (NCDEX) :- NCDEX
commenced operations in December 2003.

National Multi Commodity Exchange of India Limited (NMCE) :- NMCE was
Indias first demutualised national multi-commodity exchange, having commenced
futures trading in November 2002.

Indian Commodity Exchange Limited (ICEX) :- ICEX received FMC approval
to begin operations as a national bourse in October 2009. On November 27, 2009,
ICEX commenced trading operations. ICEX became the fourth national level
exchange after MCX, NCDEX and NMCE.

ACE Derivatives & Commodity Exchange Limited (ACE) :- Ace Derivatives and
Commodity Exchange, which transformed from a regional exchange to a national
multi commodities futures trading platform, was launched on October 27, 2010.

3.2.5 MARKET PARTICIPANTS

An efficient exchange for commodity futures requires a large number of market
participants with diverse risk profiles. Market participants can be broadly divided into
three categories:
HEDGERS:- Hedgers are generally commercial producers, processors, exporters,
importers and consumers of traded commodities who participate in the commodity
futures market to manage their cash market price risk. As commodity prices are
volatile, participation in the futures markets allow hedgers to protect themselves
against the risk of losses from fluctuating prices. Hedging is a type of insurance
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facility against risk from market price volatility.

SPECULATORS:- Speculators are traders who speculate on the direction of
futures prices with the goal of making a profit. Since speculators participate in
commodity futures market for trading and investment purposes, they typically do
not accept physical delivery of commodities and instead liquidate their positions
prior to or upon expiry of their futures contracts.

ARBITRAGEUR:- Arbitrageurs are traders who simultaneously buy and sell
futures contracts to make money on price differentials across different futures
contracts or markets or exchanges.

3.2.6 BOARD OF DIRECTORS

Mr. Venkat Chary Non-Exe. Chairman & Independent Director, FMC Apprv.
Mr. Jignesh P. Shah Non-Executive Vice Chairman.
Mr. Joseph Massey Non-Executive Director.
Mr. Lambertus (Lamon) Rutten Non-Executive Director
Mr. Paras Ajmera Non-Executive Director, FTIL Nominee
Mr. C. M. Maniar Independent Director, FMC Approved
Mr. Shvetal S. Vakil Independent Director, FMC Approved
Mrs. Usha Suresh* Independent Director, FMC Nominated
Mr. R. M. Premkumar Independent Director, FMC Nominated
Mr. Ravi Kamal Bhargava Independent Director, FMC Nominated
Dr. Prakash Apte Independent Director, FMC Nominated
Mr. Dinesh Kumar Mehrotra** Independent Director, FMC Nominated
Mr. Padmanabh R. Barpande Independent Director
Mr. P. Satish Independent Director, NABARD Nominee
Mr. Shreekant Javalgekar Managing Director & CEO

Company Secretary & Chief Compliance Officer- Mr. P. Ramanathan
Statutory Auditors- Deloitte Haskins and Sells, Chartered Accountants
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Bankers (including clearing banks)
Axis Bank Bank of India
Canara Bank
Citi Bank Corporation Bank
Development Credit Bank
Dhanlaxmi Bank
HDFC Bank
ICICI Bank
IndusInd Bank
Kotak Mahindra Bank
Punjab National Bank
State Bank of India
Tamilnad Mercantile Bank
Union Bank of India
Yes Bank
Registrar and Transfer Agent- Karvy Computershare Private Limited, Hyderabad
Registered Office- Exchange Square, Chakala, Suren Road, Andheri (East), Mumbai

3.2.7 PRODUCTS
At present MCX offered trading in futures contracts for 43 commodities from various
classes including bullion, energy, weather, ferrous and non-ferrous metals and
agriculture. The information on the commodities that are traded on our Exchange are
explained below:-

GOLD: - It offer trading in futures of gold with purity of 995 in trading units of 1
kilogram under our gold contract. We offer three gold futures contracts, namely
gold, gold mini and gold guinea.Our gold mini contract which is, in essence, a
miniversion of our gold contract, offers trading in futures of 995 gold in units of
100 grams. Our gold guinea contract offers the trading of eight-gram gold coins of
at least 99.9% purity and is targeted at retail investors. Our gold futures contracts
specify that the gold to be delivered under such contracts must be serially
numbered gold bars (in the case of our gold and gold mini contracts) and gold coins
(in the case of our gold guinea contract) supplied by London Bullion Market
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Association (LBMA) approved suppliers or other suppliers approved by us and
delivered together with the suppliers quality certificate.

SILVER:- It also offer trading in the futures of silver of at least 999 purity under
three contracts, namely silver, silver mini and silver micro. The silver mini and
silver micro contracts offer trading of silver futures upon the same terms as our
silver contract, but in smaller trading units. The trading unit of our silver contract is
30 kilograms, while our silver mini contract offers silver trading in smaller units of
five kilograms and silver micro contract offers silver trading in smaller units of one
kilogram. Our silver futures contracts specify that the silver traded under such
contracts must only be of a grade and fineness of at least 99.9% (in accordance with
IS 2112: 1981). Silver required to be delivered must be serially numbered silver
bars supplied by LBMA approved suppliers or other suppliers approved by
company.

CRUDE OIL :- Light sweet crude oil futures are traded on our Exchange in units of
100 barrels. The light sweet crude oil must conform to the following quality
specification (defined at 60 degree Fahrenheit): (i) Sulphur: 0.42% by weight or
less; and (ii) American Petroleum Institute (API) Gravity: between 37 to 42
degree.

COPPER :- Copper futures contract with trading units of one metric tonne (MT).
The copper quality specification must be grade 1 electrolytic copper (in accordance
with B115 specification).

NATURAL GAS :- Natural gas futures contract is offered for trading in units of
1,250 million British Thermal Units (mm BTU), of standard pipeline quality.

ZINC MINI :- Zinc is the fourth most widely used metal in the world after steel,
aluminium and copper. The global benchmark zinc futures contracts have been
highly liquid contracts. We offer two types of zinc futures contracts, namely zinc
and zinc mini. The zinc mini contract offers trading of zinc futures upon the same
terms as our zinc contract, but in smaller units of one tonne. The trading unit of our
PRECIOUS METAL


zinc contract is five tonnes. Only zinc ingots (including slabs and plates) of
minimum 99.995% purity can be traded on our Exchange. Our zinc futures contracts
further specify that zinc offered for delivery must confirm to the 99.995% graded
zinc chemical composition of the BS EN 1179:1996 Standard entitled Zinc and
Zinc Alloys Zinc.

Lead Mini: - The lead mini contract offers trading of lead futures upon the same
terms as our lead contract, but in smaller units of one tonne. The trading unit of our
lead contract is five tonnes. Only lead ingots (including pig lead) of minimum
99.97% purity can be traded on our Exchange. The lead must confirm with graded
lead chemical composition of BS EN 12659:1999 Standard entitled Lead and Lead
Alloys Lead.

Aluminum Mini: - MCX offer trading in two types of aluminium futures contracts,
namely aluminium and aluminium mini. The domestic aluminium industry is highly
affected by global aluminium price volatility. The aluminium mini contract offers
trading of aluminium futures on the same terms as our aluminium contract, but in
smaller units of one tonne. The aluminium traded on our Exchange in trading units
of five tonnes and can be in the form of ingots, T-bars or sows of 99.7% purity.

IRON ORE :- Iron ore is one of the most important commodities in the world
today. Iron ore is involved in the production of steel. We offer iron ore futures to
meet the risk management needs of Indian iron ore market participants. The
contract specifications indicate that the commodity is to be traded in units of 100
dry metric tonnes and price is to be quoted ex-Chennai, free on board. As per the
quality specifications, a minimum of 62.0% Fe content fines can be traded. Other
quality specifications relating to its content and size are also specified.

SILVER MICRO :- It offer trading in silver micro futures with a trading unit of 1
kg to meet the risk management needs of Indian retail market participants. The
contract specifications indicate that the commodity is to be quoted ex- Ahemdabad.
Silver can be traded pursuant to the quality specifications of Grade: 999 and
Fineness: 999 (as per IS 2112:1981).
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3.2.8 CLEARING AND SETTLEMENT

Transactions executed on a futures exchange are settled through a clearing house
that guarantees the settlement of trades done through the exchange. Clearing houses
typically facilitate the clearing and settlement process by providing netting. Each
clearing firm must be a clearing member of the exchange. The measures used to
evaluate the strength and efficiency of a clearing house includes the following:-
The number of transactions that are processed per day;
The amount of settlement payments that are handled per day; and
The amount of collateral deposits managed by the clearing house.

3.2.9 TRENDS IN THE INDUSTRY

Globalization, increasingly sophisticated market participants, deregulation, advances
in technology and consolidation are changing the way in which the global futures and
broader commodities and derivatives exchange markets operate. Each of these trends
is described briefly below.

GLOBALISATION:- In recent years, the worlds financial and commodity
derivatives markets have experienced an accelerating pace of globalization. The
emphasis on greater geographic diversification of investments, investment
opportunities in the emerging markets in Asian economies, such as India, Korea and
China, and expanded cross-border commercial activities are leading to increasing
levels of cross-border trading and capital movements. Growth and increasing
standards of living in emerging economies including China and India, are causing
imbalances in supply and demand of industrial and agricultural commodities. In
response to these trends, derivatives exchanges within particular geographic regions
are both expanding access to their markets across borders and consolidating. The
commodity futures exchanges in India have formed strategic alliances globally to
increase the integration of the Indian market with the larger global markets. Foreign
institutional investors, mutual funds and banks may be permitted to participate in
the Indian commodity derivatives markets.
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INCREASINGLY SOPHISTICATED MARKET PARTICIPANTS: - The
Indian commodity derivatives market initially began with physical market
participants predominantly taking membership and now there is an increased
participation of financial market players in the commodity futures market. Global
financial institutions, hedge funds and proprietary trading firms have committed,
and are expected to continue to commit, increasing amounts of capital to trading in
global commodity futures and options on futures contracts.

DEREGULATION:- Deregulation and the opening of markets within the financial
services industry in the United States, Europe and Asia have increased customer
access to products and markets, reduced regulatory barriers to product innovation
and encouraged consolidation. The financial services industry in Europe and Asia
has experienced similar changes in their regulatory regimes. Regulators and
exchanges in number of Asian countries, including India, have encouraged more
developed derivatives markets and liberalization of their markets.

TECHNOLOGICAL ADVANCES AND MIGRATION TO FULLY
ELECTRONIC TRADING MARKETS: - Technological advances have led to
significant changes both to the decentralization of exchanges and the introduction of
alternative trading systems (ATS).
i) Decentralization
ii) Algorithmic Trading / High Frequency Trading.
iii) Direct Market Access. Direct Market Access (DMA)
iv) Co-Location Facility

3.2.10 REGULATION OF INDIAN COMMODITY EXCHANGES

MCX SX- 40 operate in a highly regulated industry. The Forward Contracts
(Regulation) Act, 1952 (FCRA) is the principal legislation for the commodity
futures market in India. The FCRA and the Forward Contracts (Regulation) Rules,
1954 (FCRR) provide for the regulation of commodity futures trading under a
three-tier system, which consists of the following governing bodies:-

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The Department of Consumer Affairs,
FMC; and
An Exchange or Association recognized by the Central Government.

On May 14, 2008, the Department of Consumer Affairs, Ministry of Consumer
Affairs Food and Public Distribution issued revised guidelines to regulate the grant of
recognition to new national commodity exchanges under the provisions of the
Forward Contracts (Regulation) Act, 1952. These guidelines were further amended on
June 17, 2010. It specifies a two-stage process for granting recognition to a new
exchange.

FIRST STAGE :- In the first stage, applications for setting up a nationwide multi-
commodity exchange may be submitted by reputed associations, companies,
organizations or consortia of such entities to the Government through FMC. The
Government, on being satisfied that it would be in the interest of trade and public
good to do so, may grant in-principle approval for setting up of a national multi-
commodity exchange. In-principle approval may be granted to the applicant who
fulfils the prescribed criteria.

SECOND STAGE :-. FMCs guidelines specifies that in the second stage, the
applicant who has been granted an in principle approval will have to comply with the
conditions imposed by the Government within a period of one year from the date of
grant of in-principle approval.

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CHAPTER 4
RESULT, ANALYSIS & INTERPRETATION

In the previous chapter, a brief introduction of industry profile and company profile
are described. This chapter deals with Data Analysis and Interpretation of Base metal
and Precious Metal in the commodity market.

4.1 DATA PRESENTATION

The data collected of Base Metal (Aluminium, Copper) & Precious Metal (Gold,
Platinum)on the basis of Spot Price and Future Price of the metals traded in the
commodity market MCX SX 40 for the period of 5 years i,e. 2009 to 2013.

Table 4.1, Quarterly Average Trading Price Data from 2009 2013
Period Spot
Aluminium
Spot
Copper
Spot
Gold
Spot
Platinum
Future
Aluminum
Future
Copper
Future
Gold
Future
Platinum
2009 Ist 113.586 129.96 23245.978 17694.83 51.709 131.144 11129.289 12485.89
2009
IInd
111.114 179.645 21686.578 15228.22 57.116 190.291 11293.622 14475.89
2009
IIIrd
136.278 229.713 24153.756 16654.56 69.993 230.688 12259.956 15638.44
2009
IVth
100.884 250.301 18795.344 17483.22 74.238 250.978 13353.93 16501.22
2010 Ist 159.851 308.792 25282.167 20924.83 81.197 275.502 13908.94 19282.94
2010
IInd
145.871 260.084 26915.622 19698.67 78.087 271.067 14912.22 20027.17
2010
IIIrd
153.194 291.972 28523.433 19875.94 82.268 287.297 16024.467 19932.89
2010
IVth
162.353 327.806 30487.256 20704.06 83.402 314.744 16186.8 19111.56
2011 Ist 178.918 405.074 31152.222 24114.22 90.661 350.164 16495.1 20478.67
2011
IInd
173.657 346.357 33452.367 21712.17 97.962 349.789 18566.11 20965.11
2011
IIIrd
172.202 357.474 38501.1 22637.94 79.525 296.367 17831.33 18235.78
2011
IVth
164.367 339.602 41612.356 22254.5 82.627 303.948 21816.133 195942.7
2012 Ist 170.13 358.134 39181.256 21633.06 90.237 344.028 23077.32 205384.4
2012
IInd
171.037 356.442 44561 20112.07 89.841 353.333 24098.51 20239.92
2012
IIIrd
162.458 366.106 46214.833 19881.784 88.748 350.624 25423.43 19378.61
2012
IVth
162.366 367.567 44916.433 20051.11 88.973 354.376 25464.178 20107.62
2013 Ist 162.956 364.796 43651.878 19498.25 87.229 345.748 23977.578 20011.29
2013
IInd
155.163 342.559 41179.222 20001.01 87.134 341.102 22994.678 19938.23
2013
IIIrd
169.811 372.717 43600.233 20104.654 91.791 364.72 23710.83 20114.49
2013
IVth
154.932 327.611 41254.967 22067.09 87.524 356.278 22790.3 22241.02
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4.2 DATA ANALYSIS & INTERPRETATION

I. BASE METAL

(A) Aluminium
Table 4.2, Statistical Tools Used For Data Analysis (A1)
S.No. Tools Used Spot
Aluminium
Future
Aluminium
I CORRELATION

a) Descriptive Statistics
Mean 154.056400 82.01310
Std. Deviation 22.0633386 11.468604
N 20 20

b) Correlation
Spot Aluminium #
Pearson 1 0.840
Sum of sqr. Cross Prdct 9249.027 4040.667
Covariance 486.791 212.667

Future Aluminium #
Pearson 0.840 1
Covariance 212.667 131.529

c) Non Parametric Correlation
Kendalls tab
Spot Alumin. Corrl. Coefficient 1.000 0.611
Future Alumin. Corrl. Coefficient 0.611 1.000

Spearmens rho
Spot Alumin. Corrl. Coefficient 1.000 0.789
Future Alumin. Corrl. Coefficient 0.789 1.000

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Table 4.3, Statistical Tools Used For Data Analysis (A2)
S.No. Tools Used Values
II RELIABILITY ANALYSIS

a) Cronbachs Alpha 0.815

b) Cronbachs Alpha based on standardized item 0.913

c) Scale Statistics -
Mean 236.069500
Variance 1043.653
Std. Deviation 32.3056210
No. of Item 2

III REGRESSION ANALYSIS

a) R. Square 0.706

b) Adjusted R Square 0.690

c) Std. error of estimate 12.2831081

d) Change of statistic
F change 43.303
Sig. F change 0.000

IV PAIRED T-TEST

Spot Aluminium & Future Aluminium -
a) Correlation 0.840
b) N 20
c) Sig. .000
d) Mean 72.0433000
e) Std. Dev. 13.8919554
f) Std. error mean 3.1063357
g) t 23.192

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SPOT ALUMINIUM

Figure 1. Spot Price Trend Path of Aluminium

FUTURE ALUMINUM

Figure 2. Future Price Trend Path of Aluminium

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Charts

Chart 1. Normal Distribution Curve in Spot and Future price of Aluminium

INTERPRETATION-

The above table shows a clear picture that, there is correlation between Spot
Aluminium and Future Aluminium price, the output of correlation is 0.840 and it
shows that Spot Aluminium shares 70.56 % of its variability with the Future
Aluminium Price. The result of Non parametric correlation (Kendalls tab and
Spearmens rho ) figures out that the Spot Aluminium Shares 37.33 % and 62.25 % of
its variability in line of (sig. value = 0.000) with Future Aluminium in both the above
mentioned cases. Hence, we would say there is a statistically there is no significant
variation in Spot and Future price of Aluminium.

Using the Reliability Analysis we get the Standardized Cronbachs Alpha value as
0.913 which shows relatively high internal consistency among the values (a reliability
coefficient of .70 or higher is considered "acceptable").

PRECIOUS METAL


The Regression analysis is showing that the relationship between Spot and Future
Price is positive (1.617) and based on the t-value (6.580) and p-value (0.000), we
would conclude this relationship is statistically significant. Hence, we would say
there is a statistically there is no significant variation in Spot and Future price of
Aluminium.

Using Paired T- test the outcome is t(degrees of freedom) = t-value, p = significance
level. In our case this would be: t(19) = 23.192, p = 0.000. it shows that there is
positive probability of this result which means that the relation between the both
variables is good and there is no significant variation in the Spot and Future price of
Aluminium.

PRECIOUS METAL


(b) COPPER
Table 4.4, Statistical Tools Used For Data Analysis (C1)
S.No. Tools Used Spot Copper Future Copper
I CORRELATION

Mean 314.13560 303.10940
Std. Deviation 76.689337 63.180232
N 20 20

b) Correlation
Spot Copper #
Pearson 1 0.953
Covariance 4996.982 4257.227

Future Copper #
Pearson 0.953 1
Covariance 4257.227 3991.742

Kendalls tab
Spot Copper Corrl. Coefficient 1.000 0.716
Future Copper Corrl. Coefficient 0.716 1.000

Spearmens rho
Spot Copper Corrl. Coefficient 1.000 0.830
Future Copper Corrl. Coefficient 0.830 1.000

PRECIOUS METAL


Table 4.5, Statistical Tools Used For Data Analysis (C2)


b) Croncbachs Alpha based on standardized item 0.976

Mean 671.2450
Variance 17503.178
No. of Item 2


a) R. Square 0.909



F change 178.985
Sig. F change 0.000

IV PAIRED T-TEST

Spot Copper & Future Copper -
b) N 20
c) Sig. .000
d) Mean 11.026200
e) Std. Dev. 21.77736
g) t 2.264

PRECIOUS METAL


SPOT COPPER

Figure 3. Spot Price Trend Path of Copper

FUTURE COPPER

Figure 4. Future Price Trend Path of Copper

PRECIOUS METAL


Charts

Chart 2. Normal Distribution Curve in Spot and Future price of Copper

INTERPRETATION-

The above table shows a clear picture that, there is correlation between Spot and
Future Copper price, the output of correlation is 0.953 and it shows that Spot Copper
shares 90.82 % of its variability with the Future Copper Price. The result of Non
parametric correlation (Kendalls tab and Spearmens rho ) figures out that the Spot
Copper Shares 51.26 % and 68.89 % of its variability in line of (sig. value = 0.000)
with Future Copper in both the above mentioned cases. Hence, we would say there is
a statistically there is no significant variation in Spot and Future price of Copper.


PRECIOUS METAL


there is a statistically there is no significant variation in Spot and Future price of
Copper.

level. In our case this would be: t(19) = 2.264, p = 0.035. it shows that there is relative
low probability of this result though the mean of variable is showing good relation
which means that the relation between the both variables is stable, so it can assume
that there is no significant variation in the Spot and Future price of Copper.

PRECIOUS METAL


II. PRECIOUS METAL

(A) GOLD
Table 4.6, Statistical Tools Used For Data Analysis (G1)
S.No. Tools Used Spot Gold Future Gold
I CORRELATION

Mean 34418.40005 18765.7365
Std. Deviation 9012.525895 5003.464009
N 20 20

b) Correlation
Spot Gold #
Pearson 1 0.969
Covariance 81225623.00 43695581.88

Future Gold #
Pearson 0.969 1
Covariance 436955981.88 25034652.08

Kendalls tab
Spot Gold Corrl. Coefficient 1.000 0.847
Future Gold Corrl. Coefficient 0.847 1.000

Spearmens rho
Spot Gold Corrl. Coefficient 1.000 0.917
Future Gold Corrl. Coefficient 0.917 1.000

PRECIOUS METAL


Table 4.7, Statistical Tools Used For Data Analysis (G2)



Mean 53184.13610
Variance 193651438.855
No. of Item 2


a) R. Square 0.939



F change 276.819
Sig. F change 0.000

IV PAIRED T-TEST

Spot Gold & Future Gold -
b) N 20
c) Sig. .000
d) Mean 15652.664000
e) Std. Dev. 4343.859036
g) t 16.115

PRECIOUS METAL


SPOT GOLD

Figure 5. Spot Price Trend Path of Gold

FUTURE GOLD

Figure 6. Future Price Trend Path of Gold

PRECIOUS METAL


Charts

Chart 3. Normal Distribution Curve in Spot and Future price of Gold

INTERPRETATION-

The above table shows a clear picture that, there is correlation between Spot and
Future Gold price, the output of correlation is 0.969 and it shows that Spot Gold
shares 93.89 % of its variability with the Future Gold Price. The result of Non
parametric correlation (Kendalls tab and Spearmens rho ) figures out that the Spot
Gold Shares 71.74 % and 84.08 % of its variability in line of (sig. value = 0.000)
with Future Gold in both the above mentioned cases. Hence, we would say there is a
statistically there is no significant variation in Spot and Future price of Gold.


PRECIOUS METAL


there is a statistically there is no significant variation in Spot and Future price of Gold.

level. In our case this would be: t(19) = 16.15, p = 0.000. it shows that there is
positive probability of this result which means that the relation between the both
variables is good and there is no significant variation in the Spot and Future price of
Gold.

PRECIOUS METAL


(B) PLATINUM

Table 4.8, Statistical Tools Used For Data Analysis (P1)
S.No. Tools Used Spot Platinum Future Platinum
I CORRELATION

Mean 20116.60940 37024.6920
Std. Deviation 2126.604900 56033.69535
N 20 20

b) Correlation

Spot Platinum #
Pearson 1 0.322
Covariance 4522448.400 38379150.216

Future Platinum #
Pearson 0.322 1
Covariance 38379150.216 319775014.115

Kendalls tab
Spot Platinum Corrl. Coefficient 1.000 0.505
Future Platinum Corrl. Coefficient 0.505 1.000

Spearmens rho
Spot Platinum Corrl. Coefficient 1.000 0.659
Future Platinum Corrl. Coefficient 0.659 1.000

PRECIOUS METAL


Table 4.9, Statistical Tools Used For Data Analysis (P2)



Mean 57141.30140
Variance 3221055762.94
No. of Item 2


a) R. Square 0.104



d) Change of statistic-
F change 2.083
Sig. F change 0.166

IV PAIRED T-TEST

Spot Platinum & Future Platinum -
b) N 20
c) Sig. 0.166
d) Mean 16908.082600
e) Std. Dev. 55385.369567
g) t -1.365

PRECIOUS METAL


SPOT PLATINUM

Figure 7. Spot Price Trend Path of Platinum

FUTURE PLATINUM

Figure 8. Future Price Trend Path of Platinum

PRECIOUS METAL


Charts

Chart 4. Normal Distribution Curve in Spot and Future price of Platinum

INTERPRETATION-

The above table shows a clear picture that, there is relatively low correlation between
Spot and Future Platinum price, the output of correlation is 0.322 which shows that
Spot Platinum shares 10.36 % of its variability with the Future Platinum Price. The
result of Non parametric correlation (Kendalls tab and Spearmens rho ) figures out
that the Spot Platinum Shares 25.50 % and 43.43 % of its variability in line of (sig.
value = 0.166) with Future Platinum in both the above mentioned cases. Hence, we
would say there is a statistically there is significant variation in Spot and Future price
of Copper.

0.487 which shows very less internal consistency among the values (a reliability
coefficient of .70 or higher is considered "acceptable") and which says that the values
are not reliable.
PRECIOUS METAL


would conclude this relationship is not statistically significant. Hence, we would say
there is a statistically there is significant variation in Spot and Future price of
Platinum.

level. In our case this would be: t(19) = -1.365 , p = 0.182. it shows that there is
negative probability of this result which means that the relation between the both
variables is not reliable and there is significant variation in the Spot and Future price
of Platinum.

PRECIOUS METAL


4.3 COMPARATIVE DATA ANALYSIS & INTERPRETATION
I. ALUMINIUM & COPPER
Table 4.10, Statistical Tools Used For Data Analysis (AC1)
S.No. Tools Used Sp ALU Fu ALU Sp CPR Fu CPR
I CORRELATION

Mean 154.05640 82.01310 314.13560 303.10940
Std. Deviation 22.063339 11.468604 70.689337 63.180232
N 20 20 20 20

b) Correlation

Spot Aluminium #
Pearson 1 0.840 0.889 0.824
Sum of sqr.
Cross Prdct
924.027 4040.667 26332.822 21821.716
Covariance 486.791 212.607 1385.938 11481.511

Future Aluminium #
Pearson 0.840 1 0.932 0.969
Sum of sqr. Cross
Prdct
4040.667 2499.049 14350.585 13343.966
Covariance 212.667 131.529 755.294 702.314

Spot Copper #
Pearson 0.889 0.932 1 0.953
Sum of sqr. Cross
Prdct
26332.822 14350.585 94942.665 80887.316
Covariance 1385.938 755.294 4996.982 4257.227

Future Copper #
Pearson 0.824 0.969 0.953 1
Sum of sqr. Cross
Prdct
21821.716 13343.966 80887.316 75843.093
Covariance 11481.511 702.314 4257.277 3991.742


Kendalls tab
Sp ALU Corrl. Coefficient 1.000 0.611 0.632 0.474
Fu ALU Corrl. Coefficient 0.611 1.000 0.705 0.779
Sp CPR Corrl. Coefficient 0.632 0.705 1.000 0.716
Fu CPR Corrl. Coefficient 0.474 0.779 0.716 1.000

Spearmens rho

PRECIOUS METAL


Table 4.11, Statistical Tools Used For Data Analysis (AC2)




Mean 853.31450
Variance 26530.946
No. of Item 4


a) R. Square (a & b) 0.868 0.940

b) Adjusted R Square (a & b) 0.861 0.933

c) Std. error of estimate (a & b) 4.281469 2.66995

F change (a & b) 118.329 20.482
Sig. F change (a & b) 0.000 0.000

IV PAIRED T-TEST

Spot Aluminium & Spot Copper -
b) N 20
c) Sig. 0.000
d) Mean -160.079200
e) Std. Dev. 52.075880
g) t -13.747

Future Aluminium & Future Copper -
b) N 20
c) Sig. 0.000
d) Mean -221.096300
e) Std. Dev. 52.140604
g) t -18.964
PRECIOUS METAL


Charts
Chart 5. Normal Distribution Curve in Spot & Future price of Aluminium & Copper

INTERPRETATION-

The above table shows a clear picture that, there is relatively high correlation between
Spot price of Aluminium & Copper , the output of correlation is 0.889 and it shows
that Spot Aluminium shares 79.03 % of its variability with Spot Copper Price. In a
same manner Future Aluminium & Copper shows a higher correlation value as 0.969
and it shows that Future Aluminium shares 93.87 % of its variability with Future
Copper Price. The result of Non parametric correlation (Kendalls tab and
Spearmens rho ) figures out that the correlation value for the Spot Aluminium &
Copper, Future Aluminium & Copper Prices ranges between 0.634 to 0.969 which
means that Spot Price shares its variability with Future Price ranging between 40.20
% to 93.89 % Hence, we would say there is a statistically there is no significant
variation in Spot - Future price of Aluminium and Copper .

PRECIOUS METAL


The Regression analysis is showing that there is relative relationship between Spot
and Future Price is positive (0.151 & 0.161) and based on the t-value (10.878 &
4.256) and p-value (0.000), we would conclude this relationship is statistically
significant. Hence, we would say that statistically there is no significant variation in
Spot and Future price of Aluminium and Copper.

level. In our case this would be: t(19) = -13.747 & -18.964 , p = 0.000. it shows that
there is positive probability of this result which means that the relation between the
both variables is good, which shows there is no significant variation in the Spot and
Future price of both metal.

PRECIOUS METAL


II. COPPER & GOLD
Table 4.12, Statistical Tools Used For Data Analysis (CG1)
S.No. Tools Used Sp CPR Fu CPR Sp GLD Fu GLD
I CORRELATION

Mean 314.13560 303.10940 34418.4000 18765.73605
Std. Deviation 70.689337 63.180232 9012.52589 5003.464009
N 20 20 20 20

b) Correlation

Spot Copper #
Pearson 1.000 0.953 0.768 0.779
Sum of sqr.
Cross Prdct
94942.665 80887.316 9299714.41 5237462.62
Covariance 4996.982 4257.227 489458.653 275655.928

Future Copper #
Pearson 0.953 1.000 0.797 0.846
Sum of sqr. Cross
Prdct
80887.316 7583.093 8618060.59 5078619.65
Covariance 4257.227 3991.742 453582.137 267295.771

Spot Gold #
Pearson 0.768 0.797 1.000 0.969
Sum of sqr.
Cross Prdct
9299714.41 8618060.59 154328683. 830216055.80
Covariance 489458.653 453582.137 81225623.0 43695581.88

Future Gold #
Pearson 0.779 0.846 0.969 1.000
Sum of sqr. Cross
Prdct
5237462.62 5078619.65 830216055. 475658389.7
Covariance 275655.92 267295.77 43695581.8 250346520.9


Kendalls tab
Sp GLD Corrl. Coefficient 0.611 0.663 1.000 0.847
Fu GLD Corrl. Coefficient 0.695 0.747 0.874 1.000

Spearmens rho

PRECIOUS METAL


Table 4.13, Statistical Tools Used For Data Analysis (CG2)




Mean 53801.38110
Variance 196640927.0
No. of Item 4


a) R. Square 0.635 0.723

b) Adjusted R Square 0.614 0.91

c) Std. error of estimate 39.241351 35.126078

F change 31.252 5.465
Sig. F change 0.000 0.032

IV PAIRED T-TEST

Spot Copper & Spot Gold -
b) N 20
c) Sig. 0.000
d) Mean -34104.2644
e) Std. Dev. 8958.331467
g) t -17.025

Future Copper & Future Gold -
b) N 20
c) Sig. 0.000
d) Mean -18462.6267
e) Std. Dev. 4950.156794
g) t -16.680

PRECIOUS METAL


Charts
Chart 6. Normal Distribution Curve in Spot & Future price of Copper and Gold

INTERPRETATION-

The above table shows a clear picture that, there is stable correlation between Spot
price of Copper & Gold, the output of correlation is 0.768 and it shows that Spot
Copper shares 58.98 % of its variability with Spot Gold Price. In a same manner
Future Copper & Gold shows a high correlation value as 0.846 and it shows that
Future Copper shares 93.87 % of its variability with Future Gold Price. The result of
Non parametric correlation (Kendalls tab and Spearmens rho ) figures out that the
correlation value for the Spot Copper & Gold, Future Copper & Gold Prices ranges
between 0.611 to 0.971 which means that Spot Price shares its variability with Future
Price ranging between 37.33 % to 94.84 % Hence, we would say there is a statistically
there is no significant variation in Spot - Future price of Copper and Gold .

PRECIOUS METAL


The Regression analysis is showing that there is low relationship between Spot and
Future Price is positive (0.006 & .015) and based on the t-value (5.590 & 2.338) and
p-value (0.000 & -0.032.), we would conclude this relationship is statistically
significant but with presence of negative value it shows that the spot and future prices
are not highly reliable. we would say there is a statistically there is no significant
variation in Spot and Future price of Copper and Gold.

level. In our case this would be: t(19) = -17.032 & - 16.729, p = 0.000. it shows that

PRECIOUS METAL


II. ALUMINIUM & GOLD
Table 4.14, Statistical Tools Used For Data Analysis (AG1)
S.No. Tools Used Sp ALU Fu ALU Sp GLD Fu GLD
I CORRELATION

Mean 154.05640 82.01310 34418.4000 18765.7365
Std. Deviation 22.063339 11.468604 9012.5258 5003.46009
N 20 20 20 20

b) Correlation

Spot Aluminium #
Pearson 1.000 0.840 0.719 0.656
Sum of sqr.
Cross Prdct
9249.027 4040.667 2716577.66 1375788.30
Covariance 486.791 212.667 142977.772 72409.911

Future Aluminium #
Pearson 0.840 1.000 0.694 0.754
Sum of sqr. Cross
Prdct
404.667 2499.049 1362278.75 821950.74
Covariance 212.667 131.529 71698.882 43260.565

Spot Gold #
Pearson 0.719 0.634 1.000 0.969
Sum of sqr. Cross
Prdct
2716577.66 1362278.75 154328683 830216055
Covariance 142977.772 71698.882 81225623.0 43695581.8

Future Gold #
Pearson 0.656 0.754 0.969 1.000
Sum of sqr. Cross
Prdct
1375788.30 821950.74 830216055 475658389
Covariance 72409.911 43260.565 43695581.8 25034652.1


Kendalls tab

Spearmens rho

PRECIOUS METAL


Table 4.15, Statistical Tools Used For Data Analysis (AG2)




Mean 53420.20560
Variance 194313176.80
No. of Item 4


a) R. Square 0.481 0.591

b) Adjusted R Square 0.452 0.542

c) Std. error of estimate 8.487075 7.757843

F change 16.694 4.543
Sig. F change 0.001 0.048

IV PAIRED T-TEST

Spot Aluminium & Spot Gold -
b) N 20
c) Sig. 0.000
d) Mean -34264.3436
e) Std. Dev. 8996.674622
g) t -17.032

Future Aluminium & Future Gold -
b) N 20
c) Sig. 0.000
d) Mean -18683.7230
e) Std. Dev. 4994.823569
g) t -16.729

PRECIOUS METAL


Charts
Chart 7. Normal Distribution Curve in Spot & Future price of Aluminium & Gold

INTERPRETATION-

The above table shows a clear picture that, there is stable correlation between Spot
price of Aluminum & Gold, the output of correlation is 0.719 and it shows that Spot
Aluminium shares 51.70 % of its variability with Spot Gold Price. In a same manner
Future Aluminium & Gold shows quite similar correlation value as 0.754 and it shows
that Future Aluminium shares 56.87 % of its variability with Future Gold Price. The
result of Non parametric correlation (Kendalls tab and Spearmens rho ) figures out
that the correlation value for the Spot Copper & Gold, Future Copper & Gold Prices
ranges between 0.411 to 0.971 which means that Spot Price shares its variability with
Future Price ranging between 16.90 % to 94.84 % Hence, we would say there is a
statistically there is no significant variation in Spot - Future price of Aluminium and
Gold .

PRECIOUS METAL


The Regression analysis is showing that there is low relationship between Spot and
Future Price is positive (0.1 & .003) and based on the t-value (4.086 & 2.131) and p-
value (0.000 & 0.048), we would conclude this relationship is statistically significant
but with presence of relatively low value it shows that the spot and future prices are
not highly reliable. we would say there is a statistically there is no significant
variation in Spot and Future price of Aluminium and Gold.

level. In our case this would be: t(19) = -17.025 & -16.680, p = 0.000. it shows that

4.4 ACCEPTABILITY OF HYPOTHESIS -

From the above analysis of the data, after interpreting the Spot & Future prices of
Base and Precious Metal individually and combined, in both the cases the outcome is
positive. In this analysis it is clear that Null Hypothesis (H
0
) is accepted because there
is no difference among the spot and future prices of metals henceforth I conclude
that Null Hypothesis (H
0
) There is no significant variation in Spot and Future price
of Base and Precious Metal.

NOTE :- In the comparative Data analysis Platinum has been excluded from the
analysis because the metal shows a high variation in the prices, and
which makes the metal highly unreliable for hypothesis testing as well
as suitable for safe investment avenues.

PRECIOUS METAL


CHAPTER 5
FINDINGS, SUGGESTIONS AND CONCLUSION

In the previous chapter, the data has been analyzed with the help of various statistical tools to
prove the hypothesis based of the analysis and interpretation of Base and Precious Metals. In
this chapter Findings, Suggestions, and Conclusion is given based on the above study of both
the metals.

5.1 FINDINGS -

The Indian commodity market is in its preliminary stage, the growth phase has just
started and that is the reason for slow shift of investors mind toward the
commodity market as an option for Investment Avenues.

The establishment of MCX SX 40 has directly and indirectly played a vital role in
the development of commodity market in India. Its ecosystem generates a large
number of employment / self-employment / business opportunities that were not in
existence before the emergence of Commodity Exchange in the market.

Aluminium industry in India has shown a down slide in the Total consumption
because of down fall in the global market, and even due to shortage of Captive
Bauxite Mines by the five major market player (NALCO, BALCO, VAL,
MALCO, HINDALCO) the target production could not be achieved whereas in the
same period has shown a healthy and positive growth curve of 8 10 % in relation
with future growth prospects.

The chart shows that the spot and future aluminium prices intersect each other at
some point and we can infer that speculation is nil in aluminium industry.

The copper industry in India has been primarily dominated by a few major players,
due to stringency and policy by government the opportunities for new entrants are
negligible and which is main cause of low growth phase of the industry.

PRECIOUS METAL


The market share of Indian copper industry in the global scenario accounts to be
very little as it shares only 2% in total copper reserve and 4.2% to 7% in total
production.

The trend chart of spot copper shows a slight downward movement because of less
demand in global market, whereas with a prediction of significant future growth
and development future prices have an upward trend projection.

The consumer market of precious metals like gold and silver have diversified from
being restricted only to jewelry and ornaments, towards the consumption by
automobile and telecommunication sector. The usage has varied from
manufacturing to various other industrial products.

Gold is a precious mental which is highly speculative in nature and so there is no
correlation between the spot and future gold prices.

The absence and negligence of proper knowledge and relatively a product for niche
market, so far platinum has not been considered as a profitable investment avenue
for the retail investors. The market is having its presence for a long time, but even
though it plots a Zero growth opportunity trend.

The comparative analysis of Aluminium and Copper drafts a figure that collectively
as a portfolio for investment both metals have vital market for new entrants to have
their investment. Here it is worth to mention that collectively both metals have
shown a higher reliability value as compare to other metals.

The analysis of Copper and Gold has shown a relatively stable market condition for
the investors. The combination of both metal shows a clear figure that even though
it will give good ROI (Return On Investment) it is not promising for higher return
in long run.

The investment portfolio consist of Aluminium and Gold have a much better and
vital growth trend as compare to other, and the reason behind is that both the
PRECIOUS METAL


metals is having a continuous industrial demand. But because of speculation
effects hampering the gold market, It is relatively a high risk portfolio for the
investment. Though as said with high risk, it promise a higher return.

5.2 SUGGESTION -

Since Indian commodity market is in its preliminary stage, government should
come up with the orientation programme for the investors, to have a diversified
investment portfolio which include the commodity derivatives.

The aluminium industry has suffered a unexpected fall in global demand, it is
necessary to promote the domestic consumption. At the same time it is necessary
to strategically increase the number of captive bauxite mines, which are the main
sources of raw material for the major market player.

It is necessary for the amendment in the government policy, which restricts the
allocation of copper ores to a few market players and even these regulations are the
main cause which dont allow a new player to entre in the market.

There is a need for detailing of the national mineral inventory so as to allow the
investor to get adequate information for taking up investment decisions.

The Government can take steps to reduce the import duty on gold so that as to
minimize the speculative impact on its prices.

As far as platinum is concerned, since its use is very limited, the speculative effect
on future price is almost nil.

5.3 CONCLUSION -

The Study of commodity trading price of Base & Precious Metal has done to explore
the market scenario of the Indian Commodity Exchange and its Indices. Since the
Indian commodity market is in its initial phase the potential effects and impact on the
PRECIOUS METAL


economy is not seen in a broad manner, neither it has been considered as the preferred
investment avenues for the small and retail investors. During the study several facts
reveals that the potential of Indian Commodity Market is high and suitable for small
investors.

In the study a thorough effort has been done to bring out the relation between the Spot
and Future Price of the Base & Precious Metals. And which shows that the base metal
are having a quite similar price trend in comparison to precious metal which is again
due to the effect of industrial demand and speculative tools in the markets. The
outcome significantly proves that clubbing the metal in a portfolio can be the best
option and decision to avail a good ROI (Return On Investment).

While performing the analysis and interpretation Both the metals, the outcome drafts
the outline that Aluminium and copper are industry products its std. dev is 33.53 &
133.86 respectively (within 14.20 to 21.08 % of the mean). It shows that supply and
demand of aluminium and copper is constant and no speculation exists. The future
and spot trading will be apt for industry to ensure the supply of these metals
consistency but for an old investor gold may be better due to the rapid changes in the
price in line with the sensex and the market scenario. The Std. dev of gold is 14015.89
(within 26.35 % of the mean) is higher and hence there is a possibility for profit
generation if we invest ins it along with a high rate of risk due to market volatility and
due to speculation.

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