1

INTRODUCTION
1.1 COMMODITY MARKET Commodity Market, is an organized traders' exchange in which standardized, graded products are bought and sold. Worldwide, there are 48 major commodity exchanges that trade over 96 commodities, ranging from wheat and cotton to silver and oil. Most trading is done in futures contracts, that is, agreements to deliver goods at a set time in the future for a price established at the time of the agreement. Futures trading allows both hedging to protect against serious losses in a declining market and speculation for gain in a rising market. For example, a seller may sign a contract agreeing to deliver grain in two months at a set price. If the grain market declines at the end of two months, the seller will still get the higher price quoted in the futures contract. If the market rises, however, speculators buying grain stand to profit by paying the lower contract price for the grain and reselling it at the higher market price. Spot contracts, a less widely used form of trading, call for immediate delivery of a specified commodity and are often used to obtain the goods necessary to fulfill a futures contract. An independent U.S. regulatory agency, the Commodity Futures Trading Commission was established in 1974 to regulate commodity markets. In 1982, the Chicago Mercantile Exchange introduced a futures contract for Standard & Poor's 500 U.S. companies that allows investors to speculate on the future prices of those stocks. Trading of S&P 500 and other financial futures has broken down some of the barriers that once separated stock, bond, and commodity markets and made it easier for investors to hedge their stock investments. Critics charge that the futures trading at the commodity markets in Chicago has made stock prices more volatile. The Chicago Board of Trade is the largest futures and options exchange in the United States, the largest in the world is Eurex, an electronic European exchange.

2 Overview of commodities exchanges in India Forward Markets Commission (FMC) headquartered at Mumbai is a regulatory authority, which is overseen by the Ministry of Consumer Affairs and Public Distribution, Govt. of India. It is a statutory body set up in 1953 under the Forward Contracts (Regulation) Act, 1952. "The Act Provides that the Commission shall consist of not less then two but not exceeding four members appointed by the Central Government out of them being nominated by the Central Government to be the Chairman there of. Currently Commission comprises three members among whom Dr. Kewal Ram, IES, is acting as Chairman and Smt. Padma Swaminathan, and Dr. (Smt.) Jayashree Gupta, are the Members of the Commission." The functions of the Forward Markets Commission are as follows: (a) To advise the Central Government in respect of the recognition or the withdrawal of recognition from any association or in respect of any other matter arising out of the administration of the Forward Contracts (Regulation) Act 1952. (b) To keep forward markets under observation and to take such action in relation to them, as it may consider necessary, in exercise of the powers assigned to it by or under the Act. (c) To collect and whenever the Commission thinks it necessary, to publish information regarding the trading conditions in respect of goods to which any of the provisions of the act is made applicable, including information regarding supply, demand and prices, and to submit to the Central Government, periodical reports on the working of forward markets relating to such goods;

(d) To make recommendations generally with a view to improving the organization and working of forward markets; (e) To undertake the inspection of the accounts and other documents of any recognized association or registered association or any member of such association whenever it considerers it necessary.

3 The list of exchanges that has been allowed to trade in commodities are 1. Bhatinda Om & Oil Exchange Ltd., Bhatinda. 2. The Bombay Commodity Exchange Ltd.Mumbai 3. The Rajkot Seeds oil & Bullion Merchants` Association Ltd 4. The Kanpur Commodity Exchange Ltd., Kanpur 5. The Meerut Agro Commodities Exchange Co. Ltd., Meerut 6. The Spices and Oilseeds Exchange Ltd. 7. Ahmedabad Commodity Exchange Ltd. 8. Vijay Beopar Chamber Ltd.,Muzaffarnagar 9. India Pepper & Spice Trade Association. Kochi 10. Rajdhani Oils and Oilseeds Exchange Ltd. , Delhi 11. National Board of Trade. Indore. 12. The Chamber Of Commerce, Hapur 13. The East India Cotton Association Mumbai. 14. The Central India Commercial Exchange Ltd, Gwaliar 15. The East India Jute & Hessian Exchange Ltd, 16. First Commodity Exchange of India Ltd, Kochi 17. Bikaner Commodity Exchange Ltd., Bikaner 18. The Coffee Futures Exchange India Ltd, Bangalore. 19. Esugarindia Limited. 20. National Multi Commodity Exchange of India Limited. (NMCE) 21. Surendranagar Cotton oil & Oilseeds Association Ltd, 22. Multi Commodity Exchange of India Ltd. (MCX) 23. National Commodity & Derivatives Exchange Ltd. (NCDEX) 24. Haryana Commodities Ltd., Hissar 25. e-Commodities Ltd. Out of these 25 commodities the MCX, NCDEX and NMCE are large exchanges and MCX is the biggest among them.

4 National Commodity & Derivatives Exchange Limited (NCDEX) is a professionally managed online multi commodity exchange promoted by ICICI Bank Limited (ICICI Bank), Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE). Punjab National Bank (PNB), CRISIL Limited (formerly the Credit Rating Information Services of India Limited), Indian Farmers Fertiliser Cooperative Limited (IFFCO) and Canara Bank by subscribing to the equity shares have joined the initial

promoters as shareholders of the Exchange. NCDEX is the only commodity exchange in the country promoted by national level institutions. This unique parentage enables it to offer a bouquet of benefits, which are currently in short supply in the commodity markets. The institutional promoters of NCDEX are prominent players in their respective fields and bring with them institutional building experience, trust, nationwide reach, technology and risk management skills. NCDEX is a public limited company incorporated on April 23, 2003 under the Companies Act, 1956. It obtained its Certificate for Commencement of Business on May 9, 2003. It has commenced its operations on December 15, 2003. NCDEX is a nation-level, technology driven de-mutualized on-line commodity exchange with an independent Board of Directors and professionals not having any vested interest in commodity markets. It is committed to provide a world-class commodity exchange platform for market participants to trade in a wide spectrum of commodity derivatives driven by best global practices, professionalism and transparency. NCDEX is regulated by Forward Market Commission in respect of futures trading in commodities. Besides, NCDEX is subjected to various laws of the land like the Companies Act, Stamp Act, Contracts Act, Forward Commission (Regulation) Act and various other legislations, which impinge on its working. NCDEX is located in Mumbai and offers facilities to its members in more than 550 centres throughout India. The reach will gradually be expanded to more centres. NCDEX currently facilitates trading in 45 commodities - Cashew, Castor Seed, Channa, Chilli, Coffee - Arabica, Coffee - Robusta, Common Parboiled Rice, Common

5 Raw Rice, Cotton Seed Oilcake, Crude Palm Oil, Expeller Mustard Oil, Groundnut (with shell), Groundnut Expeller Oil, Grade A Parboiled Rice, Grade A Raw Rice, Guar gum, Guar Seeds, Gur, Jeera, Jute sacking bags, Indian 28 mm Cotton , Indian 31 mm Cotton, Lemon Tur, Maharashtra Lal Tur, Masoor Grain Bold, Medium Staple Cotton, Mentha Oil , Mulberry Green Cocoons , Mulberry Raw Silk , Rapeseed - Mustard Seed, Pepper, Raw Jute, RBD Palmolein, Refined Soy Oil , Rubber, Sesame Seeds, Soy Bean, Sponge Iron, Sugar, Turmeric, Urad (Black Matpe), V-797 Kapas, Wheat, Yellow Peas, Yellow Red Maize, Yellow Soybean Meal, Electrolytic Copper Cathode, Mild Steel Ingots, Sponge Iron, Gold, Silver, Brent Crude Oil, Furnace Oil. At subsequent phases trading in more commodities would be facilitated. MCX an independent and de-mutulised Multi Commodity Exchange has permanent recognition from Government of India for facilitating online trading, clearing and settlement operations for commodity futures markets across the country. Key shareholders of MCX include Financial Technologies (I) Ltd., State Bank of India (Indias largest commercial bank) & associates, Fidelity International, National Stock Exchange of India Ltd. (NSE), National Bank for Agriculture and Rural Development (NABARD), HDFC Bank, SBI Life Insurance Co. Ltd., Union Bank of India, Canara Bank, Bank of India, Bank of Baroda and Corporation Bank. Headquartered in Mumbai, MCX is led by an expert management team with deep domain knowledge of the commodity futures markets. Through the integration of dedicated resources, robust technology and scalable infrastructure, since inception MCX has recorded many first to its credit. Inaugurated in November 2003 by Shri Mukesh Ambani, Chairman & Managing Director, Reliance Industries Ltd, MCX offers futures trading in the following commodity categories: Agri Commodities, Bullion, Metals- Ferrous & Non-ferrous, Pulses, Oils & Oilseeds, Energy, Plantations, Spices and other soft commodities. MCX has built strategic alliances with some of the largest players in commodities eco-system, namely, Bombay Bullion Association, Bombay Metal Exchange, Solvent

6 Extractors' Association of India, Pulses Importers Association, Shetkari Sanghatana, United Planters Association of India and India Pepper and Spice Trade Association. Today MCX is offering spectacular growth opportunities and advantages to a large cross section of the participants including Producers / Processors, Traders, Corporate, Regional Trading Centers, Importers, Exporters, Cooperatives, Industry Associations, amongst others MCX being nation-wide commodity exchange, offering multiple commodities for trading with wide reach and penetration and robust infrastructure, is well placed to tap this vast potential. Wheat Futures Wheat is a cereal grain grown and consumed worldwide. Recent projections by the International Food Policy Research Institute (IFPRI) indicate that, by 2020, two-thirds of the worlds wheat consumption will occur in developing countries, where wheat imports are estimated to double by 2020.Wheat demand worldwide is calculated to rise by 40% from 1993 to 2020 to reach 775 million tons. The expected increase in demand is partly motivated by population growth but also results from substitution out of rice and coarse grain cereals as incomes rise and populations become increasingly based in urban areas. Indian Scenario India produces about 70 million tonnes of wheat per year or about 12 per cent of world production. It is now the second largest producer of wheat in the world. Being the second largest in population, it is also the second largest in wheat consumption after China, with a huge and growing wheat demand. Food grain production occupies the most dominant position in Indias agriculture, covering over 65 per cent of the gross cropped area.

7 Wheat Trade by India Indias Trade in Wheat (000 tonnes) Year 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 Futures in Wheat: Wheat spot market is well developed in India that is a precondition for any commodity to be successful in Future trading. Market has well developed breadth and depth with the presence of general consumer to wheat based industries that includes Wheat flourmills, Biscuits manufacturers etc. Imports 64 1364 242 1 9 616 1345 Exports 140 660 38 4 92 1092 1848 2

8 Rice Futures Futures trading in Rice Recent development in the government policy is well set to provide ideal platform for future trading in the rice to happen. First is that in last years i.e. in the year 200304 government did not increase the MSP Minimum Support Price which had been distorting the market. Second is that Government has allow private party to purchase from the farmers directly. This would bring transparency and efficiency in the market place. All the pre requisite condition for successful future trading is inherent with rice. Well-developed physical market coupled with presence of large number of market participants ranging from export house, corporate bodies, and traders to farmers already exists. India has been a traditional exporter of high quality rice (Basmati or Super Fine Parmal) but since 2001, it released about 13 million tonnes of common rice/parboiled rice for exports. Exports contribution was about 8 million tonnes during 2002-03. There are over 100 varieties of aromatic rice, of which Basmati is the costliest. There are 11 varieties grown in India, of which 4-5 is exported all over the world. Maize Futures India Import and Export of Maize India negligibly imports maize however in recent years there is sign of export. This is due to the fact of increase in production coupled with meeting domestic requirement.

9
Corn Export from India
600 Thousands tons 500 400 300 200 100 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Year

Future in Maize

Spot Market of Maize is well developed Market depth is there with the presence of industry such as Starch, Poultry feed sector Price volatility is present which impress upon the fact of need of hedging

Red Chilly Futures India is the worlds largest producer, consumer and exporter of chillies in the world. India also has the largest area under chillies in the world. Chillies are the most common spice cultivated in India. It is grown nearly in all parts of the country, hills and plains Futures Trading The commodity has well established spot markets. The trade channel involves several members viz., a village level trader, commission agent, wholesaler, retailer, agents for exporters and exporters. The commodity changes hands several times, exposing all these members to price risk. The commodity displays high volatility, with the prices heavily dependent on season, production in different producing tracts spread across the country, demand from exporters and the stock available at the cold storages. There are several grades and varieties

10 of chillies grown across India. If this single variety is offered for futures trading, it will be possible to offer a relatively homogenous product for futures trading. The prices of the major chilly varieties sold in the country are correlated with each other. As a result, the players in other varieties can also hedge their risks through this single variety. Gold Futures India is the world's largest consumer of gold. According to Gold Field Minerals Service, in 2001 it absorbed around 700 tons from the world market, compared to just 320 tons in 1994. Development of gold futures would help in efficient price discovery and emergence of healthy and transparent practices in the market. The basic framework for such an exchange already exists with 13 banks active in import of precious metals. Five of them have launched the Gold Deposit Scheme also. They can also enter into forward contracts in a limited way. To begin with the banks can start trading among themselves and also with big traders according to the demand/supply dynamics. Futures in gold apart from offering jewellery manufacturers and exporters the chance of hedging their inventories would provide many other investors or speculators with a cheap and highly efficient way of getting into gold.

11 Silver Futures Suitability of Silver Futures: Uncertain Supply & Demand Factors World mine production is more a function of the prices of other metals. Often a faster growth in demand against supply leads to drop in stocks with government and investors. Economically viable primary silver mine is a function of the world silver price level. Silver demand stands on three pillers jewellery & silverware, industrial and photography, which are in turn factors of monsoon & agricultural output, overall industrial growth and performance of the tourism & services industry at large, respectively. In India the real industrial demand occupies a small share in the total industrial demand of silver in sharp contrast to most developed economys like Japan and US. In India like Gold the Silver demand is also determined to a large extent by its price level and volatility. In recent years India has seen increased imports from China both in the legal and illegal route via Hong Kong. In India the real industrial demand occupies a small share in the total industrial demand of silver in sharp contrast to most developed economys like Japan and US. In India like Gold the Silver demand is also determined to a large extent by its price level and volatility. Sponge Iron Sponge iron is a metallic product produced through direct reduction of iron and iron ore pellets in the solid state. It is a substitute for scrap and is mainly used in making steel

12 Need for Sponge Iron Futures Although the sponge iron prices have appreciated by 100% from the previous years level, on back of favorable business dynamics, a firm trend in realization per unit can be expected. Mounting cost of basic inputs and high price volatility in the raw material prices increases the need for price risk management. However, going forward helps to decrease the cost. Thus steel production is likely to grow at 6%-7%, the demand for sponge iron is likely to grow at more than 10 percent till the year 2007 and then expected to stabilize at 8 percent after than. Domestic industry is shows improved performance on back of higher volume, increased operating efficiency and financial restructuring. Crude oil futures The Indian government has now permitted oil companies in India to hedge against commodity price risks while importing crude and petroleum products. This initiative has been taken by the Indian government in a bid to protect the economy from the volatility of international crude prices. All oil companies having underlying exposures in crude and petroleum products will now be allowed to import and hedge future prices against the drastic volatility of the prices in the hydrocarbon sector. This has almost become a necessity for a country like India, which imports 70 percent of its petroleum requirement and needs to be protected against such price movements in the International oil markets. Oil companies such as the Indian Oil Corporation (IOC), Reliance Petroleum and MRPL are expected to be the beneficiaries of this move from the government. The hedging facility is to be subjected to detailed guidelines to be issued by the RBI and is expected to make Indian producers more efficient and enable them to compete in the International markets. The hedging mechanism is based on a benchmark crude for which price quotes are available. Each of the above exchanges that trade in oil futures has their own crude benchmarks. In the oil futures market, the quotes are usually for a period of about six months and the buyer of the future needs to take a position for a particular quantity to be physically delivered at a particular point of time. The advantage for the buyer would be that if prices

13 moved up by the time that the physical delivery of the product takes place, the buyer is compensated with an adjustment and a settlement with the difference being paid back. The buyer thus is able to hedge against an increase in the prices of crude and petroleum products. In the case wherein there is a fall in the prices of crude and petroleum products then the sellers interest is protected as the delivery is made on the agreed price by the buyer. Rubber Futures Worldwide, the automobile industry is the single largest consumer of natural rubber in the form of auto tyres and tubes and certain other parts and accessories. Economic recession anywhere first hits this industry before any other industry. Therefore, the world price of rubber goes through a cycle of few years of boom followed by a few years of busts with the state of world economy. In 2001, India was the third largest producer and fourth largest consumer of natural rubber in the world. India produces about 6 lakh tons of rubber (worth around Rs. 3000 crore) annually and over 90 percent of the production is in the southern state of Kerala. Economic reasons for futures trading 1. 2. 3. 4. 5. 6. 7. Pepper Futures Pepper is known for its price volatility and is among the highest in agricultural commodities. From the levels of Rs. 8000 per quintal in late 1996, the prices have touched Rs. 22000 in early 1998, Rs, 25000 in late 1999 and currently back at Rs. 8000 levels. The period April 1998 April 2003 have seen more price decreases on a monthly basis than price Volatile prices Global impacts on prices are significant because cost of production of Diffused consumption; concentrated production Numerous growers and growers cooperatives Consumption majors are tyre manufactures who are few in number: Volatile global production and consumption tendencies Storability is on the higher side

natural rubber in India is on the higher side compared with other major producers.

futures may provide a price level playing field for growers

14 increases. Generally around 75% of production of pepper is exported. India has fairly successful story in black pepper futures and is the only country to have an exchange for pepper futures. Attempts for internationalising pepper futures markets have not succeeded. Factors that favor futures trading Significant price volatility High degree of storability Fairly standardized quality More of an internationalized commodity Numerous stakeholders in the supply chain including small growers, traders (exporters and importers) and processors Futures in Sugar Since Sugar industry is being slowly decontrolled by the government, market force would be putting its impact on the price behavior of the commodity. India is the only country in the world where sugar price goes against the sugarcane price. It indicates too much interference of the government in the industry. For the industry to become competitive allowing future trading would lead to revivals of real market forces which will be for good health of the industry in the long term. All the factors for success of future trading such as organized and developed spot market, large number of participants, and active traders are very much present in the Indian sugar industry. Byproducts of sugar cane industry is getting a lot of attention and it would add depth in the market. Sugar based new industry such as ethanol and its use as fuel that has been mooted by government would constantly strengthen the scope of sugar future trading. 1.2 ABOUT THE ORGANIZATION FORTUNE STOCK BROKING LTD In 1982, a group of Hyderabad based practicing Chartered Accountants started Fortune Consultants Limited with a capital of Rs.150000 offering auditing and taxation services initially. Later, it forayed into the Registrar and Share Transfer activities and subsequently into financial services.

15 A decade of commitment, professional integrity and vision helped Fortune achieve a leadership position in its field. It handled the largest number of issues ever handled in the history of the Indian stock market in a year. Thereafter, Fortune made inroads into a host of capital market services, corporate and retail that proved to be a sound business synergy. Today, Fortune has access to millions of Indian shareholders, besides companies, banks, financial institutions and regulatory agencies. Over the past one and half decades, Fortune has evolved as a veritable link between industry, finance and people. In January 1998, Fortune became the first depository participant in Andhra Pradesh. An ISO 9002 company, Fortunes Commitment to quality and retail reach has made it an integrated financial services company. FEATURES OF FORTUNE Strategic alliance with American Express Bank for marketing Amex personal banking products. The first financial intermediary to get ISO 9002 certification in the country. Arrangers of funds to the corporate like IDBI, ICICI, AP State Govt. Undertakings, (SBIMF, LICMF, UTI, Templeton MF, Prudential ICICI, Alliance, Kothari, Pioneer, Birla etc). Wide Network 67 branches across the country. The No.1 registrar to the issues in the country since 91-92. The No.1 fund mobilizes from primary market for the year 97-98. Depository participant with NSDL. Professional investment Advisory services.

FortuneAn integrated financial intermediary offers the following services Depository Accounts (E Safe & E Privilege) Secondary trading of shares / Debentures Mutual fund schemes Fixed deposits

16 Public issues of Bonds, Debentures and Equity shares. RBI 8% relief bonds RBI 6.5% tax free relief bonds GOI 8% savings bonds UTI Schemes Savings bank accounts of American Express Bank Fixed deposit of American Express Bank Car loans / Personal loans from American Express Bank Small savings schemes Corporate advisory services Registrar to the public issues Merchant banking and underwriting Asset financial including short term debt syndication. Bonds (Private Placement) Managed to the issues of Bonds of ICICI, IDBI, Power finance corporation ltd.

17 SERVICE HANDLED BY FORTUNE Fortune handles personalized financial advisory services to the organizations as well as to individuals. DEPOSITORY SERVICE Registered as DP both with NSDL & CDSL Servicing over 6 lac investors Online connectivity at Hyderabad, Lucknow & Bangalore Ranked among the top 5 DPs in the country High synergy with registry and broking activities for higher service levels to Web based customer information Provision of service in over 75 locations.

the customer

PRINCIPAL WINGS 1. Fortune Consultants Limited Issue Servicing Corporate share holder servicing Depository participant services Mutual Fund investor services 2. Fortune Computer Share Pvt Limited Distribution of financial products 3. Fortune Investor Service Limited Investment banking & corporate advisory services 4. Fortune stock broking limited 5. Fortune Global Service Ltd, 6. Fortune Commodities Broking Ltd 7. Fortune Insurance Broking Pvt Ltd

18

FINANCIAL SERVICES Strong advisory & syndication strengths Wide geographical reach & all India service network Retail distribution network for investment products Accounting, secretarial & compliance strengths Automated retail response management House hold brands IT enabled service delivery Controlled & low cost structure

AIM OF THE PROJECT

2.1 OBJECTIVES OF THE STUDY +To find investor knowledge towards commodity market. Factors stimulating investor to invest in commodity market. Ways in which awareness can be created. To find consistent growth in commodity market.

2.2 SCOPE OF THE STUDY It relates to investments in mutual commodity market. It assesses the preference of choosing the market by the respondents The study helps us to know about the Investors awareness towards commodity market.

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2.3 LIMITATION OF THE STUDY Though utmost care was taken to do the research articulately, it is liable to certain limitations viz., The survey was limited to Coimbatore Fortune only. The respondents were less interested in answering the questionnaire, as they felt that it was an interruption to their regular work. All respondents were not very much open in giving their details. Time constraint 2.4 REVIEW OF LITERATURE 1. The Sagging Agricultural Commodity Exchanges: Growth Constraints and Revival Policy Options ABSTRACT Commodity derivatives have a crucial role to play in managing price risk especially in agriculture dominated economies. However, they have been utilized in a very limited scale in India. As long as prices of many commodities are restrained to certain extent by Government intervention in production, supply and distribution, forwards and futures markets for hedging price risk in those commodities have only limited practical relevance. A review of the nature of institutional and policy level constraints facing this segment calls for more focused and pragmatic approach from government, the regulator and the exchanges for making the agricultural futures markets a vibrant segment for risk management. Published in Economic and Political Weekly, Vol XXXVII No. 30, July 27-Aug. 02, K.G. Sahadevan, Ph.D, Associate Professor, Indian Institute of Management

20 2. The commodity question: new thinking on old problems- Peter Gibbon Danish Institute for International Studies, Copenhagen. o Volatility o Decline in prices ABSTRACT This paper reviews more and less mainstream policy options in relation to the commodity question in the light both of its classical definition and of the emerging concern about oligopoly. It begins by updating the evidence concerning commodity price decline and volatility, and examining the implications of these phenomena for macro-economic performance and livelihoods in producing countries.

3. The Self-Regulation of Commodity Exchanges: The Case of Market Manipulation. STEPHEN CRAIG PIRRONGThe Journal of Law and Economics, April, 1995.

ABSTRACT
The paper deals with Price dissemination that every mandy becomes a monopoly to the local producers, especially once they come to the market. Farmers typically face a short period between the time that they harvest and the time that they can sell the crop. 4. Commodity Derivatives and Futures Trading: A Study of the Sources of Market Failure and the Policy Options for its Revival, Report of consulting assignment for Forward Markets Commission, Mumbai, August 2003.

ABSTRACT
The lack of standards and certification Prices can be quoted and compared across the country once there is a good standardization of commodities. Once commodities can be

21 clearly categorized as one standard as opposed to the other, then prices become more meaningful for comparison at one Mandy versus another. These standards should be applicable equally across all states. 5. Futures Trading and Investor Returns: An Investigation of Commodity Market Risk Premiums Katherine Dusak, Journal of Political Economy, Vol. 81, No. 6 (Nov.-Dec., 1973), pp. 13871406

22

Abstract
The long-standing controversy over whether speculators in a futures market earn a risk premium is analyzed within the context of the capital asset pricing model recently developed by Sharpe, Lintner, and others. Under that approach the risk premium required on a futures contract should depend not on the variability of prices but on the extent to which the variations in prices are systematically related to variations in the return on total wealth. The systematic risk was estimated for a sample of wheat, corn, and soybean futures contracts over the period 1952 to 1967 and found to be close to zero in all three cases. Average realized holding period returns on the contracts over the same period were close to zero. 6. Agricultural commodity markets in India: Policy issues for growth Susan Thomas_ http://www.igidr.ac.in/_susant susant@mayin.org May 21 2003 ABSTRACT Strengthening institutions in spot and derivative markets for commodities is a necessary ingredient of the liberalization process in agriculture, and can impact upon the lives of millions. In this paper, we describe the existing market design prevalent on both the spot and the futures markets. We show some evidence on the role played by the nascent futures markets in price discovery. We document the problems of both the spot and the futures markets. We offer three policy proposals: using reference rates for strengthening transparency, exploring a greater role for cash settlement, and treating warehouse receipts as securities.

23

RESEARCH METHODOLOGY
RESEARCH DESIGN It is a conceptual structure within which research should be conducted. Thus the preparation of such as design facilitates research to be as efficient as possible and will yield maximal information RESEARCH OBJECTIVES 1. 2. To study the preference of funds in latest investment avenues. To identify the current investment portfolio by respondents To analyse the interest of respondents in investment To study about their objective of investment To know whether they are interested in public or private sectors. SOURCE OF DATA The task of collecting data begins after a research problem has been defined and plan is chalked out. This study pertains to collection of data from primary and secondary sources. PRIMARY DATA Data are collected for the first time for a specific purpose in mind using the questionnaire method. Questionnaire through personal contact and telephone calls.

24 SECONDARY DATA The data which already collected and published are referred through the following web sites. www.corporateadvisor.com www.mutualfundsindia.com www.Fortune.com and from the bond of the organization Fortune Consultant TYPE OF RESEARCH Here in order to meet the research objectives, descriptive research design is used. DESCRIPTIVE RESEARCH DESIGN Descriptive research design includes surveys and fact findings, enquiries of different kinds. The major purpose of descriptive research is description of the state of affairs, as it exists at present. In social science and business research, we quite often use the term ex post facto research for descriptive research studies. The main characteristics of this method is that the researcher has not control over the variable; he can only report what has happened or what is happening. Most ex post facto research projects are used for descriptive studies in which the researcher seeks to measure such items, for example, frequency of shopping, preference of the people over similar data. Descriptive research method will be applicable to the existing problem. Here, the study is conducted for a fact i.e, to know the Investor awareness towards the commodity market. So the process was conducted through questionnaire.

25 INFORMATION REQUIRED Collection of name and address of the respondents The respondents educational qualification and their occupation. In financial profile, the respondents annual income, their current investment portfolio and their percentage of savings from their income has been collected. Whether the respondents are interested in public or private sectors. INSTRUMENT DESIGN QUESTIONNAIRE DESIGN Designing and collecting the response for the question, is one of the most interesting and challenging tasks of conducting research and analysis. QUESTIONNAIRE This method of data collection is quite popular, particularly in case of big enquiries. Adopted by Research workers, private and public organizations and even by government. In this method, a questionnaire is sent administered to the persons concerned with the request to answer the questions and return the questionnaire. A questionnaire consists of number of questions printed or typed in a defined order on a form. The researcher has used questionnaire for the following purposes: o For analyzing the objective of investment. o To study about the interest of investments among people. o To know about the different types of sectors respondents are interested to invest. RESEARCH PLAN Data Source Research approach Research instrument Contact Method

: : : :

Primary and Secondary Data Survey Method Questionnaire Direct Personal

26 Sample size SAMPLE DESIGN A sample plan is a definite plan for obtaining a sample from a given population. It refers to the technique or the procedure the researcher would adopt in selecting items for the sample. After deciding the research approach and instrument, the next stage is to design a sampling plan. The selected respondents from the total population constitutes what is technically called a Sample and the selection process is called Sampling technique. The sampling plan calls for the following decisions such as 1. 2. 3. 4. POPULATION The first step in the sampling process is the definition of the population, which can be defined in terms of elements, sampling units, extent and time. For the present study undertaken the population was salaried, self employed and professionals. Population Sampling frame Sampling unit Sample size : 200

27 SAMPLING FRAME A sample frame is a means of representing the elements of the population. Some of them are direct contact and telephone directory. SAMPLING UNIT It goes ahead with who is to be surveyed. Here the sampling unit is salaried people, self employed and professionals. SAMPLE SIZE The sample size selected for the survey is 200. SAMPLING DESIGN Sampling design is to clearly define the set of objectives, technically called the universe to be studied. The universe can be finite or infinite. The nature of the universe studied for this survey is finite. Under the Simple Random Sampling of 200 respondents are taken. Simple random sampling is also known as probability sampling, under this sampling every item of this universe have inclusion in the sample the results arrived from this is assured in terms of probability i.e., we can measure the errors of estimation from a random sample. As considered the universe or population as whole it also known as census inquiry.

28 CHI-SQUARE TEST The chi-square test is an important test amongst the several tests of significant'. Chi-Square, symbolically written as
2

(Pronounced

as

Ki-Square), is a statistical measure used in the context of sampling analysis for comparing a variance to a theoretical variance. It can also be used to make comparisons between theoretical populations and actual data when categories are used. Thus, the chi-square test is applicable in large number of problems. The tests is, in fact, a technique through the use of which it is possible for all researchers to (i) test the goodness of fit; (ii) test the significant of association between two attributes, and (iii) test the homogeneity or the significance of population variance.
(Oij E ij )2 E ij

where Oij = Observed frequency of the cell in ith row and jth column. Eij = Expected frequency of the cell in ith row and jth column.

DATA ANALYSIS AND INTERPRETATION

29 TABLE NO. 4.1 AGE GROUP OF THE RESPONDENTS Sl. No 1 2 3 4 Age Group Below 25 Yrs 25 - 50 Yrs 50 - 75 Yrs Above 75 Yrs Total No. of Respondents 0 190 10 0 200 Percentage 0.00 95.00 5.00 0.00 100.00

From the above table, it is clear that 95% of the respondents belongs to the age between 25 years to 50 years, 5% of the respondents are belong the age between 50 years to 75 years.

FIGURE 4.1 - AGE

100 90 80

PERCENTAGE

70 60 50 40

30 TABLE NO. 4.2 OCCUPATION OF THE RESPONDENTS Sl. No 1 2 .3 4 Occupation Business Professional Employed Others Total No. of Respondents 148 0 52 0 200 Percentage 74.00 0.00 26.00 0.00 100.00

From the above table, it is clear that 74% of the respondents are businessmen and 26% of the respondents are employed persons.

FIGURE 4.2 - OCC

80 70 60 74

ERCENTAGE

50 40 30

31 TABLE NO. 4.3 GENDER OF THE RESPONDENTS Sl. No 1 2 Gender Male Female Total No. of Respondents 171 29 200 Percentage 85.50 14.50 100.00

From the above table, it shows that 85.5% of the respondents are male and only 14.5% of the respondents are female.

FIGURE 4.3 - G

Female 15%

32 TABLE NO. 4.4 EDUCATIONAL QUALIFICATION OF THE RESPONDENTS Sl. No 1 2 3 Educational Qualification Schooling UG PG Total No. of Respondents Percentage 51 101 48 200 25.50 50.50 24.00 100.00

From the above table, it is found that 50.5% of the respondents are educated upto Under Graduation, 25.5% of the respondents have only school education and 24% of the respondents are educated upto post graduation.

FIGURE 4.4 - EDUCATIONA

60 50 40 30

ERCENTAGE

25.5

33 TABLE NO. 4.5 INCOME LEVEL OF THE RESPONDENTS Sl. No 1 2 3 4 Annual Income Below Rs.100000 Rs.100000 - Rs.200000 Rs.200000 - Rs.300000 Above Rs.300000 Total No. of Respondents 130 39 20 11 200 Percentage 65.00 19.50 10.00 5.50 100.00

From the above table it is found that 65% of the respondents have below Rs.100000 of income, 19.5% of the respondents income are between Rs.100000 Rs.200000. 10% of the respondents income is between Rs.200000 Rs.300000 and 5.5% of the respondents income is above Rs.300000.

FIGURE 4.5 - INCO

70 60 50 65

ENTAGE

40

34 TABLE NO. 4.6 INVESTMENT OBJECTIVES OF THE RESPONDENTS Sl. No 1 2 3 4 5 6 Investment Objective High Income Reasonable Income Reasonable Income and Safety For Future welfare Retirement Protection Tax Benefit Total No. of Respondents 3 75 81 41 0 0 200 Percentage 1.50 37.50 40.50 20.50 0.00 0.00 100.00

From the above table, it shows that 40.5% of the respondents prefer reasonable income and safety, 37.5% of the respondents prefer reasonable income from investment, 20.50% of the respondents want future welfare and 1.5% of the respondents prefer high income.

FIGURE 4.6 - INVESTME

45 40 35 37.5

CENTAGE

30 25 20

35 TABLE NO. 4.7 INVESTMENT PORTION OF INCOME Sl. No 1 2 3 4 Investment Portion Below 25% 25% to 50% 50% to 75% Above 75% Total No. of Respondents 99 59 31 11 200 Percentage 49.50 29.50 15.50 5.50 100.00

From the above table, it is found that the 49.5% of the respondents invest below 25% of their income, 29.5% of the respondents invest 25% to 50% of the income, 15.5% of the respondents invest 50% to 75% of their income and only 5.5% of the respondents are invest above 75%.

FIGURE 4.7 - INV

60 49.5

50

CENTAGE

40

30

36 TABLE NO. 4.8 RISK TAKING CAPACITY Sl. No 1 2 3 Risk Taking No. of Respondents Capacity Low Medium High Total 34 110 56 200 Percentage 17.00 55.00 28.00 100.00

From the above table, it is found that 55% of the respondents have medium level of risk taking capacity, 28% of the respondents have high level of risk taking capacity and 17% of the respondents have low level of risk taking capacity.

FIGURE 4.8
60

50

RCENTAGE

40

30

37 TABLE NO. 4.9 INVESTMENT ADVICE TO THE RESPONDENTS Sl. No 1 2 3 4 Investment Advice Friends Family Consultants Others Total

No. of Respondents 79 29 92 0 200

Percentage 39.50 14.50 46.00 0.00 100.00

From the above table, it is found that 46% of the respondents got advice from consultants, 39.5% of the respondents got advice from Friends and 14.5% of the respondents got advice from their family.

FIGURE 4.9 - INVEST

50 45 40 35 39.5

CENTAGE

30 25

38 TABLE NO. 4.10 INVESTMENT AVENUES Sl. No 1 2 3 4 5 6 7 Investment Avenues Shares Mutual Funds Commodity Market Debentures Insurance Bank Deposits Post Office Savings Total No. of Percentage Respondents 107 60 10 0 10 8 5 200 53.5 30 5 0 5 4 2.5 100.00

From the above table, it is found that 53.5% of the respondents invest in shares, 30% of the respondents invest in mutual funds, 5% of the respondents invest in Insurance and Commodity Market, and 4% in Bank Deposits and only2.5% in Post Office Savings.

FIGURE 4.
60 53.5 50

ENTAGE

40 30

30

39 TABLE NO. 4.11 COMMODITY MARKET Sl. No 1 2 Commodity Market Yes No Total

No. of Respondents 85 115 200

Percentage 42.50 57.50 100.00

From the above table, it is clear that 57.5% of the respondents do not know about the commodity market and 42.5% of the respondents are known about the community market.

FIGURE 4

40 TABLE NO. 4.12 ABOUT COMMODITY MARKET Sl. No 1 2 3 4

About Commodity Market Through Friends Through Dealers

No. of Respondents 0 44

Percentage 0.00 51.76 0.00 48.24 100.00

Through Mass Media 0 Through Officials of Investment 41 Organization Total 85

From the above table, it is found that 51.76% of the respondents know about the commodity market through dealers and 48.24% of the respondents know through officials of investment organizations.

FIGURE 4.12 60

5 50

ERCENTAGE

40

30

41 TABLE NO. 4.13 INVOLVED IN COMMODITY TRADING Involved in No. of Percentage Commodity Trading Respondents Yes 52 26.00 No Total 148 200 74.00 100.00

Sl. No 1 2

From the above table, it is found that 74% of the respondents are not involved in commodity trading, and 26% of the respondents are involved in commodity trading.

FIGURE 4.13 - INV

42 TABLE NO. 4.14 TRADING IN COMMODITY MARKET Sl. No 1 2 3 Trading in No. Commodity Market Respondents Below 1 Yr 1 - 2 Yrs 2 - 3 Yrs Total 48 4 0 52 of

Percentage 92.31 7.69 0.00 100.00

From the above table, it is clear that 92.31% of the respondents trading in commodity market below 1 year and 7.69% of the respondents trading in commodity market more than a year.

FIGURE 4.14 - T
100.00 90.00 80.00 70.00 92.31

PERCENTAGE

60.00 50.00 40.00

43 TABLE NO. 4.15 FREQUENCY OF TRADING

Sl. No 1 2 3 4 5 6

Frequency of Trading Daily Weekly Monthly Every season Occasionally Rarely Total

No. of Respondents 14 38 0 0 0 0 52

Percentage 26.92 73.08 0.00 0.00 0.00 0.00 100.00

From the above table, it is found that 73.08% of the respondents are having frequency of weekly trading and 26.92% of the respondents trade daily.

FIGURE 4.1
80 70 60

RCENTAGE

50 40

44 TABLE NO. 4.16 AWARENESS OF TRADING IN COMMODITY MARKET Sl. No 1 2 3 4 5 Awareness of Trading in No. of Respondents Commodity Market Total Awareness 2 Good Awareness Awareness to Some Extend Unaware Totally Unaware Total 22 24 1 3 52 Percentage 3.85 42.31 46.15 1.92 5.77 100.00

From the above table, it is clear that 46.15% of the respondents have awareness to some extend in commodity market, 42.31% of the respondents have good awareness about commodity market, 5.77% of the respondents are totally unaware, 3.85% of the respondents have total awareness, and 1.92% of the respondents are unaware.

FIGURE 4.16 - AWARENE

50 45 40 42.31

CENTAGE

35 30 25

45 TABLE NO. 4.17 AWARENESS OF COMMODITIES TRADED IN COMMODITY MARKET Aware of Commodities No. Traded in Commodity Respondents Market Yes No Total 52 0 52

Sl. No 1 2

of

Percentage 100.00 0.00 100.00

From the above table, it is clear that 100% of the respondents know of the commodities traded in the commodity market.

46 TABLE NO. 4.18 REASON FOR CHOOSING COMMODITY MARKET

Sl. No 1 2 3 4

Reason High Return Moderate Return Safe Return Easy Procedure Total

No. of Respondents 31 0 21 0 52

Percentage 59.62 0.00 40.38 0.00 100.00

From the above table, it shows that 59.62% of the respondents choose the commodity market for the reason of high return and 40.38% of the respondents choose for safe return.

FIGURE 4.17 - REASON

70 60 50 59.62

RCENTAGE

40 30

47 TABLE NO. 4.19 HELPFULNESS OF THE COMMODITY MARKET Sl. No 1 2 Commodity Market No. of Respondents Helps Protect from abnormal cost 52 increase Ensure Continuous Supply Total 0 52

Percentage 100.00 0.00 100.00

From the above table, it shows that 100% of the respondents get reasonable price of the commodity.

48 TABLE NO. 4.20 WHETHER RECOMMEND OTHERS TO ENTER INTO

COMMODITY MARKET Sl. No 1 2 3 4 5 Recommend others Definitely Probably Not Sure Probably Not Never Total No. Respondents 1 15 2 3 31 52 of Percentage 1.92 28.85 3.85 5.77 59.62 100.00

From the above table, it shows that 59.62% of the respondents will never recommend others to enter into the commodity market. 28.85% of the respondents probably recommend, 5.77% of the respondents probably using not recommend, 3.85% of the respondents not sure as to recommend or not and 1.92% of the respondents will definitely recommend.

FIGURE 4.18 - WHETHE CO

70 60 50

AGE

40

49 TABLE NO. 4.21 ATTENDED AWARENESS PROGRAMME Sl. No 1 2 Attended awareness No. of Percentage programme Respondents Yes No Total 111 89 200 55.50 44.50 100.00

From the above table, it is clear that 55.5% of the respondents have attended awareness programme and 44.5% of the respondents are not attended awareness programme.

FIGURE 4.19 - ATTE

45%

50 TABLE NO. 4.22 CHI SQUARE ANALYSIS FOR ANNUAL INCOME AND INVESTMENT PORTION Investment Portion Income Below Rs.1,00,000 Rs.100000 - Rs.200000 Rs.200000 - Rs.300000 Above Rs.300000 Grand Total Below 25% 65 18 4 6 93 25% 50% 33 10 9 3 55 - 50% 75% 15 4 11 2 32 Above 75% 2 11 3 4 20 Grand Total 115 43 27 15 200

Null Hypothesis (H0)

: No Significant relationship between Annual Income and Investment Portion.

Alternate Hypothesis (H1)

: There is Close Significant relationship between Annual Income and Investment Portion.

FACTOR Annual Income

CALCULATED CHI-SQUARE VALUE 44.348

TABLE DEGREE OF REMARKS VALUE FREEDOM 16.919 9 Significant

It is noted from the above table that the calculated Chi-square value is greater than the table value. So, there is No Close relationship between Annual Income and Investment Portion.

51

F IG U R E 4 IN V
70 60 50 65

52 TABLE NO. 4.23 CHI SQUARE ANALYSIS FOR ANNUAL INCOME AND RISK CAPACITY Risk Capacity Low Annual Income Below Rs.1,00,000 Rs.100000 Rs.200000 Rs.200000 Rs.300000 Above Rs.300000 Grand Total 32 4 6 3 45 Medium 60 22 9 7 98 High 31 11 10 5 57 Grand Total 123 37 25 15 200

Null Hypothesis (H0)

: No Significant relationship between Annual Income and Risk Capacity

Alternate Hypothesis (H1)

: There is Close Significant relationship between Annual Income and Risk Capacity

FACTOR Annual Income

CALCULATED CHI-SQUARE VALUE 6.4674

TABLE VALUE 12.592

DEGREE FREEDOM 6

OF

REMARKS Not Significant

It is noted from the above table that the calculated Chi-square value is less than the table value. So, there is Close relationship between Annual Income and Risk Capacity.

53

F IG U R E 4 .
70 60 50 60

54 TABLE NO. 4.24 CHI SQUARE ANALYSIS FOR ANNUAL INCOME AND INVESTMENT AVENUES Investment Avenues Shares Income Below Rs.1,00,000 Rs.100000 Rs.200000 Rs.200000 Rs.300000 Above Rs.300000 Grand Total 48 26 9 5 88 Mutual Funds 48 4 3 4 59 Bank Deposits 7 6 4 3 20 Post Office Savings 4 7 3 2 16 Grand Total 109 46 27 18 200

Insurance 2 3 8 4 17

Null Hypothesis (H0)

: No Significant relationship between Annual Income and Investment Avenues.

Alternate Hypothesis (H1)

: There is Close Significant relationship between Annual Income and Investment Avenues.

FACTOR Annual Income

CALCULATED CHI-SQUARE VALUE 54.808

TABLE VALUE 21.026

DEGREE OF REMARKS FREEDOM 12 Significant

It is noted from the above table that the calculated Chi-square value is greater than the table value. So, there is No Close relationship between Annual Income and Investment Avenues.

55

F IG U R E 4 IN V
60 48 50 48

40

56 TABLE NO. 4.25 CHI SQUARE ANALYSIS FOR RISK CAPACITY AND INVESTMENT AVENUES Investment Avenues Risk Capacity Low Medium High Grand Total Post Office Savings 8 4 11 23

Shares 15 65 8 88

Mutual Funds 12 11 22 45

Insurance 4 8 11 23

Bank Deposits 7 9 5 21

Grand Total 46 97 57 200

Null Hypothesis (H0)

: No Significant relationship between Risk Capacity and Investment Avenues.

Alternate Hypothesis (H1)

: There is Close Significant relationship between Risk Capacity and Investment Avenues.

CALCULATED FACTOR CHI-SQUARE VALUE Risk Capacity 51.3447

TABLE VALUE 15.507

DEGREE OF REMARKS FREEDOM 8 Significant

It is noted from the above table that the calculated Chi-square value is greater than the table value. So, there is No Close relationship between Risk Capacity and Investment Avenues.

57

70 60 50

F IG U R E 4 IN
65

58 TABLE NO. 4.26 CHI SQUARE ANALYSIS FOR COMMODITY MARKET AND

RECOMMENDATION Recommendation Commodity Market Good Awareness Awareness to some extend Grand Total Probably 11 7 18 Never 14 20 34 Grand Total 25 27 52

Null Hypothesis (H0)

: No Significant relationship between Commodity Market and Recommendation.

Alternate Hypothesis (H1)

: There is Close Significant relationship between Commodity Market and Recommendation

FACTOR

CALCULATED CHI-SQUARE VALUE

TABLE VALUE 3.84

DEGREE FREEDOM 12

OF REMARKS Not Significant

Recommenda 1.873 tion

It is noted from the above table that the calculated Chi-square value is less than the table value. So, there is Close relationship between Commodity Market and Recommendation.

59

F IG U R E 4 .2 R E
25

20

60

FINDINGS, SUGGESTIONS & CONCLUSION

5.1 Findings of the Study 1. 2. 3. 4. 5. 6. 7. 8. 95% of the respondents belongs to the age between 25 years to 50 years. 74% of the respondents are businessmen. Majority (85.5%) of the respondents are male. 50.5% of the respondents are educated upto Under Graduation. 65% of the respondents have below Rs.100000 of income. 40.5% of the respondents prefer reasonable income and safety. 49.5% of the respondents invest below 25% of their income. It is found that 55% of the respondents have medium level of risk taking capacity. 9. 10. 11. It is found that 46% of the respondents got advice from consultants. 53.5% of the respondents invest in shares. Majority (57.5%) of the respondents do not know about the commodity market. 12. A Majority (51.76%) of the respondents know about the commodity market through dealers. 13. 14. 15. 16. 74% of the respondents are not involved in commodity trading. All the respondents (100%) have trading in commodity market below 1 year. 73.08% of the respondents are having frequency of weekly trading. 46.15% of the respondents have awareness to some extend in commodity market 17. All (100%) of the respondents know of the commodities traded in the commodity market. 18. It shows that 59.62% of the respondents choose the commodity market for the reason of high return. 19. Majority (100%) of the respondents get reasonable price of the commodity.

61 20. 59.62% of the respondents will never recommend others to enter into the commodity market. 21. 22. 55.5% of the respondents have attended awareness programme. From the Chi-Square analysis, there is no close relationship between Annual Income and Investment Portion. 23. From the Chi-Square analysis, there is close relationship between Annual Income and Risk Capacity. 24. From the Chi-Square analysis, there is no close relationship between Annual Income and Investment Avenues. 25. From the Chi-Square analysis, there is no close relationship between Risk Capacity and Investment Avenues. 26. From the Chi-Square analysis, there is close relationship between Commodity Market and Recommendation.

62 5.2 Suggestions and Recommendations Most of the respondents are not aware of various products offered by commodity market. So, proper guidance can be given to them. This is to create awareness. A regular investor friendly seminar can be organized to suit the timings of the investing public. For instance such seminars can be interactive sessions, arranged at frequent intervals. The newsletters published helps investors. Hence newsletters / bulletins can be published for guidance. Efforts to be taken to popularize commodity market through appropriate publicity measures.

63 5.3 Conclusion The study is made to find out the investors knowledge towards commodity market. The study reveals that commodity market is in a nascent stage in Coimbatore. The investment avenues of individual investors depend mainly on annual income and risk taking capacity .The investors in Coimbatore are not much aware of commodity market so proper awareness program should be conducted to improve the awareness level of investors.