The Indian Commodity Markets

THE INDIAN COMMODITY MARKETS
The Indian Commodity markets have witnessed a multifold increase interms of the number of commodity wise transactions and commodity wise turnover. This achievement can be attributed to the
Efforts of MCX( Multi Commodity Exchange) , NCDEX (National Commodities & Derivatives Exchange) who have gone all way out to educate the investors about the commodity markets and demystifying the common myths and resurfacing the surprising realities which the commodity markets offer to its investors. An insight into the commodity markets can unleash the advantages and immense profit potential of commodities over stocks and other investment avenues.
MCX and NCDEX are the face of the Indian Commodity Exchanges while the FMC( Forward Markets Commission) is the watchdog which regulates the national and regional exchanges in India.
MCX and NCDEX offer commodity derivatives over a range of commodities which can be classified as follows-
 BULLION : Gold, Silver, Platinum
 BASE METALS : Nickel, Tin, Copper, Zinc, Aluminum, Lead
 FERROUS METALS : Steel Long
 CEREALS : Maize, Barley
 SPICES : Pepper, Red Chilli, Jeera, Turmeric, Cardamom
 ENERGY & GAS : Crude Oil, Brent Crude Oil, Natural Gas
 OIL & OIL SEEDS : Castor Seeds, Soy Seeds, RM Seed, Refined Soya oil, CPO
 FIBRE : Kapas, Cotton
 PULSES : Chana
 PLANTATIONS : Rubber, Jute, Coffee
 OTHERS : Guar Seed, Gur, Guargum, Mentha Oil, Potato

The Commodity Derivatives available in India are Futures and Forwards.
Futures Contracts are exchange traded where as Forward Contracts are over the counter traded. Futures Contracts are standardized in the form of a Fixed Quantity and Quality Specifications , Price movements can be monitored Any deviation from the aforesaid Quality specifications will attract a penalty where as Forwards do not have any standard Quantity and Quality specifications. Futures are safe as far as the promise of delivery and payment is concerned as Future Contracts are exchange traded, Forwards involve plenty of risk in the form of payments default or delivery default.
Future Contracts are financial instruments which help in the price discovery and Price risk management of various commodities.
Ex of Price Discovery - If a Farmer knows that he is going to produce an X crop in the next 3 months, He can enter into a Futures contract promising to sell it at the prices prevailing in the Exchange on the day of entering into the contract. Once he knows that he is going to get a specific price for his produce he can concentrate on cost trimming and thus maximize his profits. If Price of the crop falls later he stands to gain as he has already locked in a price for his produce, If the Price rises he stands to lose .
Ex of Price Risk management- If a trader knows that he needs a metric tonne of a commodity in the next 2 months, He can enter into a Futures Contract to buy that commodity at the prevailing price on the day of buying a futures position. He thus could lock a price for his requirements, If the price of that commodity increases later he stands to gain , If the price of the commodity falls he stands to lose. The advantage of the contract being an assured delivery of the commodity.


The participants of the Commodity Markets can be classified as:
1.Hedgers - Participants who take positions to offset the possible losses or minimize the possible losses.
2.Speculators- Participants who take positions in anticipation of making profits owing to price swings.
3.Arbitrageurs – Participants who try to capitalize the price variations in different markets.
4. Traders (Includes Retail Investors) – Paticipants who take positions in order to meet their business requirements and other commitments.
One needs to be aware of the following terms while dealing in commodities:
Basis – Difference between the Spot Price and the Futures Price at a given point of time. Basis is never the same , it fluctuates in tandem with Contract Expiry date.
Spread – Price Difference between 2 contracts of a particular commodity.
Intercommodity Spread- Price difference between 2 different commodities.
Contango Market – When the current month futures trade less than that of the next month futures, its known as a Contango Market.
Backwardation Market- When the current month futures trade at a premium when compared to the next months futures is known as Backwardation Market.
In the developed Nations, Commodity derivatives account for a higher trade turnover in comparison to Equity Derivatives. There is still a vast scope for commodity markets to perform better in India. Commodity futures offer better prospects than that of equity futures. This can be attributed to the following:
• Lower Margin Requirements in comparison to stocks.
• Lower price volatility in comparison to stocks.
• Probability of price manipulation is nil.
• Longer trading hours.

The Indian Government can perform its share by trying to minimize its interference and lifting its ban on essential commodities including sugar. Commodity prices are purely based on the demand supply dynamics., as commodities are traded world wide, possibility of manipulation is nil. The Govt. can educate the farmers about the commodity markets and help them in optimally utilising the commodity derivatives. Only 2% of the total transactions are converted to delivery which is not a very good indication, This is due to the high carrying costs involved, costs are high as the delivery centres are commodity specific. If the delivery centres are made available through out the nation, The Indian commodity markets will witness a spurt in volumes accompanied by a significant increase in deliverable Quantity. MCX officially confirmed 10000 crore turnover in a single day which is a phenomenal achievement for India. India has got the potential of registering a 40000 crore daily turnover ,if it can breach that levels , India can transform into “A Global Commodity Trading Hub”

Lets Hope for a Commodity Driven India.
The above articls has been penned by me and has been published in the Prometheus E-Newsletter August 2009 Edition.

Enough of Ambanism!!!

The death of Dhirubhai Ambani saw his wealth being split among his 2 sons Mukesh & Anil respectively, Many eyebrows raised over the sustainability of the legends property . The dramatic split between and the sharing of property pulled down the bellwether stock exchange - Sensex to some extent. Post splitsville the brothers managed to expand their empires respectively and here is what i dont like about the brothers.

As far as Anil is concerned I am happy for him being a graduate of kellogg's , Though i feel the property was not neutrally distributed between him and his elder brother , This guy has made magnificient strides in expanding the ADAG Empire much to the delight of the investors. His concern for his investors being reflected in the form of issuing bonus shares to the shareholders when Reliance Power failed to meet people's expectations of an ideal listing , Though his move might have diluted the price of the shares, Its likely to be worthy in the long run.
But what i dont like about him is his over enthusiasm in exploring and exploiting new ventures , ADAG owned Reliance retail has ventured into Reliance Jewellery, Reliance Footprints, Reliance Fresh, Reliance Toys, Reliance personal care (Grooming), Reliance Electronics, his over ambitious ADLABS films along with its ever expanding ADLAB Theatre which has the dubious distinction of providing the most uncomfortable seating experiences ever.I wonder or for that matter i m just waiting for ADLABS to be closed down. What this gentleman needs to know is that its the profitability of his moves which matter and not mere venturing into different businesses. His expansionary tendencies have already provoked the likes of people who are into those kind of similar business. His personal Grooming centres met with nasty protests of the few estabished barbers nationwide. Its high time the established industrialists like TATA , BIRLA, AMBANIS etc venture into unsought or other unexplored ventures rather than trying to cut the throats of the local kirana merchants, vegetable vendors, local establishments, barbers etc who in most cases happen to be the stakeholders in the Business houses like Reliance,TATA, BIRLA etc.

Ex- I may be an investor in Reliance, But i personally wont like Reliance to come up with a Textile Retail as it might threaten my Textile Outlet in the state. Big Players with their exceptionally vast bargaining power pose a grave threat to the local players.

Believe me there are n no. of businesses which fresh enterpreneurs cannot dare to enter immediately , For example, Reliance could have ventured into an Aviation - MRO ( Maintenance, Repair & Overhaul) venture ,India still doesnt have an MRO Of its own in India , Aviation Manufacturing venture, Ship Building Venture, Power sector still falls short of actual demand, this investment could have used for capacity enhancement. Power through Solar Energy is much more rewarding,It has got a vast potential but yet it has not been implemeted , EMRI - Emergency management research institute which has been widelyspread through out Andhra Pradesh has become a big hit, This can be implemented nation wide.India is still backward in per capita productivity per acre, there is a serious shortage in supply of fertilizers, There is a serious infrastructure gap which is one of the reasons for declining agri trends in India, Big palyers can work on this. Acute shortage of rainfall has affected the crop produce, Cloud seeding programmes can be taken up , Crude constitutes a major chunk of India's import bill more oil exploration abroad can prove beneficial to the nation as a whole. Tourism sector is another safe bet with prospects at its best,Extreme adventure sports is another area where the big players can bank upon to extend their offerings. There are a lot more areas offering vast scope for expansions.

On the other hand I hate Mukesh for his unusually high cost Residential tower gift to his Dear wife. I do understand that each and every person has got their right to come up with what they like , But what i hate is the fact that such a huge investment is not actually necessary for a family of 4-5. The amount could have inturn been invested for the purpose of say A Beggar rehabilitation centre which could have changed the lives of many a beggars or say could have owned up few villages,engage in a village development programs & inturn could have gifted it to his dear wifeand inturn would have revamped the iconic Status of the Ambani Empire and more importantly INDIA.

Alien v/s Predator

This is not about the run away Sci-Fi Blockbuster movie but its about the war between the titans namely Ramoji Rao and Y.S.Rajasekhar Reddy who are referred to as Alien and Predator respectively. This is purely about A.P. Politics , mind it!!

Alien was never into politics, He is a business tycoon from AP. He is to Andhra Pradesh what Dhirubhai Ambani is to India , Alien is an ernstwhile enterpreneur who is into many diversified Businesses, He is into Press in the form of Eenadu Group, Media in the form of E-TV network, Finance Business in the form of Margadarsi Group, Film Making in the form of Usha Kiron Movies, Film Distributorship in the form of Mayuri Distributors , Recordings in the form of Mayuri Audio , Instant foods in the form of Priya Pickles, instant mixes etc and last but no the least for his world famous Ramoji Film City which has recently beat Hollywood to emerge as the World's largest Film Studio.

Predator on the other hand is from the land of faction - Pulivendula , Rayalseema, known for his notoriety since his college days where he possessed grenades in his room while doing his medicine ,talks were already rife that he would become the Chief Minister in the future , Predator is a bigtime factionist whose faction records have been made to put to silence, Predator is a staunch supporter of the Congress which during his time was single handedly leading almost most of the states including A.P. until the emergence of Telugu Desam Party (T.D.P) in 1980 which sweeped the polls in early 1980's. Predator's dad Y.S.Raja Reddy was killed in a bomb blast with rumours that it was his son "Predator" who planned the deathblow.

Since the emergence of TDP, Alien had been a long time follower of the TDP and its allies courtesy - Magnificient turn around in the state developmet due to a worthy candidate ruling the state, Prior to the ruling of TDP , AP was reeling under lack of development, goons ruling the streets for maamools, law and order problems, unreasonbly high number of thefts, Security collapse literally getting AP at the brink of destruction, After TDP took its positions, the development was remarkable. Eenadu group at that time was single handedly the largest circulated telugu daily in Andhra Pradesh , Viewers got an opportunity to face the realities that have been changes due to a change in leadership. Eenadu Daily acted as a weapon to showcase the effective reforms, massive developments , reinvented joy and confidence among the people and resultantly TDP ruled the state till 2004.

Predator who had been through this era know how Alien used the press and media to put TDP to favour , After an election stunt in the form of "PadaYatra" , Predator could successfully make it to the CM post of Andhra Pradesh.

Since then Predator wanted to trigger a collapse of the Alien Empire, He started off by introducing Mr. Vundavalli Arun Kumar to raise a legal glitch by stating that Margadarsi( which was doing brisk business with not even a single default in payment by it to its customers) is not entitled to accept the deposits of the public.That matter had been doing rounds almost for a yer or two , After predator failed to trigger a collapse of the empire , He asked his son Y.S.Jagan to use the same weapon which Alien used to showcase TDP's developments - Press and Media , Within no time emerged a new brand - "Saakshi" Daily news Paper which dramatically achieved an overwhelming success in the form of viewership , an achievement which no telugu daily had been able to!, If u red this newspaper, you wont find even a single word which is anti congress , even if Congressmen commit a mistake or fault, it will be reflected as a mistake of fact or that its a act of the opposition! Saakshi soon entered the Media too in the form of Saakshi T.V. and has been able to achieve a good TRP ratings too!

The war was likely to intensify post 2009 elections, If TDP could have won then Alien could have waged another grand offensive against the predator, But with Congress winning the elections and forming the government, We are waiting for the next moves of the Predator , Lets witness the whole battle and Lets see who's gonna win the war - Alien or Predator?

The Day Of The Jackals!!!!!!!

Come April, Come Elections!!! This is the scenario in India, The typical Indian Politicians - who were under cover from the last elections have resurfaced in the scorching sun to woo their so called dear voters , I was actually surprised to know that few Political parties have promised colour televisions to the voters, while few have promised sarees, money and the magical potion called "Liquor". Few others have made illegal distribution of cricket kits to children of rural areas as a prerequisite for a vote , The Regional parties have marched ahead in the form of luring Film actors to encash upon their popularity , Parties which were foes previously have suddenly turned friends as they want to "Work together for a cause".
The Politicians ventured into every street possible cajoling the innocent elderly people and people of the slums, Politicians helping the construction labourers, helping the barber in cutting the hair, sweeping the roads, hugging the poor, washing clothes of the poor for the sake of a photograph was a common sight, Its high time the innocent people realise that they are only falling prey to the cruel Jackals.

I wonder whether the anti-defection law is really relevant in the Indian Context, How many politicians have not switched the parties post elections? Not to forget is the provisions of law which states that Person with a criminal background is not entitled to participate in an election, Nobody questions Sanjay Dutt, Shibu Soren, Laloo Prasad Yadav , Y.S.Rajasekhar reddy - CM Of A.P.etc. Uddhav thackeray -the brainchild behind the anti-north Indian massacres in Mumbai is nowhere questioned.

The biggest innovation in campaigning has been the " Blame Game Politics" with the use of all the forms of media to corner the opponents , They have optimally utilised technology and usage of animation to imitate & interpret the opponent's ill motives.
Its high time the politicians realise that the people do not want colour televisions or sarees from politicians but they need a true politician who can make sense to the nation. A couple of months prior to the elections, India witnessed a multifold increase in cash flow, which inturn was attributed to the shelling out of unaccounted money of the politicians.

A Hope ushers to change the mindset of the unscrupulous politicians but only in vain.

A Breather for Mother Nature.

Curbing the emissions of the green house gases has been the utmost priority of the Industrially advanced nations, Be it the Kyoto Protocol or the G-8 Summits, Nations worldwide have been striving hard to reduce the global emission levels.
The Beijing olympics had been a major break through in achieving a short term achievement in curbing the emissions as highly polluting industries were shutdown for a period of 6 months during the olympics and prior to the olympics , during which a significant improvement in the quality of air was reported.
Economic downturn can inturn be a blessing in Disguise for "Mother Nature". The recessionary trends have resulted in causing huge dips in sales of many companies forcing most of them to shutdown. The coupling theory effect has resulted in further aggravating the situation of manufacturers in developed, developing and underdeveloped economies which were much "Export Oriented". These economies have depended upon their sales overseas to sustain their existence. Be it China, who depend much on the exports than the domestic demand or Iceland whose major source of Contribution to their GDP is the Income from Fishing, Owing to its Manufacturing Hub Image, Firms worldwide have zeroed in on China as their manufacturing Destination, Owing to the global slowdown, Many Industries have been shut down, with domestic demand failing to meet the Producer expectations , many Industries like the Steel Sector, Cement Sector, Manufacturing Sector have been facing the wrath of the slowdown.
With recession round the corner,The Aviation Industry worldwide has been witnessing excess capacity issues forcing most of the players to either reduce the frequency or flights for the same destination, The Ship Breaking Industry considered to be one of the biggest environmental disasters has witnessed a vast number of outsourcing to underdeveloped and developing economies like Bangladesh and India respectively. The Automobile Industry in the US saw the death of 3 Major Players namely Ford,GM and Chrysler , This itself is the aftermath of slump in automobile sales including the sales of the heavy weights ,followed by unforeseen increase in inventories.
The concept of carpooling has already taken centrestage in few of the developed economies providing ample growth potential for the novelty concept, If these concept can be implemented successfully worldwide, the success of carpooling can be assured owing to its economic factors, the other side of it being the scope to reduce the pollution levels drastically.
Hope the global green house gas emissions reduce drastically paving way for a greener tomorrow, Moreover Tech Firms like IBM,Philips have started to evolve the Think Green concept, Global Energy Giants like Areva of France have started to unleash the potential of renewable resources of energy like Wind,Water and Solar Energy. Emergence of Nuclear fuel as a "Pro-mankind" source of energy is evident.The emegence of Euro-IV for cars worldwide and Bharat-IV for the Indian cars is well appreciated.Quest for alternative sources of fuel is still unconquered,The concept of Carbon credits is yet to enter the Indian Terrain, Its been a big hit overseas. On & On Recession may be bad for you and me, but it is likely a "Breather for Mother Nature".

AJIT JAIN- Another Indian at the helm!

Finally,Ajit jain, who had been touted to head Berckshire Hathaway has been officially declared the successor of Mr. Warren Buffet. .Mr. Ajit is an alumni of IIT, Kharagpur. It is a remarkable achievement for Ajit, an even more remarkable achievement for India.

Mr, Jain currently heads the Insurance Business of Berckshire Hathaway.Jain placed ads in industry publications, offering to take on risk from corporations and insurers for $1 million or more in annual premiums. The cash he has amassed -- $1.7 billion a year on average since 1998 -- has helped make Jain a leading candidate among investors to be Buffett's successor.

Ajit could pull it of successfully from his competitors Joseph Brandon, who runs reinsurer General Re Corp.;Tony Nicely, chief of auto insurer Geico Corp.; Rich Santulli, who runs NetJets Inc., a specialist in business charter flights; and David Sokol, who leads utility owner MidAmerican Energy Holdings Co.

Hope Ajit amasses much more wealth for the Value Investment guru- Warren Buffet.

The Indian Warren Buffet!

Not Every Indian knows about him, India too has its own Warren Buffet - Rakesh Jhunjhunwala - Who started of as a retail investor, now owns an investment company named RARE Enterprise. First two letters of his name and the first two letters of his wife's name - Rekha have been coined together to name it as RARE Enterprises. He made it big during all the rallies, However he too witnessed the various downturns of the Indian stock Markets, The year 2006 which saw the Sensex zooming from 6000 levels to 12600 levels in a year witnessed a downturn where his portfolio became poorer by around 700 crores. There is not much news about his current portfolio especially after the deathblow of sensex post january 2008.
He is the poster boy of the Indian Stock market who successfully survived the Harshad Mehta scam and the Ketan parekh Scam which hit the stock markets on the early nineties and in the early twentieth century respectively. Like Warren Buffet he too believes in Value Investing and very long term investing. Lets wait and watch as to what's in store for him in the future.

Balanced US Dollar favoured!

A WEAK dollar policy won't help revive the US economy, and currency fluctuations are best left up to the marketplace, the head of a top American business lobby said on Friday.

The dollar has sunk to a 13-year low recently against the Japanese yen, trading at below 90 yen, a decline that could help US exporters by boosting their competitiveness in world markets. A weak dollar makes American products cheaper overseas.

Mr Thomas Donohue, president and chief executive of the US Chamber of Commerce, said that view was one-sided.

A weak dollar can hurt other parts of the economy in discouraging capital inflows and eroding the purchasing power of American businesses.

'If you leave it to the market, it goes up and down,' he told reporters, adding that governments and central banks don't need to intervene. 'If you start to manage currencies, it creates more difficulties than it creates benefits.'

Mr Donohue's visit to Japan is part of a trip to Asia, including China and South Korea, to exchange views with political and business leaders on the global recession, the fight against protectionism and efforts to boost world trade.

He said he will urge Japanese Prime Minister Taro Aso to make sure Japan, along with alliance partner the US, does its part with stimulus packages and efforts to open trade to battle the downturn.

Striking an optimistic note, Mr Donohue said the US economy will begin to rebound by the middle of the year and a recovery can be expected by 2010, although it will contract through the first quarter. Source - ST.

SATYAM FIASCO- ITS LIKELY IMPLICATIONS ON INDIA!

The Satyam fiasco has unwinded a new chapter in the History of Corporate fraud in India, doubting the effectiveness of the watchdog of the Indian Stock markets- SEBI- The Official regulator of the Indian Stock markets.
SEBI(Securities & Exchange Board of India) which was formed in 1992 to check the scandals and to prevent the likelyhood of further scandals came up with Corporate Governance to improve the transparency and the investor confidence. The intensity of the fraud was such that Satyam;s market cap shred from 12000 crore to 2705 crore thus shredding off 9295 crore of investor wealth in a single trading session.
The incident is likely to worsen the investor sentiments, jeopardising the lives of 53000 employees of Satyam,Affecting INDIA Inc Financially, The FII's will like to play even more safer now, With no direct bad news- Sensex shed around 60% of its all time high, If news like this evolves, Sensex will have to breach its all time low, The recessionary tendencies might end up paving way for Depressionary tendencies, Any Job Loss will affect the economy as a whole,Prominent clientelle of IT Cos. might end up hunting for a safer haven, This incident might provoke SEBI to go on a investigation spree of various companies, where there is a probability of similar frauds paving in, Satyam might end up being aquired at a dirt-cheap Price thus further ruining Investor Wealth.NSE has already confirmed dat SATYAM shall be delisted w.e.f. 12th Jan. All these events will end up leaving an Indelible patch on India Inc. nationally and Internationally.
All and All the sentiments will be very weak and Investors will be over-Cautious to observe the likelyhood of further events.

2008 - The Year that wasn't.

The Year 2008 had been an year of agony and sorrow for the Investors worldwide-An Year which was characterised by over projected growth estimates,Galloping inflation, High stock market volatility, Housing Bubble burst, global financial Meltdown , death of many organisations,Burgeoning Unemployment rate, economic slowdow, recessionary tendencies and the steep slip of the Giant economies.Its time for Fortune magazine to replace its "Fortune-500" with "MISFORTUNE-500" as most of its so called Fortune 500 companies have been the ones highly affected by the Crisis Storm.Companies like Lehmann Brothers, CITI Group, GM, Ford, Daimler Chrysler, Fannie Mae,Freddie Mac, AIG,Wachovia Corp,Bank of America, Washington Mutual ,Bear Stearns, Bank of Newyork, Goldman Sachs etc had been victims of the Crisis.Chapter-11 has been the most heard buzz word in the recent times.
Terrorism,Madoff scam,Credit card Crisis,Floods & Hurricanes, The never ending israel-palestinian Crisis, Tensed Borders of Ind-Pak,Automobile Industry Debacle, Aviation sector slowdown have been other matters of concern in 2008.
One significant event being the emergence of Barack Obama as the President of America. Though Governments of various countries have come up with stimulus packages to fight the recessionary pressures, The World is awaiting for the moves of Barack Obama to help the world from the clutches of Recession.
From the Indian Perspective, the Year 2008 started off on a high note with Sensex touching 21K in Mid-Jan, Reliance Power going for an IPO , with news round the corner that Sensex is likely to reach 25K by the end of the Year. However all those who were a part of this frenzy had to eat a humble pie when sensex started to fall as if its time to pack up. Sensex reached an all year low of around 7800 points losing almost 60% of its all time high, Research houses have come up with projections of slight decline in India's economic growth due to the global slowdown, IT and Realty sector are the worst hit due to the recession.RBI had been taking all the possible steps to muster confidence in the minds of the investors.

Hope 2009 reverses the downtrends of 2008 and paves way for an Year Full of prosperity for the investors and the country.