Commodity
Content
2
Agenda
Overview Arbitrage Opportunities Hedging Opportunities Investment Opportunities Institutional Participation NCDEX
3
Role of an Exchange
Anonymous auction for price discovery Neutrality - conflict of interest avoided Transparent real time price dissemination
Benchmark reference price Liquidity to participants
Risk Management in a volatile market
Robust Clearing & Settlement systems - counter party credit risk mitigated Fair, safe, orderly market - rigorous financial standards and surveillance procedures
4
Benefits of trade on Futures Market
Risk transfer platform from actual users to traders / speculators
Helps hedgers concentrate on core activity
Long term price signals help
Farmers to decide cropping pattern Corporate managers to take investment / capital expenditure decisions
Cover sales and raw materials risk Cost of Capital reduced Arbitrage opportunities
A good investment option
5
Myths about commodity exchanges
Commodity exchanges are speculative markets not meant for actual users
Speculators infuse liquidity to enable hedgers to transfer their price risk
If commodity exchanges do not enable physical delivery, they are then only for speculators
Exchanges are meant for price discovery and physical delivery is only incidental
As Exchanges gain liquidity actual users will separate hedging from physical delivery
6
Myths about commodity exchanges
How can trading volume be greater than actual production in that commodity? Open Interest is the only true indicator of the depth of the market E.g.: Trading volume in Infosys / Reliance in the Capital markets is a multiple of the outstanding shares Can an Exchange have a price view? Exchange is a platform for price discovery– It is only the thermometer of the price movements and is not responsible for the price movements
NCDEX rigorously monitors & controls level of and composition of Open interest in any commodity
7
Evolution of Commodity markets in India
Ban in forward trading in mid-sixties Emergence of national level online multi-commodity exchanges 3 National level and 21 regional Trade in 60 commodities compared with just 8 in 2000 Volumes of Rs 571,000 crores in 2004-05 Volume first two months of 2005-06 reached 1,90,000 crores (800 % growth over 25,000 crores in 2004-05)
Traded volume in 2004-05 around 20% of India’s GDP
8
Regulatory Structure in India
Ministry of Finance Ministry of Consumer Affairs
National Housing Bank
Insurance Regulatory Pension Funds Regulatory Development Authority Development Authority (PFRDA) (IRDA)
Company Law Board
FMC
Housing Finance Companies
Insurance
Pension Funds
Corporates
Commodity Exchanges
SIDBI
RBI
SEBI
NABARD
State Financial Institutions
Banking / NBFCs
Capital Markets
Co-operative Banks & Regional Rural Banks
10
Structure of Indian Commodity Futures Exchanges
FMC
Commodity Exchanges
National exchanges
Regional exchanges
NCDEX
NMCE
MCX
NBOT
20 Other Regional Exchanges
11
Growth in volumes of Indian Commodity Exchanges
Rs Crores
6 0 0 ,0 0 0 5 0 0 ,0 0 0 4 0 0 ,0 0 0 3 0 0 ,0 0 0 2 0 0 ,0 0 0 1 2 9 ,4 0 0 1 0 0 ,0 0 0 0 4 ,5 0 0 2001-02 2002-03 2003-04 2004-05 6 6 ,5 0 0 5 7 1 ,0 0 0
Impressive growth of 341 % between 2003-04 to 2004-05
12
Volumes of Indian Commodity Exchanges
Rs Crores
M arket T rad e Value M CX , 157246, 28%
Others, 87418, 15% NBOT , 50875, 9% NM CE, 9001, 2%
NCDEX , 266460, 46%
NCDEX
NM CE
NBOT
Others
M CX
13
Agenda
Overview Arbitrage Opportunities Hedging Opportunities Investment Opportunities Institutional Participation NCDEX
14
Arbitrage opportunities
Law of One Price – “a commodity cannot command two different prices in two different markets ” Arbitrage opportunities emerge out of pricing inefficiencies
Between the cash & derivatives market Between two futures contracts with different expiry dates Between two or more exchanges
15
Arbitrage Opportunities
Annualized Returns on Contract over Spot (in %)
June Grade A parboiled Rice Gram Urad Sugar Raw Jute Guar Seed Gold Silver Copper
16
July 88 84 28 13 85 25 12 57 19 3 68 15 5.8 7.3 29.5
August 2.5 46 9 5 48 13 8.3 5.9 18.3
N.A. 8.5 N.A.
Agenda
Overview Arbitrage Opportunities Hedging Opportunities Investment Opportunities Institutional Participation NCDEX
17
Raw material intensive industry
Industry Ratio of Raw materials/Net sales 92.2 89.6 88.0 86.2 85.8 85.5 84.9 76.7 73.7
Soyabean products Vanaspati Vegetable oils Refinery products Petroleum products Steel wires Gems and jewellery Textile products Bakery and milling
Aluminium products
Polymers Automobiles
18
73.8
70.0 68.3 Source: CMIE
Steel: Need for hedging mechanism
Characterized by high volatility during the last 2 years Steel market expected to remain volatile Participants need a mechanism to reduce price risk Steel futures can help mitigate price risk Steel futures will give an indication of future trend in steel prices
19
Seller‟s hedge - assumptions
Price of saleable steel falls by 10% in FY02 Steel hedged at FY01 prices Decrease in PBDIT solely due to fall in price of saleable steel
20
Seller‟s Hedge
FY00 FY01 FY02 FY03 FY04
Saleable Steel Prices (Rs/Ton)
Quantity Sold
(„000 tonnes)
16500
2668 1291
18500
2446 1507
16600 (10%)
2731 1179
20300
3448 2208
24500
3473 3548
PBDIT
(Rs Crore)
(22%)
(* Saleable steel constitutes approx. 72% of sales)
If hedged completely, could have made incremental profits of Rs 518 crores, 44% higher
21
Buyer‟s Hedge - assumptions
Prices increase by 17% in FY04 Prices hedged at FY03 prices Decrease in PBDIT is solely because of increase in raw material component
22
Case Study-Buyers Hedge
FY00 HR Coils Prices (Rs/Ton) Quantity purchased 13728 FY01 15736 FY02 13115 FY03 16776 FY04 19626 (17%) 340996
299927
261118
265973
350807
PBDIT
183.39
240.23
160.15
637.74
635.56
(1%)
The company could have saved the loss of around Rs 97 crores by hedging, i.e. 15% higher profits
23
Effect of Price shock
Rs crores
Ratio of RM Net Sales RM Cost to Net Sales Soy Bean products Sugar Gems & Jewllery (Gold) Steel
Source: CMIE
PBT 98 66 99 6134
Increase of 5 % in raw materials -280 -357 -358 -1991
6103.1 9620.7 8462.7 73074
5600 7143 7150 39830
92 74 84 54
Even an increase of 5 % in cost of raw materials could wipe out the profits of a raw material intensive commodity
24
Agenda
Overview Arbitrage Opportunities Hedging Opportunities Investment Opportunities Institutional Participation NCDEX
25
Conducive drivers
Beginning of the Bull phase after 20 years of Bear market Escalating commodities demand from Asia, especially China Depreciating dollar – shift to hard currencies like Gold Inflationary pressures build-up Surging energy prices – leading to energy crisis Rise in commodity demand with economic recovery
26
NCDEX Agri vs. NSE-Nifty
1350.00 2500
1300.00 2000 1250.00 1500
1200.00
1150.00
1000
1100.00 500 1050.00
1000.00 16-Dec-02 05-May-03 22-Sep-03 09-Feb-04 28-Jun-04 15-Nov-04
0 04-Apr-05
NCDEX Index
NSENIfty
Correlation coefficient is 0.02
27
Correlation: 1997-05
Correlation Coefficients in Indian m arkets Gold Silver Stocks Bonds Gold 1 0.55 -0.09 -0.076 Silver 1 -0.06 -0.015 Stocks 1 0.112 Bonds 1
Data: LBMA bullion prices, NSE Nifty, NSE G-Sec Index
Benefit of diversification can be seen from the Risk Adjusted Returns
28
Volatility comparison – 1997-05
Average annual volatility Sensex or Nifty - 25-30% Govt Sec Index - 5-10% Gold - 12-18% Silver - 15-20% Cotton - 10-12% Oil seeds - 15-20%
Commodities are less volatile compared to equity market, but more volatile as compared to G-Sec‟s
29
Portfolio diversification & value investing
Low co-relation between stocks/bonds and the commodities market Better diversification of portfolio Commodity markets are less risky compared with stock market. Reduces risks in a diversified portfolio
30
Risk-Adjusted Returns:1997-05
Portfolio structure 100% Stock Portfolio Stocks (50% ) & Gold (50% ) Portfolio Stocks (50% ) & Silver (50% ) Portfolio 100% Gold Portfolio 100% Silver Portfolio 100% Bonds Portfolio Bonds (50% ) & Gold (50% ) Portfolio Bonds (50% ) & Silver (50% ) Portfolio
31
Ab s Cumulative Returns
73.70% 47.80% 48.30%
Risk of Risk Adjusted portfolio Return 3.017 24.43% 3.326
14.37%
3.634
13.29%
21.80% 22.90% 25.20% 23.50% 24.00%
7.92% 8.79% 6.58%
2.001 1.742 3.182 2.673 3.647
Agenda
Overview Arbitrage Opportunities Hedging Opportunities Investment Opportunities Institutional Participation NCDEX
32
Regulatory Facilitation
Institutional Participation Banks,MFs, PFs, FIIs
Pool the retail money to the market, boost liquidity & volume Benefit of ‘upside’ for value-investing Benchmarking the market
Exchange Traded Options Trading on Commodity Indices
33
Banks - Present Scenario
Not allowed to trade on commodity exchange Not allowed to do margin financing against commodities Bank lending to commodities remained very low Commodity a ‘sensitive sector’ Not under priority sector lending Credibility of Warehouse receipts Reliability of the warehouse Hedging not possible
Bank lending against commodities was only Rs 9,952 cr out of Rs 8,64,143 cr i.e. 1.1% as on March’04
34
Involvement of Banks
Banks as aggregators
Institutions with good rural presence and sufficient financial expertise and infrastructure
Banks can hedge their agri and corporate loans Banks as market makers for price stabilization
Role similar to the role of RBI for stabilization of dollar prices
Banks as dealers in commodity markets
35
FII presence
Benefits
Issues involved
More liquidity Broaden and deepen markets Help in the utilization of capital Global experiences Research Best practices
Concentration and control over prices of crucial commodities Physical delivery Withdrawal from the country
36
Involvement of Mutual Funds
Mutual Funds can bring liquidity and professional skill in the commodity market Mutual Funds can mobilize small savings and invest in commodities and commodity derivatives Easiest route for retail investment
37
Options and indices
Options
Provides benefit of upside Substitute MSP of government Not allowed under FCRA Need for changes in the Act
Indices
Weather indices Regulatory changes needed
38
Agenda
Overview Arbitrage Opportunities Hedging Opportunities Investment Opportunities Institutional Participation NCDEX
39
NCDEX – Current shareholders
NABARD 15%
NSE 15%
IFFCO 12%
CRISIL 12%
ICICI Bank 15%
LIC 15%
Canara Bank 8%
PNB 8%
-Only institutions are our shareholders -NCDEX fully compliant with shareholding guidelines
40
Independent Board of Directors
Name
Shri U. S. Awasthi Shri R.N. Bharadwaj Shri B.V. Bhargava Shri S.H. Bhojani Shri Dileep Choksi Shri D. S. Kolamkar Smt Ranjana Kumar Shri Ravi Narain Shri Lamon Rutten Shri Ravi Mohan Dr. Ajay Shah Shri H.N. Sinor Shri P. H. Ravikumar
41
Organisation
MD, IFFCO Chairman, LIC Chairman, CRISIL Partner, Amarchand Mangaldas & Co. Sr. Partner, C.C Choksi & Co. Director, FMC Chairperson, NABARD MD & CEO, NSE Chief - Finance & Energy, UNCTAD MD, CRISIL Consultant, Ministry of Finance CEO & Secretary, IBA MD, NCDEX
Expertise in
Agriculture Insurance Credit rating/finance Legal Accounting Market Regulation Rural finance/Banking Exchange operation Finance & Energy Credit rating Economics & Finance Banking & Finance Banking & Finance
Product Calendar
Dec 2003
Gold, Silver, Crude Palm oil, RBD Palmolein, Cotton, Mustard seed, Mustard oil Soybean, Refined soy oil
Apr-Dec 2004
Guar seed, Jute sacking, Chana, Rubber, Pepper, Wheat, Castor seed, Guar gum, Raw jute, Urad, Yellow peas, Sugar, Turmeric, Soymeal
Jan – May 2005
Gur, Rice, Maize, Raw silk, Cocoon, Jeera, Chilli, Steel, Cashew, Cottonseed oilcake, Sesame seed, Tur, Arabica & Robusta Coffee, Copper Cathode
In pipeline
Other base Metals, Energy Products, More Agricultural products
Each product is selected after an in-depth research & market feedback
42
Average daily volumes
Rs cr
2500 2231 2015 2000 2095
Peak Volume for a single day Rs. 4271 cr on Mar 30 ‘05
1619 1444 1231 1229
1500
1000 691 500 55
Q2 2004 Q3 2004 Oct -N ov 04 D e c - '0 4 J a n '0 5 Fe b '0 5 M a r '0 5 A p r '0 5 M a y '0 5
21 0
Q1 2004
Impressive growth of NCDEX with 85% volume contribution from agriculture
43
Robust Deliveries - 2005
TOTA L D ELIVERIES (in m et ric t onnes)
50000 44904 40000 30000 20000 10000 0 4686 J an-05 Feb-05 M ar-05 A pr-05 M ay -05 J un-05 22904 15624 36352.35 28301
TOTA L DELIVERIES
Deliveries of over 1,10,000 MT in first quarter 2005-06
44
Deliveries to Open Interest – June 2005
June deliverables in Metric tonnes 2697 7990 1270 940 110 12810 756 9779 36352 Deliveries to Open Interest 99% 98% 88% 87% 85% 84% 83%
COMMODITY 1 2 3 4 5 6 7 JEERA URAD CASTOR SEED GUARGUM SUGAR S SUGAR M PEPPER Others Total quantity for delivery
Open Interest 2721 8160 1450 1085 130 15260 910
Deliveries in over 18 commodities
45
Architecture for Price Discovery
610
6600
Spot Price polling
70,000 daily trades
members
terminals
490 centres
155,0000 daily orders
37 commodities
250 Awareness Programmes
46
80% agri volume 100 delivery centres
Monthly Deliveries of 40-45000 tt
Price dissemination: Choose your crop
Radio TV Channels E-chaupals
N-logue
News agencies PCOs
Newspapers & journals Kisan call centres AGMARKNET
IFFCO, HAFED Warehouses
Bank branches
47
NCDEX‟s integrated financial solution for farmers
48
Pre-harvest
Price hedging
NCDEX
Aggregator
Farmers
Insurance
Bank
Finance
Buffering yourself from nature’s vicissitudes
49
Post Harvest Scenario
Farmer sees NCDEX spot and futures prices
Sells futures On NCDEX
Approaches mandi of choice
Lodges goods in NCDEX/NCMSL warehouse
90
WAREHOUSES
Goods assayed by approved assayers
Working with all leading assayers NCMSL arranges credit
50
Warehouse Receipt
in electronic form
Bank finance against WR
Grading and Standards: Improve your prospects
IARI
Grading in rice, wheat maize CIRCOT Grading in cotton Quality standards
51
Impact of NCDEX on Prices
Guar Seed Price (Rs/qtl) FY 02 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 823 821 698 758 FY 03 840 1575 1434 1439 FY 04 1217 847 978 958 FY 05 1082 1625 1669 1534 1st Qtr Raw Jute Price (Rs qtl) FY 02 1146 FY 03 1008 FY 04 842 FY 05 1056
2nd Qtr
3rd Qtr 4th Qtr
1042
1042 1167
857
827 804
823
784 794
1405
1557 1303
Castor Seed price (Rs/20 kgs) FY 02 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 197 224 211 211 FY 03 247 263 297 363 FY 04 375 287 292 300 FY 05 304 357 348 305
Prices are those received by the farmers after adjusting for the taxes and other incidentals. The Prices are from the following mandis: Bikaner, Calcutta and Ahmedabad. Numbers marked in red pertain to Prices after trading was enabled on NCDEX.
52
Thank You
53
Agenda
Overview Arbitrage Opportunities Hedging Opportunities Investment Opportunities Institutional Participation NCDEX
3
Role of an Exchange
Anonymous auction for price discovery Neutrality - conflict of interest avoided Transparent real time price dissemination
Benchmark reference price Liquidity to participants
Risk Management in a volatile market
Robust Clearing & Settlement systems - counter party credit risk mitigated Fair, safe, orderly market - rigorous financial standards and surveillance procedures
4
Benefits of trade on Futures Market
Risk transfer platform from actual users to traders / speculators
Helps hedgers concentrate on core activity
Long term price signals help
Farmers to decide cropping pattern Corporate managers to take investment / capital expenditure decisions
Cover sales and raw materials risk Cost of Capital reduced Arbitrage opportunities
A good investment option
5
Myths about commodity exchanges
Commodity exchanges are speculative markets not meant for actual users
Speculators infuse liquidity to enable hedgers to transfer their price risk
If commodity exchanges do not enable physical delivery, they are then only for speculators
Exchanges are meant for price discovery and physical delivery is only incidental
As Exchanges gain liquidity actual users will separate hedging from physical delivery
6
Myths about commodity exchanges
How can trading volume be greater than actual production in that commodity? Open Interest is the only true indicator of the depth of the market E.g.: Trading volume in Infosys / Reliance in the Capital markets is a multiple of the outstanding shares Can an Exchange have a price view? Exchange is a platform for price discovery– It is only the thermometer of the price movements and is not responsible for the price movements
NCDEX rigorously monitors & controls level of and composition of Open interest in any commodity
7
Evolution of Commodity markets in India
Ban in forward trading in mid-sixties Emergence of national level online multi-commodity exchanges 3 National level and 21 regional Trade in 60 commodities compared with just 8 in 2000 Volumes of Rs 571,000 crores in 2004-05 Volume first two months of 2005-06 reached 1,90,000 crores (800 % growth over 25,000 crores in 2004-05)
Traded volume in 2004-05 around 20% of India’s GDP
8
Regulatory Structure in India
Ministry of Finance Ministry of Consumer Affairs
National Housing Bank
Insurance Regulatory Pension Funds Regulatory Development Authority Development Authority (PFRDA) (IRDA)
Company Law Board
FMC
Housing Finance Companies
Insurance
Pension Funds
Corporates
Commodity Exchanges
SIDBI
RBI
SEBI
NABARD
State Financial Institutions
Banking / NBFCs
Capital Markets
Co-operative Banks & Regional Rural Banks
10
Structure of Indian Commodity Futures Exchanges
FMC
Commodity Exchanges
National exchanges
Regional exchanges
NCDEX
NMCE
MCX
NBOT
20 Other Regional Exchanges
11
Growth in volumes of Indian Commodity Exchanges
Rs Crores
6 0 0 ,0 0 0 5 0 0 ,0 0 0 4 0 0 ,0 0 0 3 0 0 ,0 0 0 2 0 0 ,0 0 0 1 2 9 ,4 0 0 1 0 0 ,0 0 0 0 4 ,5 0 0 2001-02 2002-03 2003-04 2004-05 6 6 ,5 0 0 5 7 1 ,0 0 0
Impressive growth of 341 % between 2003-04 to 2004-05
12
Volumes of Indian Commodity Exchanges
Rs Crores
M arket T rad e Value M CX , 157246, 28%
Others, 87418, 15% NBOT , 50875, 9% NM CE, 9001, 2%
NCDEX , 266460, 46%
NCDEX
NM CE
NBOT
Others
M CX
13
Agenda
Overview Arbitrage Opportunities Hedging Opportunities Investment Opportunities Institutional Participation NCDEX
14
Arbitrage opportunities
Law of One Price – “a commodity cannot command two different prices in two different markets ” Arbitrage opportunities emerge out of pricing inefficiencies
Between the cash & derivatives market Between two futures contracts with different expiry dates Between two or more exchanges
15
Arbitrage Opportunities
Annualized Returns on Contract over Spot (in %)
June Grade A parboiled Rice Gram Urad Sugar Raw Jute Guar Seed Gold Silver Copper
16
July 88 84 28 13 85 25 12 57 19 3 68 15 5.8 7.3 29.5
August 2.5 46 9 5 48 13 8.3 5.9 18.3
N.A. 8.5 N.A.
Agenda
Overview Arbitrage Opportunities Hedging Opportunities Investment Opportunities Institutional Participation NCDEX
17
Raw material intensive industry
Industry Ratio of Raw materials/Net sales 92.2 89.6 88.0 86.2 85.8 85.5 84.9 76.7 73.7
Soyabean products Vanaspati Vegetable oils Refinery products Petroleum products Steel wires Gems and jewellery Textile products Bakery and milling
Aluminium products
Polymers Automobiles
18
73.8
70.0 68.3 Source: CMIE
Steel: Need for hedging mechanism
Characterized by high volatility during the last 2 years Steel market expected to remain volatile Participants need a mechanism to reduce price risk Steel futures can help mitigate price risk Steel futures will give an indication of future trend in steel prices
19
Seller‟s hedge - assumptions
Price of saleable steel falls by 10% in FY02 Steel hedged at FY01 prices Decrease in PBDIT solely due to fall in price of saleable steel
20
Seller‟s Hedge
FY00 FY01 FY02 FY03 FY04
Saleable Steel Prices (Rs/Ton)
Quantity Sold
(„000 tonnes)
16500
2668 1291
18500
2446 1507
16600 (10%)
2731 1179
20300
3448 2208
24500
3473 3548
PBDIT
(Rs Crore)
(22%)
(* Saleable steel constitutes approx. 72% of sales)
If hedged completely, could have made incremental profits of Rs 518 crores, 44% higher
21
Buyer‟s Hedge - assumptions
Prices increase by 17% in FY04 Prices hedged at FY03 prices Decrease in PBDIT is solely because of increase in raw material component
22
Case Study-Buyers Hedge
FY00 HR Coils Prices (Rs/Ton) Quantity purchased 13728 FY01 15736 FY02 13115 FY03 16776 FY04 19626 (17%) 340996
299927
261118
265973
350807
PBDIT
183.39
240.23
160.15
637.74
635.56
(1%)
The company could have saved the loss of around Rs 97 crores by hedging, i.e. 15% higher profits
23
Effect of Price shock
Rs crores
Ratio of RM Net Sales RM Cost to Net Sales Soy Bean products Sugar Gems & Jewllery (Gold) Steel
Source: CMIE
PBT 98 66 99 6134
Increase of 5 % in raw materials -280 -357 -358 -1991
6103.1 9620.7 8462.7 73074
5600 7143 7150 39830
92 74 84 54
Even an increase of 5 % in cost of raw materials could wipe out the profits of a raw material intensive commodity
24
Agenda
Overview Arbitrage Opportunities Hedging Opportunities Investment Opportunities Institutional Participation NCDEX
25
Conducive drivers
Beginning of the Bull phase after 20 years of Bear market Escalating commodities demand from Asia, especially China Depreciating dollar – shift to hard currencies like Gold Inflationary pressures build-up Surging energy prices – leading to energy crisis Rise in commodity demand with economic recovery
26
NCDEX Agri vs. NSE-Nifty
1350.00 2500
1300.00 2000 1250.00 1500
1200.00
1150.00
1000
1100.00 500 1050.00
1000.00 16-Dec-02 05-May-03 22-Sep-03 09-Feb-04 28-Jun-04 15-Nov-04
0 04-Apr-05
NCDEX Index
NSENIfty
Correlation coefficient is 0.02
27
Correlation: 1997-05
Correlation Coefficients in Indian m arkets Gold Silver Stocks Bonds Gold 1 0.55 -0.09 -0.076 Silver 1 -0.06 -0.015 Stocks 1 0.112 Bonds 1
Data: LBMA bullion prices, NSE Nifty, NSE G-Sec Index
Benefit of diversification can be seen from the Risk Adjusted Returns
28
Volatility comparison – 1997-05
Average annual volatility Sensex or Nifty - 25-30% Govt Sec Index - 5-10% Gold - 12-18% Silver - 15-20% Cotton - 10-12% Oil seeds - 15-20%
Commodities are less volatile compared to equity market, but more volatile as compared to G-Sec‟s
29
Portfolio diversification & value investing
Low co-relation between stocks/bonds and the commodities market Better diversification of portfolio Commodity markets are less risky compared with stock market. Reduces risks in a diversified portfolio
30
Risk-Adjusted Returns:1997-05
Portfolio structure 100% Stock Portfolio Stocks (50% ) & Gold (50% ) Portfolio Stocks (50% ) & Silver (50% ) Portfolio 100% Gold Portfolio 100% Silver Portfolio 100% Bonds Portfolio Bonds (50% ) & Gold (50% ) Portfolio Bonds (50% ) & Silver (50% ) Portfolio
31
Ab s Cumulative Returns
73.70% 47.80% 48.30%
Risk of Risk Adjusted portfolio Return 3.017 24.43% 3.326
14.37%
3.634
13.29%
21.80% 22.90% 25.20% 23.50% 24.00%
7.92% 8.79% 6.58%
2.001 1.742 3.182 2.673 3.647
Agenda
Overview Arbitrage Opportunities Hedging Opportunities Investment Opportunities Institutional Participation NCDEX
32
Regulatory Facilitation
Institutional Participation Banks,MFs, PFs, FIIs
Pool the retail money to the market, boost liquidity & volume Benefit of ‘upside’ for value-investing Benchmarking the market
Exchange Traded Options Trading on Commodity Indices
33
Banks - Present Scenario
Not allowed to trade on commodity exchange Not allowed to do margin financing against commodities Bank lending to commodities remained very low Commodity a ‘sensitive sector’ Not under priority sector lending Credibility of Warehouse receipts Reliability of the warehouse Hedging not possible
Bank lending against commodities was only Rs 9,952 cr out of Rs 8,64,143 cr i.e. 1.1% as on March’04
34
Involvement of Banks
Banks as aggregators
Institutions with good rural presence and sufficient financial expertise and infrastructure
Banks can hedge their agri and corporate loans Banks as market makers for price stabilization
Role similar to the role of RBI for stabilization of dollar prices
Banks as dealers in commodity markets
35
FII presence
Benefits
Issues involved
More liquidity Broaden and deepen markets Help in the utilization of capital Global experiences Research Best practices
Concentration and control over prices of crucial commodities Physical delivery Withdrawal from the country
36
Involvement of Mutual Funds
Mutual Funds can bring liquidity and professional skill in the commodity market Mutual Funds can mobilize small savings and invest in commodities and commodity derivatives Easiest route for retail investment
37
Options and indices
Options
Provides benefit of upside Substitute MSP of government Not allowed under FCRA Need for changes in the Act
Indices
Weather indices Regulatory changes needed
38
Agenda
Overview Arbitrage Opportunities Hedging Opportunities Investment Opportunities Institutional Participation NCDEX
39
NCDEX – Current shareholders
NABARD 15%
NSE 15%
IFFCO 12%
CRISIL 12%
ICICI Bank 15%
LIC 15%
Canara Bank 8%
PNB 8%
-Only institutions are our shareholders -NCDEX fully compliant with shareholding guidelines
40
Independent Board of Directors
Name
Shri U. S. Awasthi Shri R.N. Bharadwaj Shri B.V. Bhargava Shri S.H. Bhojani Shri Dileep Choksi Shri D. S. Kolamkar Smt Ranjana Kumar Shri Ravi Narain Shri Lamon Rutten Shri Ravi Mohan Dr. Ajay Shah Shri H.N. Sinor Shri P. H. Ravikumar
41
Organisation
MD, IFFCO Chairman, LIC Chairman, CRISIL Partner, Amarchand Mangaldas & Co. Sr. Partner, C.C Choksi & Co. Director, FMC Chairperson, NABARD MD & CEO, NSE Chief - Finance & Energy, UNCTAD MD, CRISIL Consultant, Ministry of Finance CEO & Secretary, IBA MD, NCDEX
Expertise in
Agriculture Insurance Credit rating/finance Legal Accounting Market Regulation Rural finance/Banking Exchange operation Finance & Energy Credit rating Economics & Finance Banking & Finance Banking & Finance
Product Calendar
Dec 2003
Gold, Silver, Crude Palm oil, RBD Palmolein, Cotton, Mustard seed, Mustard oil Soybean, Refined soy oil
Apr-Dec 2004
Guar seed, Jute sacking, Chana, Rubber, Pepper, Wheat, Castor seed, Guar gum, Raw jute, Urad, Yellow peas, Sugar, Turmeric, Soymeal
Jan – May 2005
Gur, Rice, Maize, Raw silk, Cocoon, Jeera, Chilli, Steel, Cashew, Cottonseed oilcake, Sesame seed, Tur, Arabica & Robusta Coffee, Copper Cathode
In pipeline
Other base Metals, Energy Products, More Agricultural products
Each product is selected after an in-depth research & market feedback
42
Average daily volumes
Rs cr
2500 2231 2015 2000 2095
Peak Volume for a single day Rs. 4271 cr on Mar 30 ‘05
1619 1444 1231 1229
1500
1000 691 500 55
Q2 2004 Q3 2004 Oct -N ov 04 D e c - '0 4 J a n '0 5 Fe b '0 5 M a r '0 5 A p r '0 5 M a y '0 5
21 0
Q1 2004
Impressive growth of NCDEX with 85% volume contribution from agriculture
43
Robust Deliveries - 2005
TOTA L D ELIVERIES (in m et ric t onnes)
50000 44904 40000 30000 20000 10000 0 4686 J an-05 Feb-05 M ar-05 A pr-05 M ay -05 J un-05 22904 15624 36352.35 28301
TOTA L DELIVERIES
Deliveries of over 1,10,000 MT in first quarter 2005-06
44
Deliveries to Open Interest – June 2005
June deliverables in Metric tonnes 2697 7990 1270 940 110 12810 756 9779 36352 Deliveries to Open Interest 99% 98% 88% 87% 85% 84% 83%
COMMODITY 1 2 3 4 5 6 7 JEERA URAD CASTOR SEED GUARGUM SUGAR S SUGAR M PEPPER Others Total quantity for delivery
Open Interest 2721 8160 1450 1085 130 15260 910
Deliveries in over 18 commodities
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Architecture for Price Discovery
610
6600
Spot Price polling
70,000 daily trades
members
terminals
490 centres
155,0000 daily orders
37 commodities
250 Awareness Programmes
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80% agri volume 100 delivery centres
Monthly Deliveries of 40-45000 tt
Price dissemination: Choose your crop
Radio TV Channels E-chaupals
N-logue
News agencies PCOs
Newspapers & journals Kisan call centres AGMARKNET
IFFCO, HAFED Warehouses
Bank branches
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NCDEX‟s integrated financial solution for farmers
48
Pre-harvest
Price hedging
NCDEX
Aggregator
Farmers
Insurance
Bank
Finance
Buffering yourself from nature’s vicissitudes
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Post Harvest Scenario
Farmer sees NCDEX spot and futures prices
Sells futures On NCDEX
Approaches mandi of choice
Lodges goods in NCDEX/NCMSL warehouse
90
WAREHOUSES
Goods assayed by approved assayers
Working with all leading assayers NCMSL arranges credit
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Warehouse Receipt
in electronic form
Bank finance against WR
Grading and Standards: Improve your prospects
IARI
Grading in rice, wheat maize CIRCOT Grading in cotton Quality standards
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Impact of NCDEX on Prices
Guar Seed Price (Rs/qtl) FY 02 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 823 821 698 758 FY 03 840 1575 1434 1439 FY 04 1217 847 978 958 FY 05 1082 1625 1669 1534 1st Qtr Raw Jute Price (Rs qtl) FY 02 1146 FY 03 1008 FY 04 842 FY 05 1056
2nd Qtr
3rd Qtr 4th Qtr
1042
1042 1167
857
827 804
823
784 794
1405
1557 1303
Castor Seed price (Rs/20 kgs) FY 02 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 197 224 211 211 FY 03 247 263 297 363 FY 04 375 287 292 300 FY 05 304 357 348 305
Prices are those received by the farmers after adjusting for the taxes and other incidentals. The Prices are from the following mandis: Bikaner, Calcutta and Ahmedabad. Numbers marked in red pertain to Prices after trading was enabled on NCDEX.
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Thank You
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