A PROJECT REPORT ON

“CAPITAL MARKET”

A PROJECT REPORT
SUBMITTED TO THE UNIVERSITY OF MUMBAI
IN PARTIAL FULFILLMENT FOR THE AWARD OF
DEGREE OF BACHELOR OF COMMERCE
FINANCIAL MARKETS

BY
BHAGYASHREE SUBHASH DESHPANDE
MODEL COLLEGE, DOMBIVLI (EAST)
B.COM (FINANCIAL MARKETS)
SEMESTER ‘V’

UNIVERSITY OF MUMBAI
OCTOBER-2010

1
 TABLE OF CONTENT

SRNO. DESCRIPTION PAGE NO.

1 CERTIFICATE
2 DECLARATION
3 ACKNOWLEDGEMENT
4 LIST OF ABBREVIATIONS
5 LIST OF CHARTS AND TABLES

DECLARATION
2
I, BHAGYSHREE SUBHASH DESHPANDE STUDENT OF
BACHELOR OF COMMERCE (FINANCIAL MARKETS) SEMESTER
‘V’ OF MODEL COLLEGE, HEREBY DECLARE THAT I HAVE
COMPLETED PROJECT ON “MULTY COMMODITY EXCHANGE-A
CASE STUDY” FOR THE ACADEMIC YEAR 2010-11

THE INFORMATION SUBMITTED IS TRUE AND ORIGINAL TO

THE BEST OF MY KNOWLEDGE

BHAGYSHREE SUBHASH DESHPANDE

BACHELOR OF COMMERCE
FINANCIAL MARKETS

3
ACKNOWLEDGEMENT

BHAGYSHREE SUBHASH DESHPANDE

LIST OF ABBREVIATION
4
LIST OF TABLES AND CHART

5
6
 CHAPTER – 1

RESEARCH DESIGN

CHAPTER- 1
RESEARCH DESIGN

7
 INTRODUCTION ABOUT CAPITAL MARKET

Investment in India has traditionally meant property, gold and

Bank deposits. The more risk-taking investors choose equity
trading. But commodity trading forms a part of conventional
Investment instruments. As a matter of fact, future trading in
Commodities was banned in India in mid – 1960 due to excessive
Speculation. In February 2003, the government revoked the ban
and threw open futures trading in 54 commodities in bullion and
agriculture. It gave the go-ahead to four exchanges (The National
Commodities and Derivatives Exchange (NCDEX), The multi
commodity Exchange of India (MCX),The National Multi
Commodity Exchange of India (NMCE) and The National Board
of Trading in Derivatives (NBOT)) to offer online trading in
commodity derivatives products.

Tradable Commodities:

World –over one will find that a market exits for almost all
commodities. These commodities can be broadly classified into the
following:
Precious Metals: Gold, Silver, Platinum etc.

Other Metals: Nickel, Aluminum, Copper etc.

Agro-Based Commodities: Wheat, Corn, Cotton ,Oils, Oilseeds

etc.
8
Soft Commodities: Coffee, Cocoa, Sugar etc.

Live Stock: Live Cattle, Pork Bellies etc.

Energy: Crude Oil, Natural Gas, Gasoline etc.

A robust commodity market is an indication of developing nature

of economy. A transparent commodity market is desirable for the
development of an economy. Thus, it is important to have active
commodity market functioning in the country.

Markets have existed for centuries worldwide for trading in goods

and services. The concept of market stared with agricultural
products and hence it is as old as the agricultural products or the
business of farming itself. Traditionally, farmers used to bring their
products to a central marketplace, called mandi/ bazaar, in a town /
village where grain merchants/ traders would also come and buy
the products and transport, distribute and sell them to other
markets.

In traditional markets, shortage of a commodity in the given season

would lead to increase in price for the commodity. On the other
hand, oversupply of a commodity on even a single day could result
in decline in the price, at times below the cost of production.
Neither farmers nor merchants were happy with this situation since
they could not predict what the prices would be on a given day or
in a given season. As a result, farmers often returned from the
market with their products, since they failed to fetch their expected
price and due to non availability of storage facilities close to the
marketplace.
It was in this context that farmers and food grain merchants in
Chicago started negotiating for future supplies of grain in
exchange of cash at a mutually agreeable price. This type of
agreement was acceptable to both parties since the farmer would
9
know how much he would be paid for his products, and the dealer
would know his cost of procurement in advance. This effectively
started the system of commodity market forward contracts, which
subsequently led to futures market too. Thus, trading in
commodities consist of direct physical trading and derivatives
trading.

The futures market in commodities offers both cash and delivery-

based settlement. Investors can choose between the two. If the
buyer chooses to take delivery of the commodity, a transferable
receipt from the warehouse where goods are stored is issued in
fever of the buyer. On producing this receipt, the buyer can claim
the commodity from the warehouse. All open contracts not
intended for delivery are cash- settled. While speculators and
arbitrageurs generally prefer cash settlement, commodity stockiest
and wholesaler go for delivery. The option to square off the deal or
to take delivery can be changed before the last day of contract
expiry. In the case of delivery-based trades, the margin rises to 0-
25% of the contract value and the seller is required to pay sales tax
on the transaction.

Absolute returns from stocks and bonds are definitely higher than
pure commodities. But commodity trading carries a lower
downside risk than other asset classes, as pricing in commodity
future is less volatile compared to equities and bonds. While the
average annual volatility is 25-30% in benchmark equity indices
like the BSE Sensex or NSE’s Nifty, it is 12-18% in gold, 15-25%
in silver, 10-12% in cotton and 5-10% in government securities.

A shift in investment pattern of individuals has occurred due to the

establishment of commodity exchanges. Investors had stared
recognizing investment in commodities as an alternative
investment avenue. The producers and traders both started reaping
higher profits and benefited from rationalization of transaction
costs due to establishment of these commodity exchanges.
10
Commodity exchanges play crucial role in ensuring transparency
in transaction and disseminating prices. Commodity exchange
maintains settlement guarantee funds and requires brokers to
comply with stringent capital adequacy norms. This ensured high
trading standards. In the light of these developments, various
commodity based investment products came into existence to
facilitate trading and risk management.

Online commodity exchanges need to revamp certain laws

governing futures in commodities to make the markets more
attractive. The national multi-commodity exchange have unitedly
proposed to the government that in view of 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 future market. As
India become a global trading hub for select commodities.

ABOUT THE REPORT

• Title of the study:

11
 The present study is titled as , “A project report on capital
market”
The study is made with special reference to Indian Capital
Market.

• Objectives of the studies:

The following are the objectives of present study.
1) To know about the pertinence of regulation measures
2) To study about categorization financial instruments in
the capital market.
3) To study the differentiation about the role of
government and of the private sector in the
development and regulation of capital markets;.

• Data and methodology:

For the purpose of the present study both and secondary data
were used. Primary data collected by preparing questioner,
market visits etc. the secondary data collected from books
magazine journal and news paper.

• Period of the study:

The period of present study is from 2010 JAN to 2010 AUG.

• Limitation of the study:

The present study has got all the limitation of case study
method of data collection.

• Presentation of the study:

The present study is arranged as follows:

12
CHAPTER 1 Research Design
CHAPTER 2 Theoretical view
CHAPTER 3 Graphs and Charts
CHAPTER 4 Conclusion

13