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    Submitted in partial fulfillment of the requirements of

    Master of Business Administration

    Submitted to:

    Punjab Technical UniversityJalandhar

    Submitted By:


    Registration No- 9212400130

    Under the guidance of

    Prof. Amit Kanjilal

    #70, 2nd Main Road, 3rd Cross, Kanaka Nagar, Nagawara,BANGALORE 560 032

    2009 11

    Analysis of

    Indian Commodity Market

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    I hereby declared that this project titled Analysis of Indian Commodity Market is

    submitted to the Punjab Technical University as a partial requirement for the award of

    Degree ofMaster of Business Administration, during the year2009-2011.

    It is the record of an original & independent study carried out by me, under the able

    guidance and supervision ofProf. Amit Kanjilal ofInternational Institute of Business

    Studies, Bangalore. This project report has not been submitted earlier by me or by

    anybody else for the award of any other degree in any University in India or abroad.

    Date: Signature

    Place: (Parmjeet Kumar Singh)

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    I take this opportunity to extend my sincere gratitude to the respondents who gave all the

    support and had been cooperative in providing all the valuable required information

    without which I would not have completed my report.

    I would also like to thank Prof. Amit Kanjilal internal guide for the constant guidance,

    encouragement and motivation they extended throughout the study.

    I also thank my parents and friends for their co-operation, support and

    encouragement extended throughout the study.

    Date:Place: Parmjeet Kumar Singh

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    Different web based literature has been studied to understand which are the major players

    of commodity markets in the world? And what is their way of operation? Which are the

    major commodity exchanges in India? What is their modus operandi?

    While we were surveying various web site we came to know the whole commodity

    market and the exchange takes place in this market is broadly classify into two principle

    categories that is agriculture and non agriculture commodity market.

    The first session deals with the significance of commodity market. As commodity market

    is the place where 2 parties agree to buy and sell a specified and standardized quantity of

    a commodity at a certain time of future at a price agreed upon at the time of agreement

    agreed upon irrespective of availing future price.

    Following the significance of commodity market is the history of the commodity market.

    The root of commodity market is traced from Japan where Japanese merchants used to

    store rice in ware houses and later on they have issued Rice tickets . And as the time

    passes rice tickets are started to accepted as a currency.

    Patterns of exchange that was prevailing in the market which was auction and the pattern

    that is currently prevailing in the market which is future is discussed. Major international

    and national players are described.Various national and international markets and their features in brief are described. The

    perspective of commodity market in which active and passive mode of commodity

    market, volatility, liquidity of commodity market and their relation with economy are


    Benefits of future commodity markets to agriculturists, farmers are discussed in brief

    along with price discovery, price risk management, import-export competitiveness,

    improved product quality-market transparency etc. are discussed. The attractive features

    of commodity market, various instruments those are available in the market are listed.

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    Chapter 1

    Introduction to Commodity Market


    Organized futures markets in India are now 134 years old, with the first such

    organization the Bombay Cotton Trade Association Ltd. been set up in 1875. While

    India was gradually becoming the largest consumer of gold in the world, a position it still

    enjoys, futures markets in bullion were inevitable and began to emerge in Mumbai in


    The vast geographical extent of India and her huge population is aptly complemented by

    the size of her market. The broadest classification of the Indian Market can be made in

    terms of the commodity market and the bond market.

    The commodity market in India comprises of all palpable markets that we come across in

    our daily lives. Such markets are social institutions that facilitate exchange of goods for

    money. The cost of goods is estimated in terms of domestic currency. India Commodity

    Market can be subdivided into the following two categories:

    Wholesale Market

    Retail Market

    Considering the present growth rate, the total valuation of the Indian Retail Market is

    estimated to cross Rs. 10,000 billion by the year 2010. Demand for commodities is likely

    to become four times by 2010 than what it was in 2009.

    MARKET A market is conventionally defined as a place where buyers and sellers meet

    to exchange goods or services for a consideration. This consideration is usually money.

    In an Information Technology-enabled environment, buyers and sellers from different

    locations can transact business in an electronic marketplace. Hence the physical

    marketplace is not necessary for the exchange of goods or services for a consideration.

    COMMODITY A commodity is a product that has commercial value, which can be

    produced, bought, sold, and consumed. Commodities are basically the products of the

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    primary sector of an economy. The primary sector of an economy is concerned with

    agriculture and extraction of raw materials such as metals, energy (crude oil, natural gas),

    etc., which serve as basic inputs for the secondary sector of the economy.


    A commodity exchange is an association, a company, or any other body corporate

    organizing futures trading in commodities for which license has been granted by

    regulating authority.


    A Commodity futures is an agreement between two parties to buy or sell a specified and

    standardized quantity of a commodity at a certain time in future at a price agreed upon at

    the time of entering into the contract on the commodity futures exchange. The need for a

    futures market arises mainly due to the hedging function that it can perform. Commodity

    markets, like any other financial instrument, involve risk associated with frequent price

    volatility. The loss due to price volatility can be attributed to the following reasons:

    Consumer Preferences: - In the short-term, their influence on price volatility is small

    since it is a slow process permitting manufacturers, dealers and wholesalers to adjust their

    inventory in advance.

    Changes in supply: - They are abrupt and unpredictable bringing about wild fluctuations

    in prices. This can especially noticed in agricultural commodities where the weather

    plays a major role in affecting the fortunes of people involved in this industry. The

    futures market has evolved to neutralize such risks through a mechanism; namely


    Commodity Future is a very important instrument in hedging risks, which arises in the

    spot market. Speculators and hedgers use Commodity Futures to reduce the risks.

    The spot prices so determined, may not be profitable to the person who is dealing with

    that particular commodity. With the help of Futures, he can reduce this risk, by entering

    into a contract to sell a particular commodity at a future date, at a pre-determined price.

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    But, by doing so he still is not free from risk. The contract so entered into may lose its

    value due to external factors. So, there is a very important and genuine need to effective

    management of the contract through various risk management techniques.

    The objectives of Commodity futures: -

    Hedging with the objective of transferring risk related to the possession of

    physical assets through any adverse moments in price. Liquidity and Price

    discovery to ensure base minimum volume in trading of a commodity through

    market information and demand supply factors that facilitates a regular and

    authentic price discovery mechanism.

    Maintaining buffer stock and better allocation of resources as it augments

    reduction in inventory requirement and thus the exposure to risks related with

    price fluctuation declines. Resources can thus be diversified for investments.

    Flexibility, certainty and transparency in purchasing commodities facilitate bank

    financing. Predictability in prices of commodity would lead to stability, which in

    turn would eliminate the risks associated with running the business of trading

    commodities. This would make funding easier and less stringent for banks to

    commodity market players.

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    Benefits of Commodity Futures Markets:-

    The primary objectives of any futures exchange are authentic price discovery