Commodity and Commodity Market in India 3

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Commodity and Commodity Market in India : 

Commodity and Commodity Market in India prakash.pgdma10@naarm.ernet.in

Commodities actually offer immense potential to become a separate asset class for market-savvy investors, arbitrageurs and speculators.Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts Commodity market is an important constituent of the financial markets of any country. It is the market where a wide range of products, viz., precious metals, base metals, crude oil, energy and soft commodities like palm oil, coffee etc. are traded, : 

Commodities actually offer immense potential to become a separate asset class for market-savvy investors, arbitrageurs and speculators.Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts Commodity market is an important constituent of the financial markets of any country. It is the market where a wide range of products, viz., precious metals, base metals, crude oil, energy and soft commodities like palm oil, coffee etc. are traded, COMMODITY prakash.pgdma10@naarm.ernet.in

India Commodity Market The size of the commodities markets in India is quite significant.Of the country's GDP of Rs 13, 20,730 crore (Rs 13,207.3 billion), commodities related (and dependent) industries constitute about 58 per cent. The various commodities across the country clock an annual turnover of Rs 1, 40,000 crore (Rs 1,400 billion). Despite having a robust economy, India's share in the global commodity market is not as big as estimated. Except gold the share in other sectors of the commodity market is not very significant. India accounts for 3% of the global oil demands and 2% of global copper demands. In agriculture India's contribution to international trade volume is rather less compared to the huge production base available. : 

India Commodity Market The size of the commodities markets in India is quite significant.Of the country's GDP of Rs 13, 20,730 crore (Rs 13,207.3 billion), commodities related (and dependent) industries constitute about 58 per cent. The various commodities across the country clock an annual turnover of Rs 1, 40,000 crore (Rs 1,400 billion). Despite having a robust economy, India's share in the global commodity market is not as big as estimated. Except gold the share in other sectors of the commodity market is not very significant. India accounts for 3% of the global oil demands and 2% of global copper demands. In agriculture India's contribution to international trade volume is rather less compared to the huge production base available. prakash.pgdma10@naarm.ernet.in

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Spot trading Spot trading is any transaction where delivery either takes place immediately, or with a minimum lag between the trade and delivery due to technical constraints. Spot trading normally involves visual inspection of the commodity or a sample of the commodity, and is carried out in markets such as wholesale markets. Commodity markets, on the other hand, require the existence of agreed standards so that trades can be made without visual inspection. Forward contracts A forward contract is an agreement between two parties to exchange at some fixed future date a given quantity of a commodity for a price defined today. The fixed price today is known as the forward price. Futures contracts A futures contract has the same general features as a forward contract but is transacted through a futures exchange. Hedging Hedging, a common (and sometimes mandatory) practice of farming cooperatives, insures against a poor harvest by purchasing futures contracts in the same commodity prakash.pgdma10@naarm.ernet.in

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prakash.pgdma10@naarm.ernet.in

COMMODITY MARKET EVOLUTION IN INDIA : 

Bombay Cotton Trade Association Ltd., set up in 1875, was the first organized futures market. Bombay Cotton Exchange Ltd. was established in 1893. The Futures trading in oilseeds started in 1900 with the establishment of the Gujarati Vyapari Mandali, which carried on futures trading in groundnut, castor seed and cotton. The most notable futures exchange for wheat was chamber of commerce at Hapur set up in 1913. Futures trading in bullion began in Mumbai in 1920. Forward Contracts (Regulation) Act was enacted in 1952 and the Forwards Markets Commission (FMC) was established in 1953 under the Ministry of Consumer Affairs and Public Distribution. In due course, several other exchanges were created in the country to trade in diverse commodities. COMMODITY MARKET EVOLUTION IN INDIA prakash.pgdma10@naarm.ernet.in

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prakash.pgdma10@naarm.ernet.in

Different types of commodities traded : 

Precious Metals: Gold, Silver, Platinum etc Other Metals: Nickel, Aluminum, Copper etc Agro-Based Commodities: Wheat, Corn, Cotton, Oils, Oilseeds. Soft Commodities: Coffee, Cocoa, Sugar etc Live-Stock: Live Cattle, Pork Bellies etc Energy: Crude Oil, Natural Gas, Gasoline etc Different types of commodities traded prakash.pgdma10@naarm.ernet.in

Different segments in Commodities market : 

The commodities market exits in two distinct forms namely Over the Counter (OTC) market The Exchange based market. Also, there exists the spot and the derivatives segment. The spot markets are essentially over the counter markets and the participation is restricted to people who are involved with that commodity say the farmer, processor, wholesaler etc. Derivative trading takes place through exchange-based markets with standardized contracts, settlements etc. Different segments in Commodities market prakash.pgdma10@naarm.ernet.in

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Leading commodity markets of world Some of the leading exchanges of the world are – New York Mercantile Exchange (NYMEX), The London Metal Exchange (LME) The Chicago Board of Trade (CBOT) Tokyo Commodity Exchange, Japan NYSE Euronext ,EU Dalian Commodity Exchange ,China prakash.pgdma10@naarm.ernet.in

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Leading commodity markets of India The government has now allowed national commodity exchanges, to deal in commodity derivatives in an electronic trading environment. The Forward Markets Commission (FMC) will regulate these exchanges. Consequently four commodity exchanges have been approved to commence business in this regard. They are: Multi Commodity Exchange (MCX) located at Mumbai. National Commodity and Derivatives Exchange Ltd (NCDEX) located at Mumbai. National Board of Trade (NBOT) located at Indore. National Multi Commodity Exchange (NMCE) located at Ahmedabad. prakash.pgdma10@naarm.ernet.in

Turnover on Commodity Futures Markets : 

Turnover on Commodity Futures Markets prakash.pgdma10@naarm.ernet.in

Multi Commodity Exchange : 

Multi Commodity Exchange (MCX) is an independent commodity exchange based in India. It was established in 2003 and is based in Mumbai. The turnover of the exchange for the fiscal year 2009 was US$ 1.24 trillion. Revenue Rs 104.39 crore (2005–2006) In terms of contracts traded, it was in 2009 the world's sixth largest commodity exchange. MCX offers futures trading in bullion, ferrous and non-ferrous metals, energy, and a number of agricultural commodities (mentha oil, cardamom, potatoes, palm oil and others). Multi Commodity Exchange prakash.pgdma10@naarm.ernet.in

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It is regulated by the Forward Markets Commission. MCX is India's No. 1 commodity exchange with 83% market share in 2009 The exchange's main competitor is National Commodity & Derivatives Exchange Ltd. Globally, MCX ranks no. 1 in silver, no. 2 in natural gas, no. 3 in crude oil and gold in futures trading. The highest traded item is gold. MCX has several strategic alliances with leading exchanges across the globe As of early 2010, the normal daily turnover of MCX was about US$ 6 to 8 billion MCX now reaches out to about 800 cities and towns in India with the help of about 126,000 trading terminals MCX COMDEX is India's first and only composite commodity futures price index prakash.pgdma10@naarm.ernet.in

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Key shareholders MR. LAMON RUTTEN Managing Director & CEO  Financial Technologies (I) Ltd., State Bank of India and its associates, National Bank for Agriculture and Rural Development (NABARD), National Stock Exchange of India Ltd. (NSE), Fid Fund (Mauritius) Ltd. - an affiliate of Fidelity International, Corporation Bank, Union Bank of India, Canara Bank, Bank of India, Bank of Baroda , HDFC Bank, SBI Life Insurance Co. Ltd., ICICI ventures, IL&FS, Merrill Lynch, and New York Stock Exchange prakash.pgdma10@naarm.ernet.in

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National Commodity and Derivative Exchanges (NCDEX) is an online commodity exchange based in India. It was incorporated as a private limited company incorporated on 23 April 2003 under the Companies Act, 1956. It obtained its Certificate for Commencement of Business on 9 May 2003. It has commenced its operations on 15 December 2003. NCDEX is a closely held private company which is promoted by national level institutions and has an independent Board of Directors and professionals not having vested interest in commodity markets. prakash.pgdma10@naarm.ernet.in

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NCDEX is a public limited company incorporated on 23 April 2003 under the Companies Act, 1956. NCDEX is regulated by Forward Market Commission (FMC) 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. On 3 February 2006, the FMC found NCDEX guilty of violating settlement price norms and ordered the exchange to fire one of their executive. NCDEX is located in Mumbai and offers facilities in more than 550 centres in India. is a game of dismanage of market R. Ramaseshan, MD & CEO prakash.pgdma10@naarm.ernet.in

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Consortium of Shareholders Life Insurance Corporation of India (LIC) National Bank for Agriculture and Rural Development (NABARD) National Stock Exchange of India (NSE) Punjab National Bank (PNB) CRISIL Limited (formerly the Credit Rating Information Services of India Limited) Indian Farmers Fertiliser Cooperative Limited (IFFCO) Canara Bank Goldman Sachs ICE .etc prakash.pgdma10@naarm.ernet.in

Slide 19: 

NATIONAL BOARD OF TRADE LIMITED (NBOT) was  incorporated on July 30,1999  to offer integrated, state-of-the-art  commodity futures  exchange. It was incorporated to offer transparent and efficient trading platform to various market intermediaries in the commodity futures trade . Today NBOT is one of the fastest growing commodity exchanges recognized by the Government of India under the aegis of the Forward Markets Commission. With a humble beginning of trading in February 2000 its average daily volume has reached a staggering 60,000 MTs (approx.) in terms of Soya oil. It has implemented the state-of-the-art technology and system for efficient handling of Trading, Margining, Clearing and Settlement in respect of all the transactions confirmed by the Exchange. prakash.pgdma10@naarm.ernet.in

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In response to the Press Note issued by the Government of India during May'1999, first state-of-the-art demutualised multi-commodity Exchange, National Multi Commodity Exchange of India Ltd. (NMCE) was promoted by commodity-relevant public institutions, viz., Central Warehousing Corporation (CWC), National Agricultural Cooperative Marketing Federation of India (NAFED), Gujarat Agro-Industries Corporation Limited (GAICL), Gujarat State Agricultural Marketing Board (GSAMB), National Institute of Agricultural Marketing (NIAM), and Neptune Overseas Limited (NOL). It is a zero-debt company; following widely accepted prudent accounting and auditing practices prakash.pgdma10@naarm.ernet.in

Slide 21: 

National Spot Exchange National Spot Exchange is an commodity exchange in India that is a joint venture of Financial Technologies (India) Ltd. (FTIL), Multi Commodity Exchange (MCX) and National Agricultural Cooperative Marketing Federation of India Limited (NAFED). National Spot Exchange has commenced its Live trading operations in different commodities from Wednesday, the 15th October 2008. The Exchange has started trading in Pre-certified cotton bales for Mumbai delivery, Imported Gold bar and silver bar for Ahmedabad delivery from the day one an now has added number of commodities for the spot trading. Its stated mission is to develop a Common Indian Market, by setting up a national level electronic spot market and providing a state of art trading, delivery and settlement facilities in various commodities, which can be accessed from across the country. prakash.pgdma10@naarm.ernet.in

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Salient Features Single day trading contracts Intra day trading with settlement of obligation on net basis All positions outstanding at end of the day resulting into compulsory delivery Demat delivery facility available Fungibility of delivery between National Spot Exchange and MCX with common ICIN nos Loan facility against pledge of demate / warehouse receipt all deliverable futures contracts, including agri commodities, gold silver, non-ferrous metals and wide number of other industrial products to be launched cash futures arbitrage opportunity prakash.pgdma10@naarm.ernet.in

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National Multi Commodity Exchange of India Limited (NMCEIL) is the first de-mutualized, Electronic Multi-Commodity Exchange in India. On 25th July, 2001, it was granted approval by the Government to organise trading in the edible oil complex. It has operationalised from November 26, 2002. It is being supported by Central Warehousing Corporation Ltd., Gujarat State Agricultural Marketing Board and Neptune Overseas Limited. It got its recognition in October 2002. . National Multi Commodity Exchange of India Limited (NMCEIL) prakash.pgdma10@naarm.ernet.in

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