A STUDY ON IDENTIFICATION OF INVESTMENT OPPORTUNITIES IN COMMODITY FUTURES MARKET IN INDIA INFOLINE LTD, CHENNAI

In partial fulfillment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by

R.SIVASANKARAN (REG.NO:1000109071)
Under the guidance of

Mr.G.PRITHIVIRAJ
Faculty member

DEPARTMENT OF MANAGEMENT STUDIES

HINDUSTAN INSTITUTE OF TECHNOLOGY&SCIENCE CHENNAI-603103 2011-2012

HINDUSTAN INSTITUTE OF TECHNOLOGY & SCIENCE

BONAFIDE CERTIFICATE

Certified that this project report A STUDY ON IDENTIFICATION OF INVESTMENT OPPORTUNITIES IN COMMODITY FUTURES MARKET IN INDIA INFOLINE LTD, CHENNAI is the bonafide work of R.SIVASANKARAN and1000109071 who carried out the project work under my supervision during the academic year 2010 -2012

SIGNATURE Prof. Gopichander HEAD OF THE DEPARTMENT School of Management

SIGNATURE Mr.G.Prithiviraj PROJECT GUIDE Teaching Research Associate School of Management

INTERNAL EXAMINER

EXTERNAL EXAMINER

DECLARATION
I affirm that the project work titled A STUDY ON IDENTIFICATION OF INVESTMENT OPPORTUNITIES IN COMMODITY FUTURES MARKET IN INDIA INFOLINE LTD being submitted in partial fulfilment for the award of MBA is the original work carried out by me. It has not formed the part of any other project work submitted for award of any degree or diploma, either in this or any other University.

(Signature of the Candidate) R.SIVASANKARAN (1000109071) I certify that the declaration made above by the candidate is true

Signature of the Guide, Mr.G.PRITHIVIRAJ, Teaching Research Associate

ACKNOWLEDGEMENT

I am extremely thankful to the Management of Hindustan University for providing me the opportunity to undergo Master of Business Administration course during the academic year 2010-2012. I would like to express my sincere gratitude to our Chancellor Dr. Elizabeth Verghese, Our Vice-Chancellor Dr. Sarukesi and our Director Academics Mr.Joseph Stanley for their inspiration and support. I am thankful to Mr. P. Ramnath, Director, School of Management, and Prof. M.L.Gopichander, Head of the Department, School of Management, for their support in doing my project. They have been a source of encouragement and guidance in my endeavors. I express my gratitude to my project guide Mr.G.Prithiviraj Teaching research associate School of Management, for her consistent encouragement and valuable suggestion in completing this project, without her the completion of this project would have been practically impossible. I take this opportunity to thank Mr.Swaminathan, Executive Director. And Mr.Ganesh, and Mr. Praveen, Finance manager in India Info line Ltd, Perungudi, Chennai for allowing me to do the project work in the esteemed organization and for extending their full co-operation. Last but not least I would like to thank our beloved parents and all our friends for their co- operation in helping me to complete the project work

TABLE OF CONTENTS

S. No

TITLE ABSTRACT LIST OF TABLES LIST OF CHARTS CHAPTER I

PAGE NO

1.1 1.2 1.3 1.4 1.5

Introduction Need and Scope of the study Statement of the problem Objectives of the study Research Methodology CHAPTER II

2.1 2.2

Industry profile Company profile CHAPTER III

3.1 3.2

Conceptual framework Review of literature CHAPTER IV

4.1

Data Analysis and Interpretation CHAPTER V

5.1 5.2 5.3 5.4

Findings Suggestions Limitations of the study Conclusion APPENDIX

5.5

REFERENCES

ABSTRACT
A Study on investors awareness about Commodity Futures market with reference to INDIA INFOLINE Ltd, Chennai. The project is carried out to find out the awareness level of the investors in commodity futures market with reference to Chennai and to identify the factors influencing the investor to invest. It also helped the researcher to identify the investors objective of investment and the preference of the commodities. This project follows Descriptive type of Research Method and Systematic Random Sampling are used this project The major findings that influences the respondents to investment is their own interest. respondents preference in commodities for bullions. It is also found that the period of investment and level of investment is directly proportionate to each other Based on the above said findings the company recommended by educating and making the people aware of commodity future market will attract the most number of people to invest in commodities futures market.

LIST OF TABLES

TABLE NO. 4.1.1 4.1.2 4.1.3 4.1.4 4.1.5 4.1.6 4.1.7 4.1.8 4.1.9 4.1.10

PARTICULARS Table showing the annual income of the respondents Table showing the type of investor Table showing the level of awareness about commodity futures amoung the respondents Table showing the details about inducing factors Table showing the level of investment of the respondents Table showing the reason for not investing in commodity futures Table showing the customer preference in commodities Table showing the intruments invested Table showing the weighted average score and ranking of the reason for investing in commodity futures respective to the type of investor Table showing the overall all weighted average score for the reason for investing in commodity futures market

PAGE NO.

4.1.11 4.1.12

Table showing the income level of the people and their objective of investments Table showing the overall all weighted average score for the objective of investment

4.1.13 4.1.14 4.1.15 4.1.16

Table showing the precautions during uptrend and downtrend of the market Table showing the bivariate frequency Table showing the analysis of variance between type of investor and expected returns Table showing the analysis of variance between level of investment and expected returns

LIST OF CHARTS

CHART NO.

PARTICULARS

PAGE

NO. 4.1.1 4.1.2 4.1.3 4.1.4 4.1.5 4.1.6 4.1.7 4.1.8 4.1.9 Chart showing the annual income of the respondents Chart showing the type of investor Chart showing the level of awareness about commodity futures amoung the respondents Chart showing the details about inducing factors Chart showing the level of investment of the respondents Chart showing the reason for not investing in commodity futures Chart showing the customer preference in commodities Chart showing the intruments invested Chart showing the type of investor and the reason for investing in commodity futures Chart showing the overall all weighted average score for the reason for investing in commodity futures market 4.1.11 4.1.12 4.1.13 Chart showing the income level of the people and their objective of investments overall all weighted average score for the objective of investment Chart showing the venn diagram of precautions taken during uptrend and downtrend of the market

4.1.10

CHAPTER-I 1.1 INTRODUCTION

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. It is important to develop a vibrant, active and liquid commodity market. This would help investors hedge their commodity risk, take speculative positions in commodities and exploit arbitrage opportunities in the market.

Futures trading perform two important functions of price discovery and price risk management with reference to the given commodity. It is useful to all segments of the economy. It is useful to the producer because he can get an idea of the price likely to prevail at a future point of time and therefore can decide between various competing commodities, the best that suits him. It enables the consumer, in that he gets an idea of the price at which the commodity would be available at a future point of time. He can do proper costing and also cover his purchases by making forward contracts. Futures trading are very useful to the exporters as it provides an advance indication of the price likely to prevail and thereby help the exporter in quoting a realistic price and thereby secure export contract in a competitive market. Having entered into an export contract, it enables him to hedge his risk by operating in futures market.
Forward/futures trading involves a passage of time between entering into a contract and its performance making thereby the contracts susceptible to risks, uncertainties, etc. Hence there is a need for the regulatory functions to be exercised by an exchange that is the Forward Markets Commission (FMC).

Participants of Commodity Derivatives

For a market to succeed, it must have all three kinds of participants - hedgers, speculators and arbitragers. The confluence of these participants ensures liquidity and efficient price discovery on the market. Commodity markets give opportunity for all three kinds of participants.

Hedgers
Many participants in the commodity futures market are hedgers. They use the futures market to reduce a particular risk that they face. This risk might relate to the price of any commodity that the person deals in. The classic hedging example is that of wheat farmer who wants to hedge the risk of fluctuations in the price of wheat around the time that his crop is ready for harvesting. By selling his crop forward, he obtains a hedge by locking in to a predetermined price. Hedging does not necessarily improve the financial outcome; indeed, it could make the outcome worse. What it does however is, that it makes the outcome more certain. Hedgers could

be government institutions, private corporations like financial institutions, trading companies and even other participants in the value chain, for instance farmers, extractors, ginners, processors etc., who are influenced by the commodity prices. There are basically two kinds of hedges that can be taken. A company that wants to sell an asset at a particular time in the future can hedge by taking short futures position. This is called a short hedge. A short hedge is a hedge that requires a short position in futures contracts. As we said, a short hedge is appropriate when the hedger already owns the asset, or is likely to own the asset and expects to sell it at some time in the future. Similarly, a company that knows that it is due to buy an asset in the future can hedge by taking long futures position. This is known as long hedge. A long hedge is appropriate when a company knows it will have to purchase a certain asset in the future and wants to lock in a price now.

Speculators
If hedgers are the people who wish to avoid price risk, speculators are those who are willing to take such risk. These are the people who takes positions in the market & assume risks to profit from price fluctuations in fact the speculators consume market information make forecasts about the prices & put money in these forecasts. An entity having an opinion on the price movements of a given commodity can speculate using the commodity market. While the basics of speculation apply to any market, speculating in commodities is not as simple as speculating on stocks in the financial market. For a speculator who thinks the shares of a given company will rise, it is easy to buy the shares and hold them for whatever duration he wants to. However, commodities are bulky products and come with all the costs and procedures of handling these products. The commodities futures markets provide speculators with an easy mechanism to speculate on the price of underlying commodities. To trade commodity futures on the NCDEX, a customer must open a futures trading account with a commodity derivatives broker. Buying futures simply involves putting in the margin money. This enables futures traders to take a position in the underlying commodity without having to actually hold that commodity. With the purchase of futures contract on a commodity, the holder essentially makes a legally binding promise or obligation to buy the underlying security at some point in the future (the expiration date of the contract).

Arbitrage
A central idea in modern economics is the law of one price. This states that in a competitive market, if two assets are equivalent from the point of view of risk and return, they should sell at the same price. If the price of the same asset is different in two markets, there will be operators who will buy in the market where the asset sells cheap and sell in the market where it is costly. This activity termed as arbitrage. The buying cheap and selling expensive continues till prices in the two markets reach equilibrium. Hence, arbitrage helps to equalise prices and restore market efficiency.

1.2 NEED AND SCOPE OF THE STUDY

The Financial planners are working hard to attract the customers and retain their market share by providing them with various markets. One of the most important market is commodity futures market. It is a suitable market for long term investors. Hence awareness about commodity futures market is very essential among the investors for their financial planning.

This project will provide the information about the investors awareness about the Commodity futures market. The reasons for investing in commodity futures market are also analyzed by the researcher. The important reason for which the investor is using commodity futures can be found by the researcher. The investors awareness about their roles and obligations are also analyzed. This will help the financial planners to realize their need to educate their investors and to improve their customers education level.

1.4 OBJECTIVES OF THE STUDY

The objectives of the research are, 1) To find the awareness level about commodity futures market among the investors.
2) To find the important reason for investing and also not investing in commodity

futures
3) To find the awareness level of investors about their obligation and rights. 4) To find out the preference of the investors in commodities.

1.5 RESEARCH METHODOLOGY Research design:

This project follows Descriptive type of Research Method. This project also identifies the relationship between the social classes, personal factors with the investment decision of the investor.

Sampling Design
a. Population
b. Sampling area

: : : : :

1165 Chennai. 110 Systematic Random Sampling. Investors.

c. Sampling size
d. Sampling method

e. Sampling unit

Data Collection Method

Primary Source: Questionnaire

Primary data
Source:

The source of primary data is responses collected from the investors of Chennai. Method: The method adopted for primary data collection is questionnaire method. Under the questionnaire method, a questionnaire has to be constructed which should pertain to the factors considered under the study.

Secondary Data:
Source: The source of the secondary data is magazines, journals and websites. It also includes the projects done on Commodity futures market.

Research instrument
Scaling technique: 1. Dichotomous question

2. Multiple choice single response question

3. Likert scale

Data analysis tools and technique: 1. Correlation 2. ANOVA 3. Percentage analysis 4. Weighted average and score 5. Charts Line charts Bar charts Pie- charts

CHAPTER-II 2.1 INDUSTRY PROFILE Introduction

Derivatives as a tool for managing risk first originated in the commodities markets. They were then found useful as a hedging tool in financial markets as well. In India, trading in commodity futures has been in existence from the nineteenth century with organised trading in cotton through the establishment of Cotton Trade Association in 1875. Over a period

of time, other commodities were permitted to be traded in futures exchanges. Regulatory constraints in 1960s resulted in virtual dismantling of the commodities future markets. It is only in the last decade that commodity future exchanges have been actively encouraged. However, the markets have been thin with poor liquidity and have not grown to any significant level.

Evolution of the commodity market in India Although India has a long history of trade in commodity derivatives, this segment remained underdeveloped due to government intervention in many commodity markets to control prices. The production, supply and distribution of many agricultural commodities are still governed by the state and forwards and futures trading are selectively introduced with stringent controls. While free trade in many commodity items is restricted under the Essential Commodities Act (ECA), 1955, forward and futures contracts are limited to certain commodity items under the Forward Contracts (Regulation) Act (FCRA), 1952. The first commodity exchange was set up in India by Bombay Cotton Trade Association Ltd., and formal organized futures trading started in cotton in 1875. Subsequently, many exchanges came up in different parts of the country for futures trade in various commodities. The Gujrati Vyapari Mandali came into existence in 1900 which has undertaken futures trade in oilseeds first time in the country. The Calcutta Hessian Exchange Ltd and East India Jute Association Ltd were set up in 1919 and 1927 respectively for futures trade in raw jute. In 1921, futures in cotton were organized in Mumbai under the auspices of East India Cotton Association (EICA). Many exchanges were set up in major agricultural centres in north India before world war broke out and they were mostly engaged in wheat futures until it was prohibited. The existing exchanges in Hapur, Muzaffarnagar, Meerut, Bhatinda, etc were established during this period. The futures trade in spices was first organized by India Pepper and Spices Trade Association (IPSTA) in Cochin in 1957. Futures in gold and silver began in Mumbai in 1920 and continued until it was prohibited by the government by mid-1950s. Options are though permitted now in stock market, they are not allowed in commodities. The commodity options were traded during the pre-independence period. Options on cotton were traded until they along with futures were banned in 1939 (Ministry of Food and Consumer Affairs, 1999). However, the government withdrew the ban on futures with passage of FCRA in 1952. The Act has provided for the

establishment and constitution of Forward Markets Commission (FMC) for the purpose of exercising the regulatory powers assigned to it by the Act. Later, futures trade was altogether banned by the government in 1966 in order to have control on the movement of prices of many agricultural and essential commodities. After the ban of futures trade all the exchanges went out of business and many traders started resorting to unofficial and informal trade in futures. On recommendation of the Khusro Committee in 1980 government reintroduced futures on some selected commodities including cotton, jute, potatoes, etc. As part of economic liberalization of 1990s an expert committee on forward markets under the chairmanship of Prof. K.N. Kabra was appointed by the government of India in 1993. Its report submitted in 1994 recommended the reintroduction of futures which were banned in 1966 and also to widen its coverage to many more agricultural commodities and silver. In order to give more thrust on agricultural sector, the National Agricultural Policy 2000 has envisaged external and domestic market reforms and dismantling of all controls and regulations in agricultural commodity markets. It has also proposed to enlarge the coverage of futures markets to minimize the wide fluctuations in commodity prices and for hedging the risk arising from price fluctuations. In line with the proposal many more agricultural commodities are being brought under futures trading.

The Present Status

Presently futures trading is permitted in all the commodities. Trading is taking place in about 78 commodities through 25 Exchanges/Associations as given in the table below:No. 1. Exchange COMMODITY (both domestic and

India Pepper & Spice Trade Association, Pepper Kochi (IPSTA)

international contracts) Chambers Ltd., Gur, Mustard seed

2.

Vijai

Beopar

Muzaffarnagar 3. Rajdhani Oils & Oilseeds Exchange Ltd., Gur, Mustard seed its oil &

Delhi 4.

oilcake

Bhatinda Om & Oil Exchange Ltd., Gur Bhatinda

5. 6.

The Chamber of Commerce, Hapur

Gur, Potatoes and Mustard seed

The Meerut Agro Commodities Exchange Gur Ltd., Meerut

7.

The Bombay Commodity Exchange Ltd., Oilseed Complex, Castor oil Mumbai international contracts

8.

Rajkot Seeds, Oil & Bullion Merchants Castor seed, Groundnut, its oil & Association, Rajkot cake, cottonseed, its oil & cake, cotton (kapas) and RBD palmolein.

9.

The Ahmedabad Commodity Exchange, Castorseed, cottonseed, its oil Ahmedabad and oilcake

10.

The East India Jute & Hessian Exchange Hessian & Sacking Ltd., Calcutta

11.

The East India Cotton Association Ltd., Cotton Mumbai

12.

The Spices & Oilseeds Exchange Ltd., Turmeric Sangli.

13.

National Board of Trade, Indore

Soya seed, Soyaoil and Soya meals, Rapeseed/Mustardseed its oil and oilcake and RBD Palmolien

14.

The First Commodities Exchange of India Copra/coconut, its oil & oilcake Ltd., Kochi

15.

Central India Commercial Exchange Ltd., Gur and Mustard seed

Gwalior 16. 17. E-sugar India Ltd., Mumbai Sugar

National Multi-Commodity Exchange of Several Commodities India Ltd., Ahmedabad

18.

Coffee Futures Exchange India Ltd., Coffee Bangalore

19.

Surendranagar Cotton Oil & Oilseeds, Cotton, Cottonseed, Kapas Surendranagar

20. 21.

E-Commodities Ltd., New Delhi National Commodity &

Sugar (trading yet to commence)

Derivatives, Several Commodities

Exchange Ltd., Mumbai 22. 23. Multi Commodity Exchange Ltd., Mumbai Bikaner Bikaner 24. 25. Haryana Commodities Ltd., Hissar Bullion Association Ltd., Jaipur commodity Exchange Several Commodities

Ltd., Mustard seeds its oil & oilcake, Gram. Guar seed. Guar Gum Mustard seed complex Mustard seed Complex

Forward Markets Commission (FMC) headquartered at Mumbai, is a regulatory authority which is overseen by the Ministry of Consumer Affairs and Public Distribution, Govt. of India. It is a statutory body set up in 1953 under the Forward Contracts (Regulation) Act, 1952.

2.2 COMPANY PROFILE

The IIFL (India Infoline) group, comprising the holding company, India Infoline Ltd (NSE: INDIAINFO, BSE: 532636) and its subsidiaries, is one of the leading players in the Indian financial services space. IIFL offers advice and execution platform for the entire range of financial services covering products ranging from Equities and derivatives, Commodities, Wealth management, Asset management, Insurance, Fixed deposits, Loans, Investment Banking, GoI bonds and other small savings instruments. IIFL recently received an in-principle approval for Securities Trading and Clearing memberships from Singapore Exchange (SGX) paving the way for IIFL to become the first Indian brokerage to get a membership of the SGX. IIFL also received membership of the Colombo Stock Exchange becoming the first foreign broker to enter Sri Lanka. IIFL owns and manages the website, www.indiainfoline.com, which is one of Indias leading online destinations for personal finance, stock markets, economy and business. IIFL has been awarded the Best Broker, India by FinanceAsia and the Most improved brokerage, India in the AsiaMoney polls. India Infoline was also adjudged as Fastest Growing Equity Broking House - Large firms by Dun & Bradstreet. A forerunner in the field of

equity research, IIFLs research is acknowledged by none other than Forbes as Best of the Web and a must read for investors in Asia. Our research is available not just over the Internet but also on international wire services like Bloomberg, Thomson First Call and Internet Securities where it is amongst one of the most read Indian brokers.

IIFL - History & Milestones

1995

Commenced operations as an Equity Research firm

1997

Launched research products of leading Indian companies, key sectors and the economy Client included leading FIIs, banks and companies

1999

Launched www.indiainfoline.com

2000

Launched online trading through www.5paisa.com Started distribution of life insurance and mutual fund

2003

Launched proprietary trading platform Trader Terminal for retail customers

2004

Acquired commodities broking license Launched Portfolio Management Service

2005

Maiden IPO and listed on NSE, BSE

2006

Acquired membership of DGCX Commenced the lending business

2007

Commenced institutional equities business under IIFL Formed Singapore subsidiary, IIFL (Asia) Pte Ltd

2008

Launched IIFL Wealth Transitioned to insurance broking model

2009

Acquired registration for Housing Finance SEBI in-principle approval for Mutual Fund Obtained Venture Capital license

2010

Received in-principle approval for membership of the Singapore Stock Exchange

2011

Received membership of the Colombo Stock Exchange

IIFL (India Infoline Ltd) - Corporate Structure

CHAPTER-III

3.1 Conceptual framework:

The Following diagram illustrates the conceptual framework of this study.

Internal factors

External factors

Investor need

Acquiring the required knowledge Identification of investment opportunities in the commodity futures Choosing the commodity for Investing Post Investment Behavior Continue with the investing

Refusal of the trial

Sale of the Units

3.2 REVIEW OF LITERATURE

A well-developed and effective commodity futures market, unlike physical market, facilitates offsetting the transactions without impacting on physical goods until the expiry of a contract. Futures market attracts hedgers who minimise their risks, and encourages competition from other traders who possess market information and price judgment. While hedgers have long-term perspective of the market, the traders, or arbitragers as they are often called, hold an immediate view of the market. A large number of different market players participate in buying and selling activities in the market based on diverse domestic and global information, such as price, demand and supply, climatic conditions and other market related information. All these factors put together result in efficient price discovery as a result of large number of buyers and sellers transacting in the futures market. Futures market, as observed from the cross-country experience of active commodity futures markets, helps in efficient price discovery of the respective commodities and does not impair the long-run equilibrium price of commodities. At times, however, price behaviour of a commodity in the futures market might show some aberrations reacting to the element of speculation and bandwagon effect inherent in any market, but it quickly reverts to long-run equilibrium price, as information flows in, reflecting fundamentals of the respective commodity. In futures market, speculators play a role in providing liquidity to the markets and May sometimes benefit from price movements, but do not have a systematic causal influence on prices. An effective architecture for regulation of trading and for ensuring transparency as well as timely flow of information to the market participants would enhance the utility of commodity exchanges in efficient price discovery and minimise price shocks triggered by unanticipated supply demand mismatches. References: 1. Ghosh, S. et.al, 1987, Stabilising Speculative Commodity Markets, New York, Oxford University Press 2. International Monetary Fund, World Economic Outlook, September 2006 3. WWW.indiabudget.nic.in Economic survey 2006-2007

The Fundamentals of Commodity Futures Returns June 12, 2007

Commodity futures markets allow market participants to obtain insurance against the fluctuations of future spot prices of commodities. Prior research by Gorton and Rouwenhorst (2006) shows that long investors in commodity futures markets haven historically received a risk premium of 5% per annum in return for assuming some of the price risk of short hedgers. This note summarizes new research which shows that this risk premium has historically varied in systematic ways across commodities and over time depending on the level of physical inventories. These findings are based on The Theory of Storage, which identifies the level of physical commodity inventories as an important determinant of the risk of commodity futures. Because buffer stocks help to dampen the price impact of shocks to demand and supply, price volatility increases at low inventory levels. Our empirical results show that the compensation for bearing price risk increases at low inventory levels, when theory predicts that the amount of risk to insure increases. We provide an economic rationale for two commodity futures trading strategies based on price signals. In particular we show that the returns to certain strategies based on backwardation and prior returns are successful because these price signals select commodities when their inventories are low. Authors: 1. Gary B. Gorton, The Wharton School, University of Pennsylvania, and National Bureau of Economic Research, 2. Fumio Hayashi, University of Tokyo and National Bureau of Economic Research
3. K. Geert Rouwenhorst, School of Management, Yale University.

CHAPTER IV
4.1 DATA

ANALYSIS AND INTERPRETATIONS

Tools for analysis:

MS.Office software package is used for the analysis. The following statistical and mathematical tools used by the researcher for the analysis. The data collected through questionnaire and analyzed with various statistical tool and presented of tables figure in this chapter Correlation ANOVA Percentage analysis Weighted average and score Charts o Line charts o Bar charts o Pie- charts

4.1.1. Income segment of the people:

Table 4.1.1. Table showing the Annual Income of the respondents: Source: Primary Data
Annual income of < 1.5 1.5 lakhs 3 to 5 5 to 10 Above the people lakhs to 3 lakhs lakhs lakhs lakhs 10

No of people

52

27

16

Percentage

47

25

25

INFERENCE: Among the total respondents 47% of people are in the segment 1.5 to 3 lakhs, 25% of people belongs to 3 to 5 lakhs , 15% of people are lying between 5 to 10 lakhs and remaining 7% and 6% of peple are in between less than 1.5 lakhs and above 10 lakhs. Majority of the annual income of the people lies with the 1.5 lakhs to 3 lakhs.so it shows their investment level approach would be maximum. Chart: 4.1.1. Chart showing the Annual Income of the Respondents:

4.1.2. Type of Investors

Table 4.1.2. Table showing the Type of investor Type of investor No of Respondents Percentage Aggressive 50 45% Moderate 45 41% Conservative 15 14%

Source: Primary Data Inference: The above table shows that the major portion of people are aggressive in investing. It shows that the people are interested in savings. Amoung the respondents 45%, 41% and 15% of belongs to aggressive, moderate and conservative respectively. The major portion of people, nearly 86% are continuesly investing and intersted in investing. Chart 4.1.2: Chart showing the Type of Investor

4.1.3. Level of awareness about commodity futures amoung the respondents

Table 4.1.3: Table showing the Level of awareness about commodity futures amoung the respondents

Awareness futures

about

commodity

YES 47 42%

NO 63 58%

No of Respondents Percentage

Source: Primary Data Inference: The above table clearly shows that nearly 63 respondents are not aware about commodity futures market. Among the Respondents 47 people have awareness about commodity futures market. The major group of this segment belongs to MBA and people working in Banking sector. Chart 4.1.3: Chart showing the awareness about commodity futures amoung the respondents

4.1.4 Induced to Invest:

Table 4.1.4: Table showing the Details about Inducing Factors: Induced Invest to Advertisements Financial Planner 32 29.09 Friends/Relatives Own Interest 47 42.73 Others

No of Respondent 16 s Percentage
14.55

4 3.64

11 10.00

Source: Primary Data Inferences: The major factor that influences the people to invest is their Own Interest. The rest of the factors are financial planners, advertisements, others and friends / relatives. Chart 4.1.4: Chart showing the Details about Inducing Factors:

4.1.5. Level of Investment of the Respondents:

Table 4.1.5: Table showing the Level of investment of the respondents Level investment of < 1 lakhs 9 8% 1 to 2 lakhs 23 21% 2 to 5 lakhs 27 25% 5 to 10 lakhs 40 36% 10 to lakhs 11 10% 20

No of respondents Percentage respondents of

Source: Primary Data Inference: Most of the respondents used to invest between 5 to 10 lakhs, and 2 to 5 lakhs respectively. Totally 61% of people investment between 2 to 10 lakhs. Out of 23 people ,21% of people invest amount between 1 to 2 lakhs. Chart 4.1.5: Chart showing the Level of investment of the respondents:

4.1.6. Reason for Not Investing in COMMODITY FUTURES:

Table 4.1.6. Table showing the Reason for Not Investing in COMMODITY FUTURES: Margin trading Not aware about commodity futures 41 37

Reason

Risk

Volatility

Low returns

No of 12 respondents Percentage 11

26 24

10 9

21 19

Source: Primary Data Inference: The important reason for respondents not investing in commodity futures is the lack of awareness about the commodity futures market. Nearly 31% of respondents are not aware about commodity futures. The other important reasons are volatility, low returns from their investment , risk and marginal trading respectively. Chart 4.1.6. Chart showing the Reason for Not Investing in COMMODITY FUTURES:

4.1.7. Investor preference in commodities:

Table 4.1.7. Table showing the Customer preference in commodities: Commodities No respondents Percentage of Energy 29 26 Bullions 48 44 Base metals 13 12 Agri products 20 18

Source: Primary Data Inference: From the above table it is clear that the respondents preference first goes to bullions next to that are energy,agri-products and base metals. Chart 4.1.7. Chart showing the Customer Preference In Commodities:

4.1.8. Intruments Invested

Table 4.1.8 : Table showing the Intruments Invested Instruments Post office & banks Commodities Shares & bonds Mutual Funds Insurance ALL Post office & bamks + Mutual Funds Post office & banks + Insurance Commodities + Shares & Bonds Commodities + Shares & Bonds + Mutual funds Commodities + Shares & bonds + Mutual Funds + insurance Commodities + Mutual Funds Shares & bonds + Mutual Funds Shares & bonds + Mutual Funds + Insurance Shares & Bonds + Insurance Mutual Funds + insurance No of respondents 6 1 2 3 9 1 1 17 9 14 11 2 7 15 7 5 percentage 5.45 0.91 1.82 2.73 8.18 0.91 0.91 15.45 8.18 12.73 10.00 1.82 6.36 13.64 6.36 4.55

Source: Primary Data Inferences: Amoung the respondents nearly 64 are investing in shares and bonds. In mutual funds, 58 people are investing.

 Around 65 respondents are investing in insurance. In commodities, 47 respondents are invested 25 respondents are investing in post office and banks

table 4.1.8 :table showing the Expected return Expected return <8 % 8 12 % 12 16 % 16 20 % >20 %

No

of

respondents Percentage

19 17

18 16

13 12

50 46

10 9

Chart 4.1.8 :Chart showing the Expected return Inference: 19 respondents are expected return below 8%, and 18 and 13 repondents are expected return between 8%to 16% .and 50 respondents are expected return for 16%to20%. So more respondent like high return

4.1.9. Type of investor and the reason for investing in commodity futures:
Table 4.1.9. Table showing the Weighted average score and ranking of the reason for investing in commodity futures respective to the type of investor: Investor Type Aggressive Moderate Conservative

Reason for Investing in weighted Rank Weighted Rank weighted commodity Futures Average Score Average Score Average Score INVESTMENT AMOUNT RISK MARKED TO MARKET HEDGING PURPOSE EXPOSURES VARIETY COMMODITIES AVAILABLE 3.92 3.70 3.72 3.64 2.96 OF 3.24 2 4 3 5 8 7 4.09 3.36 3.31 3.73 3.18 3.38 2 5 6 3 8 4 4.07 3.47 3.53 3.60 3.00 3.27

Rank 2 5 4 3 8 7

FINANCIAL ADVISOR DIVERSIFICATION Source: Primary Data Inference:

3.28 4.30

6 1

3.29 4.13

7 1

3.47 4.47

6 1

It is well known from the table that for all the three type of Investors, Diversification and Investment amount are in the first and second position.Reason for investment changes for all the three type of investors,it depends upon their personal thoughts.

Chart 4.1.9. Chart showing the Semantic chart for type of investor and the reason for investing in commodity futures:

4.1.10. Overall all weighted average score for the reason for investing in commodity futures market:

Table 4.1.10. Table showing the Overall all weighted average score for the reason for investing in commodity futures market:

Reason for Strong Investing in ly commodity Agree Futures DIVERSIFICA 49 TION INVESTMEN T AMOUNT HEDGING PURPOSES RISK 45 25 13

Agree

Neithe r agree Disagr Nor ee disagr ee 21 26 20 25 34 18 0 9 16 20 14 27

Strongl y Disagre e 0 0 3 0 3 10

Total No weighte of Weigh d Ran Respond t score Average k ents Score 110 110 110 110 110 110 468 441 404 388 388 364 4.25 4.01 3.67 3.53 3.53 3.31 1 2 3 4 5 6

40 30 46 52 40 29

MARKED TO 19 MARKET FINANCIAL ADVISOR 26

VARIETY OF COMMODITI 19 ES AVAILABLE EXPOSURES 11

28

37

19

110

363

3.30

26

36

32

110

336

3.05

Source: Primary Data

Inference: The overall order of reason for investing in commodity futures are Diversification, Investment amount, Hedging purpose, Risk, Marked to Market, Financial Advisor, variety of commodities available and exposures. Chart 4.1.10. Chart showing the Overall all weighted average score for the reason for investing in commodity futures market:

4.1.11: Semantic income level of the people and their objective of investments:

Type 4.1.11: Table showing the Semantic table for income level of the people and their objective of investments: Level Income of < 1 lakhs 1 lakhs to 2 2 to 5 lakhs lakhs weight ed Ran Avera k ge Score 1 4.07 5 to 10 lakhs 10 lakhs to 20 lakhs

weight ed Objective of Avera Investment ge Score FOR ME & 4.00 MY SAFETY SHORT TERM GAINS 2.50

weight ed Ran Avera k ge Score 1 3.85

weight ed Ran Avera k ge Score 1 4.38

weight ed Ran Avera k ge Score 1 3.43

Ran k

3.40

3.48

3.63

3.43

LONG TERM 3.75 GAINS USE MY SURPLUS 3.63 CASH FUTURE REQUIREME 3.50 NTS HOBBY KNOWLEDG E 2.63 3.25

3.50

3.41

3.69

3.43

3.25

3.30

3.38

3.71

4 6 5

3.71 3.23 3.71

2 6 3

3.56 3.33 2.96

2 5 7

3.56 3.31 3.13

4 6 7

3.57 2.86 2.43

2 6 7

Source: Primary Data Inference: From the above table it is clear that the Income level group upto 10 lakhs, they are investing for their personal things and their family safety. It remains in the first position.But for income level above 10 lakhs it changes, for them the first objective of investment is to use their surplus cash and gain return from that.

Chart 4.1.11:Chart showing the Semantic chart for income level of the people and their objective of investments:

4.1.12. Overall weighted average score for the objective of investment:

Table 4.1.12. Table showing the Overall weighted average score for the objective of investment: 1 2 to 5 to of < 1 lakhs 5 10 lakhs to 2 lakhs lakhs lakhs 32 48 38 43 29 30 26 26 26 27 25 33 22 21 10 13 21 20 20 14 26 10 Total No of lakhs Weight Respondent to 20 score s lakhs 0 3 2 6 7 17 13 110 110 110 110 110 110 110 436 399 387 373 367 366 352 weighte d Average Score 3.96 3.63 3.52 3.39 3.34 3.33 3.20

Objective Investment

Rank

FOR ME & MY 42 SAFETY FUTURE 20 REQUIREMENTS LONG GAINS SHORT GAINS TERM TERM 22 16

1 2 3 4 5 6 7

USE MY 21 SURPLUS CASH KNOWLEDGE HOBBY 27 24

Source: Primary Data Inference: The order of investors objective of investment is 1. For me and my family safety 2. Future requirements 3. Longterm gains 4. Shortterm gains 5. Use the surplus cash and get return from that 6. Knowledge

7. Hobby Chart 4.1.12. Chart showing the Overall weighted average score for the objective of investment:

4.1.13. Precautions during uptrend and downtrend of the market:

Table 4.1.13.Table showing the Precautions during uptrend and downtrend of the market: Changes Portfolio Market in fund updating updating No precaution s 11 Changes in Portfolio fund + updating portfolio market updating updating 17 3 +

Precautions

No of 5 respondents Source: Primary Data Inference:

50

24

Amoung the respondents 70 people are portfolio updating when the market faces downtrend or uptrend.

27 people are doing markeet updating 22 people are changing the funds and 11 people are not taking any precautions, they are not responding to the market movements.

Venn Diagram:4.1.13. Chart showing the venn diagram of Precautions taken by the respondents when market uptrend and downtrend

4.1.14. Correlation between level of investment and period of investment:

Table 4.1.14: Table showing the Bivariate frequency (correlation table)

Period of investment/Level < 1 lakhs of investment < 1 year 1 2 years 2 3 years 3 5 years 5 10 years 10 to 15 years 3 5 0 1 0 0

1lakhs 2 2lakhs 5 5 lakhs 10 10 lakhs lakhs lakhs lakhs 20 lakhs 8 8 4 2 1 0 1 6 11 8 1 0 4 3 15 9 8 1 0 1 1 0 9 0

Source: Primary Data The correlation between the level of investment and period of investment is 0.57.

Inference: The correlation between the level of investment and period of investment is 0.57.So the level of investment and the period of investment is positively correlated. If there is a increase in the period of investment definitly there is a increase in level of investment and vice versa. The period of investment and level of investment is directly proportinal to each other.

4.1.15: Analysis of variance between type of investor and expected returns:

Table 4.1.15: Table showing the Analysis of variance between type of investor and expected returns:

TYPE/ Expected return Aggressive Moderate Conservative Grand Total

< 8% 0 7 12 19

8 12 % 9 11 3 23

12 16 16 20 >20% % % 8 5 0 13 24 21 0 45 9 1 0 10

Grand Total 50 45 15 110

Source: Primary Data Calculations:

Correction factor C = T 2 / N = 1102 / 15 = 807 SST = Total sum of squares = X ij2 C = 1592 807 = 785 SSC = sum of squares between expected return = ( j X i ) 2 / n j C = 1061 807=

254 SSR = sum of squares between the type of investor = 950 807 = 143
Error sum of squares = 785 254 143 = 388

Hypothesis:
Null hypothesis H0:

There is no significant difference in the expectation of return of the three type of investors

 There is no significant difference in the type of investor with regard to expectation of return
Alternate hyphothesis H1:

1. There is a significant difference in the expectation of return of the three type of investors 2. There is a significant difference in the type of investor with regard to expectation of return

Table 4.1. 15.1. ANOVA TABLE :

Sources of variation Between the Expected return Between the type of investors Error Total

Degrees of freedom 4

S.S

MSS=S.S/d.o.f MSC= 254/4 =63.5 MSR= 143/2 =71.5 MSE=388/8 =48.5

FC MSC/MSE= 1.31 MSR/MSE= 1.47

Ftable vaule(5%) 3.84

254

143

4.46

8 Cr 1 =14

388 785

Table value of F at 5%: 1. 2. Value of F at degrees of freedom (4,8) = 3.84 Value of F at degrees of freedom (2,8) = 4.46

Conclusion: Since the calculated value is less than the table value of F for the two null hyphothesis. So we fail to reject the null hyphothesis
Null hypothesis H0:

There is no significant diffrence in the expectation of return of the three type of investors
There is no significant difference in the type of investor with regard to

expectation of return

4.1.16: Analysis of variance between level of investment and expected returns:

Table 4.1.16: Table showing the Analysis of variance between level of investment and expected returns:

Period investment Expected return < 1 year 1 2 years 2 3 years 3 5 years 5 10 years Grand total

of /

< 8%

8 12 %

12 16 %

16 20 %

>20%

Grand Total
16 23 31 20 20 110

3 9 4 1 2 19

5 2 10 3 3 23

1 3 2 3 4 13

6 4 14 13 8 45

1 5 1 0 3 10

Source: Primary Data Calculations:

Correction factor C = T 2 / N = 1102 / 25 = 484 SST = Total sum of squares = X ij2 C = 814 484 = 330 SSC = sum of squares between expected return = ( j X i ) 2 / n j C = 636 484=

152 SSR = sum of squares between the type of investor = 509 484 = 25
Error sum of squares = 330 152 25 = 153

Hypothesis:
Null hypothesis H0:

 The expected of return is same for all the period of investment

The period of investment does not vary with respect to expected return
Alternate hyphothesis H1:

The expected of return is not same for all the period of investment The period of investment vary with respect to expected return Table 4.1.16. 1. ANOVA TABLE :

Sources of variation Between the Expected return Between the type of investors Error Total

Degrees of freedom 4

S.S

MSS=S.S/d.o.f MSC= 152/4 =38 MSR= 25/4 = 6.25 MSE= 153/16 = 9.56

FC MSC/MSE= 3.97 MSR/MSE= 0.65

Ftable vaule(5%) 3.01

152

25

3.01

16 Cr 1 = 24

153 330

Table value of F at 5%: Value of F at degrees of freedom (4,16) = 3.01

Conclusion: In this case we have to accept one null hypothesis and reject the other.
Null hypothesis H0:

 The expected of return is same for all the period of investment The period of investment does not vary with respect to expected return
Alternate hyphothesis H1:

The expected of return is not same for all the period of investment The period of investment vary with respect to expected return Here we are accepting The period of investment does not vary with respect to expected return
The expected of return is not same for all the period of investment

CHAPTER-V 5.1 FINDINGS:

The majority of the respondents 87% of peoples belongs to income level of in 1.5 lakhs to

10 lakhs
45%, 41% and 15% of respondents are belongs to aggressive, moderate and conservative

type of investment respectively.86% of people are interested in an investing.

43% of respondents are not aware about commodity futures market.The major group of

this segment belongs to MBA and people who are working in banking sector.
The major factor that influences the respondents to invest is their own interest. The factors

that influences the respondents to invest are financial planners, advertisements, others and friends and relatives
40% and 27% respondents investment level belongs to 5 to 10 lakhs, and 2 to 5 lakhs

respectively.61% of people investment level belongs to 2 to 10 lakhs.21% of peoples investment level belongs to 1 to 2 lakhs
80% of respondents are getting periodic information from their financial advisor and

balance 20% of respondents do not asking information for their portfolio.

70% of people are updating portfolio, when the market faces downtrend or uptrend.

27% of people are doing market updating. 22% of people are changing the funds and 11% people are not taking any precautions, they

are not responding to the market movements.

31% of respondents are not investing in commodity futures because they are not having

any awareness about the commodity futures market..

 The other important reason are volatility, low returns, risk and marginal trading

respectively.

The order of the Respondents preference in commodities 1. Bullions 2. Energy 3. Agri-products 4. Base metals The order of reason for investing in commodity futures is
1. Diversification, 2. Investment amount, 3. Hedging purpose, 4. Risk, 5. Marked to market, 6. Financial advisor, 7. Variety of commodities available and 8. Exposures.

Income level group upto 10 lakhs, they are investing for them and their family safety. It remains in the first position. But for income level above 10 lakhs it changes, for them the first objective of investment is to use their surplus cash and gain return from that. The order of investors objective of investment is

1. For me and my family safety 2. Future requirements 3. Longterm gains 4. Shortterm gains 5. Use the surplus cash and get return from that 6. Knowledge 7. Hobby The correlation between the level of investment and period of investment is 0.57.So the level of investment and the period of investment is positively correlated. If there is a increase in the period of investment definitly there is a increase in level of investment and vice versa. The period of investment and level of investment is directly proportinate to each other.

5.2 SUGGESTIONS;
Generally respondents are not aware about commodity futures market. The respondents

mainly MBA graduates and Banking people are aware about the commodity futures. By educating and making the people aware of commodity futures market will attract the most number of people to invest in commodities futures market.. The promotion of this commodity market can be done by means of the advertisement and financial planners .
More respondents are preferring bullions in commodities. The respondents main objective of the investment is their safety. So, the investor thinks

the money will be safe then ready to invest.

5.3 LIMITATIONS: 1. Geographical:

The study is limited to the Chennai city only. Hence all the other cities in Tamilnadu were not considered for the current research.

2. Procedural:
All the data collected generally limited by the method adopted. This limits to the extent of data generation available through that method.

3. Specific:
Some of the respondents were reluctant in giving information.

5.4CONCLUSIONS;
Most of the investors were unaware about the commodity future market. Commodity futures are used by the investor as a hedging tool. It helps the investors to diversify the portfolio and reduce the risk. Many of the people are interested in bullions and energy commodities. Now commodity futures are widely used by the investor to minimize the risk. Many of the people were interested in investing the money in the commodity market but their main problem is that they were not that much well known about the market. By means of educating them, the problem can be eradicated then many will show interest and confidently they will invest their money in the market.

5.5 REFERENCES

BOOKS:
Executive Corporate Finance by Samir Asaf, Second edition 2002. A Traders First Book on Commodity by Carley Garner, Third edition 2003. Investment in Shares by Joshua Rosenbaum, Second edition 2003. Commodity Investing by Adam Dunsby, Fourth edition 2004. Careers in Finance by Trudy Ring, Second edition 2004.

WEBSITES:
www.indiainfoline.in www.5paisa.com www.wikipedia.org www.nseindia.com www.moneycontrol.com www.myiris.com

A Study on Identification of Investment Opportunities in Commodity Futures Market Questionnaire Dear Sir/Madam, As a part of my MBA program, I am doing a research study in the above-mentioned topic. In order to collect data for my research, I request you to kindly provide data and information for the same. I assure that no part of this questionnaire will be misused for any kind of activity and its used only for the sole purpose of this research. Thanking you With regards, Sivasankaran.R, II MBA, Hindustan Institute of Technology and Science, Chennai.

Name: Mr. /Ms__________________________ Occupation: ________________________

Gender: ______

Age: _____

Qualification: ______________

E- Mail: _____________________________________Mobile: ____________________

1. Mention your annual income? Less than 1.5lakhs 1.5 to 3Lakhs 3lakhs to 5lakhs

 5lakhs to 10lakhs 2. What type of investor you are? Aggressive

above 10lakhs

moderate

Conservative

3. Are you aware about the commodity market? Yes No

4. What induced you to invest? Advertisements Own interest Financial planners Others Friends/Relatives

5. What is your level of investment? Less than 1 lakhs 5 to 10 lakhs 1 lakhs to 2 lakhs 10 to 20 lakhs 2 to 5 lakhs more than 20 lakhs

6. What is the reason for not investing in commodities? Risk Volatility Marginal trading Low returns

dont know about commodity futures market 7. If you are interested in commodity market which commodity do you prefer? Energy Bullions Base metals Agri-products

8. In which of the following you are investing? Post Office & Banks commodities Shares &Bonds

 Mutual funds

Insurance

others

9. Will you review the financial situation of your investment periodically? Yes No

10. Will you ask your advisor to provide you the periodic review of your portfolio? Yes No

11. Which precautions will you take during uptrend and downtrend of the market? Changes in fund Portfolio updating Market updating No Precautions

12. The reason for investing in commodity futures is Strongly agree Investment amount Risk Marked to market Hedging purpose Exposures Variety commodities available Financial advisor Diversification of portfolio of Strongly Disagree

Agree

Neutral

Disagree

13. Mention your monthly savings?

 Less than 1000 5000- 8000

1000 to 3000 8000-10000

3000 to 5000 More than 10000

14. How long you have been investing? Less than one year 5- 10 years 1- 2 years 2-3 years 3-5 years

More than 10 years

15. Please Rank the following Objective of Your Investment according to your preference 1Very high 2High 3 Neither high nor Low 4Low 5 Very Low

S.No 1 2 3 4 5 6 7

Factors I invested for me and my family Safety I invested for the Short term gains I invested For the Long Term Gains I Invested to Use my Surplus Cash and get the return from it I Invested to meet my Future Requirements Investing is my hobby Investing gives me to update my knowledge

16. How much returns you expect from your investment? Less than 4% 16% 20% 4% to 8 % More than 20% 8% to 12 % 12% 16%