STUDY On

Investor Awareness and impact of speculation in commodity market

With Reference To

SHAREKHAN Pvt. Ltd.

Synopsis submitted to the SIVA SIVANI INSTITUTE OF MANAGEMENT, Secundrabad in the partial fulfillment for the award of the degree of PGDM (BIFAAS)

Under Guidance Of

Dr. V.G. Chari Director Siva Sivani Institute of Management Submitted By Subrat Kumar Mohanty B4-53(BIFAAS)
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CONTENT
1. Company Profile.3 2. Literature Review...4 3. Introduction.5 4. Objective of the Study7 5. Methodology7 6. Hypothesis8 7. Calculation & Interpretation.9 8. Finding and Suggestion..10 9. Limitations of Study...10 10. Bibliography...11

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COMPANY PROFILE:
Share khan is an 80 year old company and has its link to SSKI. Share Khan started as a retail arm of SSKI and slowly developed into a large organization having 704 share shops in 280 cities across the country. It has about 31,000 employees with a customer base of more than 5, 00,000. Share khan deals with wide variety of products namely equities, derivatives, commodities, IPO, mutual fund, research, portfolio management and other structured products.
Mission: to educate and empower the individual investor to make better investment decision

through Quality Advice, Innovative products and superior service.

Operations: Share khan offers three modes of trade transaction means. They are Share shops A customer can directly visit any of the share shop to trade. Online trading A customer can trade on his own by using the online trading mode. Dial & trade A customer can ring up to any dealer or the relationship manager and can execute his trade.

Sharekhan offers the trade execution facilities for cash as well as derivatives, on BSE and NSE, depository services, commodities trading on the MCX(Multi Commodity Exchange of India Ltd) and NCDEX (National Commodity and Derivative Exchange) and most importantly, investment advice tempered by eighty years of broking experience. Sharekhan provides the facility to trade in commodities through Sharekhan Commodities Pvt. Ltd a wholly owned subsidiary of its parent SSKI. Sharekhan is the member of two major commodity exchanges MCX and NCDEX.

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LITERATURE REVIEW
To understand the awareness about the commodity market among investors, first one should understand about commodity market basic;

NCFM Commodity module: This module is specially framed to understand the basic of commodity market, which is very much required if you want to understand about the awareness of the investors about the commodity market.

NMCE Report on commodity 2008: This report gives a detail about how to analysis on a particular commodity. It also explains what are the factors affect it and how it affects it.

The Influence of Financial Derivatives in Global Commodity Markets: Its a research done by Accenture group to indentify how these commodity futures which are traded in paper affect the commodity prices in real market. In it they discussed about two circles, a short term circle and a long term circle. And finally showed how these speculations affect commodity prices.

How Wall Street Speculation is driving up Gasoline Prices 2011 by Robert Pollin and
James Heintz : Pollin and Heintz examine the factors contributing to the recent run up in gas

prices for consumers. They find that to a significant extent, this is the result of the economy moving out of a deep recession, into a recovery, which has increased the demand for gasoline. But a major additional factor is the rapid growth in large-scale speculative trading around oil prices through the oil commodities futures market. They estimate that, without the influence of large-scale speculative trading on oil in the commodities futures market, the average price of gasoline at the pump in May 2011 would have been $3.13 rather than $3.96. This means that the average U.S. consumer paid a 83-cent-per-gallon premium in May for their gasoline purchases due to the huge rise in the speculative futures market for oil.

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INTRODUCTION:
Commodity futures trading has been first recorded in the 17th century in Japan. The futures trading was basically done with the seasonal agricultural products so as to ensure their continuous supply all the year around. Japanese merchants used to store rice in the warehouses for their future use and used to sell receipts against such stored rice. Commodity derivative market first started in India in cotton in the 1875 and in the oilseeds in 1900 at Bombay. Forward trading in raw jute and jute goods started at Calcutta in the year 1912. But however, within few years of their establishment, the forwards trading in these commodities was banned in the year 1960. Recently, in the year 2003, such ban on trading was lifted and the trading in commodity futures was started.

Commodity Exchanges in India: In India, there are about 25 recognized regional exchanges of which 4 are national level multicommodity exchanges. These three national level multi-commodity exchanges are, National Commodity and Derivative Exchange Limited( NCDEX) Multi-Commodity Exchange Of India( MCX) National Multi-Commodity Exchange Of India Limited ( NMCEIL) National Board of Trade (NBOT)

All the above exchanges have been set up under the overall control of Forward Market Commission of Government of India.

Commodities Traded over the Exchanges: Commodities that can be traded over the exchanges are as follows: Bullion Oil Oilseeds Spices Metals Gold and Silver & Castor Seeds, Soya Seeds, Castor Oil, Refined Soya Oil, Soya meal, Crude Palm Oil, Groundnut Oil, Mustard Seed, Cotton Seed Oil Cake, Cottonseed. Pepper, Red Chilly, Jeera, Turmeric, Cardamom Steel Long, Steel Flat, Copper, Nickel, Zinc, Tin, Steel, Aluminum

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Fibre Pulses Grains Energy Others

Kapas, Long Staple Cotton, Medium Staple Cotton Chana. Urad, Yellow Peas, Tur, Rice, Basmati Rice, Wheat, Maize, Sarbati Rice, Jeera Crude Oil, Natural Gas, Brent Crude Rubber, Guar Seed, Guar Gum, Cashew, Cashew Kernel, Sugar, Gur, Coffee, Silk, Sugar.

Participants: Participants who trade in the commodity market can be classified under three broad categories namely:

Hedgers: Hedgers face the risk associated with the asset. They use the futures market to reduce a particular risk that they face. Hedgers are people who hold simultaneous positions in the spot market also. These are generally the actual consumers or producers of the commodities. Speculators: Speculators are those people who participate in the market for the profits and are ready to face the risk involved in the market. A speculator can be anyone from an individual who has a small surplus income to treasury desks of banks and corporate. Arbitrageurs: Arbitrageur are the market participants who make profit using price differences in two different markets without exposing oneself to any type of risk. Arbitraging is a very profitable business.

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OBJECTIVES OF THE STUDY:

Objective 1: The objective is to test whether the awareness of the commodity markets and the stock market is the same. Objective 2: The objective is to determine whether people who trade in futures and options of the stock market, trade in commodity market also or not. Objective 3: The objective is to analyze the purpose of investment in the commodity market by the people participating in commodity market and those who will participate in recent future and how speculation affected the price commodity

METHODOLOGY:
Research Design: The study is designed to understand the investor awareness about commodity market and how to analyze a particular commodity (Example of Nickel is taken). And finally impact of speculation is explained with respect to commodity market. Data: For research, both; Primary data and Secondary data has been used to find out the result. Data Collection Technique: For collection of data first, we have adopted survey technique, where we given questionnaires to fill. Second, through tele-calling we interviewed and extracted the data. Secondary data has been collected through the articles and internet. Statistical Tools:

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Statistical tool used here is Chi-square test, to understand the awareness and trading pattern of the investors. Graphs and charts are also been used to get a clear pictorial understanding of investor preference.

HYPOTHESIS
In objective 2: Null Hypothesis: Ho: There is no significant difference between the level of awareness between the investors of the share market and that of the commodity market. Alternate Hypothesis: Ha: There is significant difference between the level of awareness between the investors of the share market and that of the commodity market

In objective 3: Null Hypothesis: Ho: There is no significant difference between people who trade in futures and options in the share market and that of the people who trade in commodity market. Alternate Hypothesis: Ha: There is a significant difference between people who trade in futures and options in the share market and that of the people who trade in commodity market.

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CALCULATION & INTERPRETATION

Objective 1: Calculated value of Chi- Square = (O-E) ^2 / E = 32.7469 Theoretical value of chi-square at d.f =8 and level of significance 0.05 is 15.507 Interpretation: The awareness about the commodity market is less as compared to the equity market as the commodity markets are still in the nascent stage and need some more time to get mature. Objective 2: Calculated value of Chi- Square = (O-E) ^2 / E = 12.7080 Theoretical value of chi-square at d.f = 4 and level of significance 0.05 is 9.488 Interpretation: People who trade in futures and options of the equity market do not trade in the commodity market possibly due to the following reasons: As investor dont have much awareness about commodity market, that is one of the reason there is less trading in commodity futures comparison to stock futures and options. As the commodity markets are not yet mature the number of participants is very less, due to which the liquidity is less as compared to the stock markets. The minimum margin money required for trading in commodity futures is more as compared to the margin money required for trading in the share market. Objective 3:
Interpretation: Most of the people participating in the commodity markets trade only as

speculators and not as hedgers due to the following reasons:

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 Recent data shows that there is a greater scope of high returns ( more than 25%) in the commodity markets, this high returns incentivizes the speculators to invest more for profit maximisation. Most of the people who are investing now a days are not bascially trader, who need delivery. They are just interested in profit making.

FINDING AND SUGGESTION

Indian commodity market is still nascent and the main reason for that is people dont have much awareness about the commodity market and this is the main reason more number of people trade in stock future and option then in commodity future. Primary research also reveals the fact that the amount of speculation is increasing in the commodity market due to which prices of the commodity are going up. And from this industries and trader and consumers are being affected and that is one of the reason due to which prices of related products will get affected and it may lead to inflation.

So, to improve awareness about in commodity market we need to approach people and trader about commodity market and explain them how they can hedge their risk. One another way is to make popular the commodity training course given by NCFM and NCDEX so that we can bring more people under the awareness umbrella. Governments should think of some solution for speculation so that it can be brought under control.

LIMITATION OF STUDY:
The analysis result and its interpretations are limited to the city of Hyderabad only. The survey is done among those investors who have some knowledge of trading and not of the general public or farmers. The random sampling technique has been used for the primary research, i.e., no segregation is done on the basis of the age, gender, type of trading (Equity or commodities).

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BIBLOGRAPHY
Commodity Exchanges: http://www.mcxindia.com http://www.ncdex.com/aboutus/index.aspx http://www.nmce.com Commodity Market: http://www.sharekhan.com/Commodity/ http://www.indiainfoline.com/commodities/commoditieshp.asp?lmn=3

Research Reports: www.peri.umass.edu/236/hash/.../publication/470/ Book: NCFM - Commodity derivative module basic.

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