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Content

 INTRODUCTION

 OBJECTIVES OF THE STUDY

 SCOPE OF THE STUDY

 REVIEW OF LITERATURE

 RESEARCH METHODOLOGY

 REFERENCES

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INTRODUCTION

1.1. INTRODUCTION TO THE STUDY

The main idea behind the study conducted was to find out the investors
preference of commodity market with reference to Share khan Financial
Services Pvt. Ltd,

This study should deal with the investor’s preference from commodity
market. To identify the investor’s preference means, it should find out the
characteristics of investors who invest under the guidance of different share
brokers. It also should concentrate on whether they are satisfied with the
services and earnings from the commodity market to provided by the
investment an also by the brokers service.

They will be expecting different types of commodities from their


investment guide. Some of them may not be satisfied with their service and
the information they give. My aim is to find out the investors preference from
commodity market of the investors from their share brokers. How is investors
satisfaction from commodity market satisfaction level can be improved by
providing better services. Keeping all these things in mind the primary
and secondary objectives of the study are set.

MEANING OF INVESTOR:

An investor is any party that makes an investment. The term has


taken on a specific meaning in finance to describe the particular types of
people and companies that regularly purchase equity or debt securities for
financial gain in exchange for funding an expanding company.

Less frequently, the term is applied to parties who purchase real estate,

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currency, commodity derivatives, personal property, or other assets. The
term implies that a party purchases and holds assets in hopes of achieving
capital gain or cash flow, not as a profession or for short-term income.

Types of investors:

Here is an overlapping, non-exclusive list of investor types:

 Individual investors (including trusts on behalf of individuals, and


umbrella companies formed for two or more to pool investment funds).
 Collectors of art, antiques, and other things of value.
 Angel investors, either individually or in groups.
 Venture capital funds, which serve as investment collectives on behalf of
individuals, companies, pension plans, insurance reserves, or other funds.
 Investment banks.
 Businesses that make investments, either directly or via a captive fund
 Investment trusts, including real estate investment trusts
 Mutual funds, hedge funds, and other funds, ownership of which may or
may not be publicly traded (these funds typically pool money raised from
their owner-subscribers to invest in securities)
 Sovereign wealth funds

Commodity Market is an organized traders' exchange in which standardized,


graded products are bought and sold. Worldwide, there are 48 major
commodity exchanges that trade over 96 commodities, ranging from wheat
and cotton to silver and oil. Most trading is done in futures contracts, that is,
agreements to deliver goods at a set time in the future for a price established
at the time of the agreement.

Trading of S&P 500 and other financial futures has broken down

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some of the barriers that once separated stock, bond, and commodity markets
and made it easier for investors to hedge their stock investments. Critics
charge that the futures trading at the commodity markets in Chicago have
made stock prices more volatile.

The Chicago Board of Trade is the largest futures and options


exchange in the United States, the largest in the world is Eurex, an electronic
European exchange.

Types of traders in a derivatives market:

Hedgers:

Hedgers are those who protect themselves from the risk associated
with the price of an asset by using derivatives. A person keeps a close watch
upon the prices discovered in trading and when the comfortable price is
reflected according to his wants, he sells futures contracts. In this way he gets
an assured fixed price of his produce.

In general, hedgers use futures for protection against adverse future


price movements in the underlying cash commodity. Hedgers are often
businesses, or individuals, who at one point or another deal in the underlying
cash commodity. Take an example: A Hedger pay more to the farmer or
dealer of a produce if its prices go up. For protection against higher prices of
the produce, he hedges the risk exposure by buying enough future contracts
of the produce to cover the amount of produce he expects to buy. Since cash
and futures prices do tend to move in tandem, the futures position will profit
if the price of the produce raise enough to offset cash loss on the produce.

Speculators:

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Speculators are some what like a middle man. They are never
interested in actual owing the commodity. They will just buy from one end
and sell it to the other in anticipation of future price movements. They
actually bet on the future movement in the price of an asset. They are the
second major group of futures players. These participants include
independent floor traders and investors. They handle trades for their personal
clients or brokerage firms. Buying a futures contract in anticipation of price
increases is known as ‘going long’. Selling a futures contract in anticipation of
a price decrease is known as ‘going short’. Speculative participation in futures
trading has increased with the availability of alternative methods of
participation.

Speculators have certain advantages over other investments they are as


follows:

If the trader’s judgment is good, he can make more money in the


futures market faster because prices tend, on average, to change more quickly
than real estate or stock prices. Futures are highly leveraged investments. The
trader puts up a small fraction of the value of the underlying contract as
margin, yet he can ride on the full value of the contract as it moves up and
down. The money he puts up is not a down payment on the underlying
contract, but a performance bond. The actual value of the contract is only
exchanged on those rare occasions when delivery takes place.

Arbitrators:

According to dictionary definition, a person who has been officially


chosen to make a decision between two people or groups who do not agree is
known as Arbitrator. In commodity market Arbitrators are the person who
takes the advantage of a discrepancy between prices in two different markets.
If he finds future prices of a commodity edging out with the cash price, he will
take offsetting positions in both the markets to lock in a profit.

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OBJECTIVES OF THE STUDY

 To study about the investors preferences towards commodity market in


Share khan Financial Services Pvt. Ltd, Gobi.
 To find out very high preference of commodity market.
 To analyze the various factors influencing investor’s preference on
commodity market.
 To find out the investors awareness regarding commodity market.
 To study about the investors acceptance level of rumors in commodity
market.
 To find some suggested measures to improve the present level.

SCOPE OF THE STUDY

 It assesses the preference of choosing the market by the respondents.


 The study helps us to know about the Investor’s preferences towards
commodity market.
 It helped to bring out various investment opportunities and preference in
commodity market.
 The specific reason to why people preference commodity market one
mode of investment and earning high return

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REVIEW OF LITERATURE

According to Sahadevan, the Sagging Agricultural Commodity Exchanges -


Growth Constraints and Revival Policy Options: “Commodity derivatives
have a crucial role to play in managing price risk especially in agriculture
dominated economies. However, they have been utilized in a very limited scale
in India. As long as prices of many commodities are restrained to certain
extent by Government intervention in production, supply and distribution,
forwards and futures markets for hedging rice risk in those commodities have
only limited practical relevance. A review of the nature of institutional and
policy level constraints facing this segment calls for more focused and
pragmatic approach from government, the regulator and the exchanges for
making the agricultural futures markets a vibrant segment for risk
management”.

According to Peter Gibbon Danish Institute for International Studies,


Copenhagen. The commodity question: new thinking on old problems -
“This paper reviews more and less mainstream policy options in relation to

the „commodity question‟ in the light both of its classical definition and of the

emerging concern about oligopoly. It begins by updating the evidence


concerning commodity price decline and volatility, and examining the
implications of these phenomena for macro-economic performance and
livelihoods in producing countries”.

According to Stephen Craig,"The Self-Regulation of Commodity Exchanges:


The Case of Market Manipulation."-“The paper deals with Price dissemination
that every Mandy becomes a monopoly to the local producers, especially once
they come to the market. Farmers typically face a short period between the time
that they harvest and the time that they can sell the crop”.

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According to Katherine Dusak, Futures Trading and Investor Returns: An
Investigation of Commodity Market Risk Premiums. “The long-standing
controversy over whether speculators in a futures market earn a risk
premium is analyzed within the context of the capital asset pricing model
recently developed by harpe, Lintner, and others. Under that approach the risk
premium required on a futures contract should depend not on the variability
of prices but on the extent to which the variations in prices are systematically
related to variations in the return on total wealth. The systematic risk was
estimated for a sample of wheat, corn, and soybean futures contracts over the
period 1952 to 1967 and found to be close to zero in all three cases. Average
realized holding period returns on the contracts over the same period were
close to zero”.

3.5 According to Susan Thomas, Agricultural commodity markets in India-


Policy issues for growth: “Strengthening institutions in spot and derivative
markets for commodities is a necessary ingredient of the liberalization process
in agriculture, and can impact upon the lives of millions. n this paper, we
describe the existing market design prevalent on both the spot and the
futures markets. We show some evidence on the role played by the nascent
futures markets in price discovery. We document the problems of both the
spot and the futures markets. We offer three policy proposals: using reference
rates for strengthening transparency, exploring a greater role for cash
settlement, and treating warehouse receipts as securities”.

According to N.Sathish Kumar, Asst. Professor & Head, Department of


Business Management. Vivekananda PG College, Karimnagar “After almost two
years that commodity trading is finding favor with Indian investors and is been seen
as a separate asset class with good growth opportunities. For diversification of
portfolio beyond shares, fixed deposits and mutual funds, commodity trading offers a
good option for long-term investors and arbitrageurs and speculators. And, now,
with daily global volumes in commodity trading touching three times that of equities,

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trading in commodities cannot be ignored by Indian investors.

Online commodity exchanges need to revamp certain laws governing


futures in commodities to make the markets more attractive. The national multi-
commodity exchanges have unitedly proposed to the government that in view of
the growth of the commodities market, foreign institutional investors, too, should
be given the go-ahead to invest in commodity futures in India. Their entry will
deepen and broad base the commodity futures market. As a matter of fact,
derivative instruments, such as futures, can help India become a global trading
hub for select commodities.

Commodity trading in India is poised for a big take-off in India on the


back of factors like global economic recovery and increasing demand from China
for commodities. Considering the huge volatility witnessed in the equity markets
recently with the Sensex touching 6900 level commodities could add the required
zing to investors' portfolio. Therefore, it won't be long before the market sees the
emergence of a completely redefined set of retail investors.

According to Chua, Jess H., Gordon Sick, and Richard S. Woodward (1990).
"Diversifying with Gold Stocks" “The authors extend Jaffe’s (1989) study by
examining the relative investment benefits of investing in gold equities versus
gold bullion during the period September 1971 through December 1988. By
splitting their sample period into two sub periods, the authors show that the
diversification benefits of gold bullion are much more consistent than the
diversification benefits of gold equities. In particular, they find that the beta of
gold equities more than doubled between the 1970s and 1980s, whereas the beta
of gold bullion remained largely unchanged at approximately zero in both periods.
Thus, the authors question the diversification benefits of gold equities,
particularly over short investment horizons.”

3.8 According to de Roon, Frans A., Theo E. Nijman, and Chris Veld (2000).
"Hedging Pressure Effects in Futures Markets " Journal of Finance, “We

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present a simple model implying that futures risk premium depend on both own-
market and cross-market hedging pressures. Empirical evidence from 20 futures
markets, divided into four groups (financial, agricultural, mineral, and currency)
indicate that, after controlling for systematic risk, both the futures own hedging
pressure and cross-hedging pressures from within the group significantly affect
futures returns. These effects remain significant after controlling for a measure of
price pressure. Finally, we show that hedging pressure also contains explanatory
power for returns on the underlying asset, as predicted by the model.” (p. 1437).

According to Dusak, Katherine (1973). "Futures Trading and Investor


Returns: An Investigation of Commodity Market Risk Premiums." Journal of
Political Economy, Vol. 81, No. 6 (November/December): 1387-1406. “The long-
standing controversy over whether speculators in a futures market earn a risk
premium is analyzed within the context of the capital asset pricing model recently
developed by Sharpe, Linter, and others. Under that approach the risk premium
required on a futures contract should depend not on the variability of prices but
on the extent to which the variations in prices are systematically related to
variations in the return on total wealth. The systematic risk was estimated for a
sample of wheat, corn, and soybean futures contracts over the period 1952 to
1967 and found to be close to zero in all three cases. Average realized holding
period returns on the contracts over the same period were close to zero.” (p. 1387)

According to Edwards, Franklin R., and Jimmy Liew (1999). "Managed


Commodity Futures" Journal of Futures Markets, Vol. 19, No. 4 (June): 377-
411. “The authors examine the performance of managed commodity futures as
represented by public commodity funds, commodity pool operators, and
commodity trading advisers. The authors indicate that the costs associated with
investing in CPOs and CTAs may be quite large because the funds may incur
significant transaction costs, which are added to a number of fees charged to
investors, including management fees, profit-based incentive fees, and loads.
Despite these relatively high costs, the authors find that the net return to

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commodity fund investments is frequently relatively attractive. Each individual
fund, however, has relatively volatile returns, so the stand-alone performance of
managed commodity futures is poor relative to traditional investments. The
authors find that, in general, adding a portfolio of CPOs or CTAs to a traditional
investment portfolio enhances portfolio performance. In addition, the authors
compare the returns to CTAs and CPOs with the returns to the passive
Reuters/Jefferies CRB Index and the MLM. The MLM is a dynamic index based
on momentum in commodity prices, which is consistent with the strategy
followed by many managed futures funds. The authors find a significant positive
relationship between the returns to managed futures and the MLM but no
significant relationship between managed funds and the CRB. This finding is
consistent with the contention that the MLM provides a general indicator of the
performance of managed futures. The authors also find, however, that neither the
MLM nor the CRB supplants managed futures in their derived efficient
portfolios.”

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RESEARCH METHODOLOGY

The methodology of research indicates the general pattern of organizing


the procedure of gathering valid and reliable data for the problem under
investigations (Kothari, 1996). The methodology of this study includes the choice
of the research approach, sampling technique, development of the tool, data
collection procedure and method of analysis based on the statement and
objectives of the study.

Research approach

The selection of the research approach is the basic procedure for the
conduct of research. A research approach tells the investigator as to what data to
collect and how to analyze it. It also suggests possible conclusion to be drawn
from the data.

The research approach refers to the investigator overall plan for


obtaining answers to the research question and for testing the research
hypothesis. It spells out the strategies that the investigator adopts to develop
information that is accurate, objective and interpretable. It is set of flexible guide
spots designed to keep the investigator in the right direction. ( Polit and Hungler,
1999).

4.3 RESEARCH DESIGN


Research design constitutes the blue print for the collection and
analysis of the data. Research design is essential as it facilitates the smooth
sailing of various research operations so as to make the research as efficient
as possible yielding maximum information with minimum of effort, time, and
money.

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"Decisions regarding what, when, how, how much by what means
concerning a research constitutes the research design.” --C.R. Kothari
DESCRIPTIVE RESEARCH:

Descriptive Research includes surveys and fact - finding enquiries


of different kinds of the major purpose of descriptive research is description of
the state of affairs as it exists at present. In social science and business
research we quite often use the term ex post facto research for description
research studies.

SAMPLING UNIT

Business Men, Professionals, Employed personnel, others like House


wife etc.

SAMPLE SIZE

A sample size of 120 investors was selected for the study in the Gobi
Region.

METHOD OF DATA COLLECTION

Here the researcher mainly used primary data.

A. PRIMARY DATA

Data are collected for the first time for a specific purpose in mind
using the questionnaire method and interview method.

B. SECONDARY DATA

The secondary data was collected from the company Journals,


Reports, Magazines, Internet and Materials obtained from the commodity
product in the regional Office.

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4.4 SAMPLING TECHNIQUE

This sampling method involves purposive or deliberate selection of


particular units of the universe for consulting a sample, which represents the
universe.

Non Probability- Convenience Sampling:


When population elements are selected for inclusion in the sample
based on the ease of access it can be called convenience sampling

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REFERENCES

www.sharekhan.com
www.karvy.com
www.indiainfoline.com
www.moneycontrol.com
www.valuenotes.com
www.cdsl.com

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