COMMODITIES-THE NEXT BIG INVESTMENT BOOM

Investors, Start Your Engines! An Overview of Commodities  Figuring out why you should invest in commodities  Defining the commodities markets  Identifying the major commodities

Figuring out why you should invest in commodities  Both challenges and opportunities  Myths and fantasies Myths and fantasies  Physical Investment  Investing through futures markets  ETF’s  Investing through Equity markets Investing through Equity markets

First Things First Just what, exactly, are commodities? Commodities are the raw materials humans use to create a livable world. Humans have been exploiting the Earth’s natural resources since the beginning of time. They use agricultural products to feed themselves, metals to build weapons and tools, and energy to sustain themselves. These — energy, metals, and agricultural products — are the three classes of commodities, and they are the essential building blocks of the global economy.

Commodity futures…  Agreement for buying or selling a commodity for a predetermined delivery price at a specific future time.  Standardized contracts that are traded on organized futures exchanges.  The major function of futures markets is to transfer price risk from hedgers to speculators.

Example….. Suppose a farmer is expecting his crop of wheat to be ready in two months time, but is worried that the price of wheat may decline in this period. In order to minimize his risk, he can enter into a futures contract to sell his crop in two months· time at a price determined now. This way he is able to hedge his risk arising from a possible adverse change in the price of his commodity.

Major Commodities

You Can’t Argue with Success

Comparison of Reuters/ Jefferies CRB Index with Dow Jones from 1998 to 2007.

It’s All about Me! Why Commodities Are Unique

Inelasticity Elasticity quantifies how much supply and demand will change for every incremental change in price. Elasticity -high correlation between price and Demand-Supply Inelasticity – low correlation between price and Demand-Supply

Example…… If the price of ice cream were to increase by 25 percent, chances are you’re going to stop buying ice cream. Why? Because it’s not a necessity, but more of a luxury. However, when the price of Petrol at the pump increases by 25 percent, you’re definitely not happy about the price increase, but you still go out there and fill up your tank. The reason? Petrol is a necessity — you need to fill up your car in order to go to work and so on.

Hedge-hogging galore! Commodities as a hedge against inflation

Commodities as a Diversifying Asset Class “Holding commodities offers protection against the ups and downs of stocks and bonds.” Commodities are “the most diversifying asset class in the portfolio.” -Jack Meyer, the former head of Harvard University’s -

Spot Gold $ v/s Dow/ Sensex /Nifty

Structure of the market MINISTRY OF CONSUMER AFFAIRS,FOOD& PUBLIC DISTRIBUTION FORWARD MARKET COMMISSION ONLINE EXCHANGESMCX (MUMBAI) NCDEX (MUMBAI) NMCE (A’BAD) OPEN OUTCRY EXCHNAGES NBoT (INDORE)

Market Participants  Hedgers, Speculators, Investors, Arbitragers, (same as Equity markets)  Producers – Farmers  Consumers – refiners, food processing companies, jewelers, textile mills, exporters & importers  Institutional proprietary trades – currently disallowed

Contract Specifications (MCX) SymbolCommodityPrice unit Tick SizeLot SizeExpiry Date Multiply -ing factor No. of Contracts Active Daily Price limit GOLD Re. 1/10 grams1.001 Kgs5th of every - bi month10033% GOLDGUINEAGOLD GuineaRe. 1/8 grams1.008 GramsLast day of the month123% GOLDMGOLD MiniRe. 1/10 grams grams5th of every month1033% SILVER Re. 1/kg Kgs5th of every - bi month3044% SILVERMSILVER MiniRe. 1/kg1.005 KgsLast day of the month544% CRUDEOIL Rs. per barrel barrels15th of every month10034% NATURALGAS Rs. Per mmBtu mmBtuLast day of the month125034% COPPER Rs./100 kg0.051MTLast day of the month100034% ZINC Re. 1/kg0.055MTLast day of the month500034% LEAD Rs./100 kg0.055MTLast day of the month500034% NICKEL Rs./100 kg kgLast day of the month25035% ZINC Re. 1/kg0.055MTLast day of the month500034% ALUMINIUM Rs./100 kg0.055MTLast day of the month500034%

Contract Specifications (NCDEX) SymbolCommodityPrice unit Tick Size Lot Size Expiry Date Multiplyin g factor No. of Contracts Active Daily Price limit CHARJDDELCHANARs. Per QuintalRe 110MT20 th day of the month100 MAX-12 MIN-23% GARSEDJDRGUAR SEEDRs. Per QuintalRe 110MT20 th day of the month100 =“= 3% GARGUMJDR GUARGUMRs. Per QuintalRe 15MT20 th day of the month50 =“= 3% JEERAUNJHAJEERARs. Per QuintalRe.13MT20 th day of the month30 =“= 2% PPRMLGKOCPEPPERRs. Per QuintalRe.11MT20 th day of the month10 =“= 3% TMCFGRNZMTURMERICRs. Per Quintal2.005MT20 th day of the month50 =“= 2% CHLL334GTRCHILLIRs. Per QuintalRe.15MT20 th day of the month50 =“= 2% SYBEANIDRSOYBEANRs. Per QuintalRe MT20 th day of the month100 =“= 3% SYOREFIDRSOYOILRs. Per 10KgRe MT20th day of the month1000 =“= 3% RMSEEDJPR MUSTARD SEEDRs. Per 20KgRe MT20th day of the month500 =“= 3% WHTSMQDEL I WHEAT Rs. Per Quintal Re MT 20 th day of the month 100 =“= 3% MENTHAOIL Rs. Perr /kgRe KgsLast day of the month360 =“= 3%

Conversion Basics (Gold/Silver/Crude oil)  One dollar movement in Gold price has impact of Rs. 15/=(approx) per 10 gram in INR  One cent movement in silver price has impact of Rs. 15/= (approx) per kg in INR  One dollar movement in Crude price has impact equal to Exchange Rate itself i.e. if Exchange rate is then price of 1 barrel is equivalent to price in dollar multiplied by exchange rate

Parity calculation (Base metals) LME  Copper : LME Price/1000* INR  Zinc : LME Price/1000* INR  Lead : LME Price/1000* INR  Nickel : LME Price/1000* INR  Aluminum : LME Price/1000* INR COMEX Copper: (COMEX Price* *INR)/100

Margining System  Initial Margin – Is the money deposited by trader of futures contracts to initiate a Position.  Exposure Margin – Margin Money charged by the Exchange to ensure that initial margin does not go below a particular level.  Ad-Hoc Margin – Special Margin to control extreme volatility. Normally levied near expiry date to reduce counter party risk.  Delivery Margins – Margin applicable when delivery is marked for.

The Power of “2” 1.Fundamental analysis 2. Technical analysis

Fundamental Analysis in the Commodity Markets  Focuses simply on the factors that dictate price movements in the physical and futures markets  Formulating a strategy that looks at supply and demand factors  Focusing on crop reports, inventory reports, weather, news, and a magnitude of other Variables  Stay updated on factors that can affect the short- term and intermediate prospects for commodities.

Fundamental factors  Demand & Supply  Weather.  Economic News/Data’s/Reports Economic News/Data’s/Reports  Geopolitical Tensions

Top market Indicators  Consumer Price Index  Consumer Confidence Index  ISM (Institute for Supply Management) Manufacturing Index  Trade Balance  Federal Funds Rate  Gross Domestic Product  Non-farm Payrolls  Purchasing Managers Index  Durable Goods  Housing Starts  Existing Home Sales  Industrial Production

Oil Specific Indicators  EIA Inventory Reports  OPEC monthly oil report OPEC  EIA Oil report  Natural Gas Inventory Report Other Indicators  London Gold Fix  Reuters/Jefferies CRB Index  US Dollar US Dollar

MOTILAL OSWAL COMMODITIES BROKER PVT. LTD An Insight……..

Motilal Oswal Commodities- A Unique Experience Solid Research: Client at Motilal Oswal Commodities Broker Pvt. Ltd (MOCBPL) gets access to the best of research in the form of Daily Fundamental and Technical Research Reports on highly traded commodities. One Stop Shop: MOCBPL provides end-to-end advice for all the commodities to all our prestigious individual investors. Privileged customers also get exclusive & customized advice. Dual Membership: MOCBPL has membership to MCX and NCDEX exchanges which gives the clients advantage of the dual exchange trading facility. Personalized Service: We provide personalized service through dedicated relationship managers for quick and efficient execution of transactions.

Centralised Advisory desk  Channel wise advisory service (Retail, Franchisee and E-broking).  Quality Advisory team.  Chat service, Calls and Updates on Trading Terminal.  Query handling and Back office support.  SMS, s & Personalized Services for Investment, Trading Ideas, Research Notes, Market Views etc. Research  Commodities Specific Fundamental research  Intraday Technical calls  Positional Calls (Fundamental and Technical calls)  Other strategies  Common Research for Institution & Retail Clients E-broking  Online trading terminal.  Real time calls and updates on trading terminal. Services Offered

Idea Generation Research Meet Dissemination Dissemination of Research Ideas Franchisee Advisory Centralized Advisory Local Dealers SMS Mailers Chat HNI / Corporates Mass Clients

Other Services ONLINE BACK OFFICE DEDICATED ADVISORY DESK MORNING EVENING ADVISORY SHIFTS E-BROKING TERMINAL ( ORION LITE ) E-CONTRACT NOTES FAST CONTROL ID COMPETETIVE BROKERAGE STRUCTURES

Awards and Accolades 'Outstanding Commodity Broking House ' Award 09/01/2007 Motilal Oswal Commodities Broker Pvt Ltd (MOCBPL) bagged Globoil India's prestigious 'Outstanding Commodity Broking House ' Award

67% of the people who try MOSLs service become regular users Versus 39% for Sharekhan 38% for Kotak 42% for Angel Broking 42% for India Infoline 50% for Reliance Money 54% for ICICI Direct 33% for Edelweiss Strong Satisfaction…. Truly Personified

Top 10 Rules of Successful Trading  OVERTRADING Your Greatest Enemy  When In Doubt Get Out!  Never Average a Loss!  Money Management Is The KEY  The Trend Is Your Friend  Never Let a Profit Turn Into a Loss!  NEVER anticipate.  IF the Market Is Not Confirming Your Opinion, Lose Your Opinion & Listen to the Market  Stop loss is a must  Risk Reward Ratio

The price of a commodity will never go to zero. When you invest in commodities futures, you’re not buying a piece of paper that says you own an intangible piece of company that can go bankrupt. —Jim Rogers

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