Archive for the ‘commodity’ Category

Ace Derivatives & Commodity Exchange

Ace Derivatives & Commodity Exchange with over five decades of impeccable experience in commodity trading, has recently transformed itself and established an online multi-commodity platform with a pan-India presence. Kotak Group is the anchor investor in ACE Commodity Exchange with a 51 per cent stake, while Haryana”s Hafed has a 15 per cent interest and banks like Bank of Baroda, Union Bank and
Corporation Bank have an over 14 per cent stake. The remaining equity is held by Ahmedabad Commodity Exchange members.

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Products offered

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Ace offers futures trading the following commodity groups:

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Bullions: Gold, Silver

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Energy: Crude oil, Natural Gas

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Agri

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•Castor Seed (Ex-Warehouse Ahmedabad)

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•Mustard Seed (Ex-Warehouse Jaipur-inclusive of all taxes but exclusive of Sales tax/ VAT)

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•Soybean Ex-Warehouse Indore -inclusive of all taxes but exclusive of Sales tax/VAT)

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•Refined Soy Oil (Ex-Tank Indore-Inclusive of all Taxes and Levies)

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•Pulses

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•Chana

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•Spices

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•Turmeric

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The Kotak-anchored exchange started futures trading in soybean, soyoil, rape/mustard seed, chana and castor seed. With the launch, the first set of contracts will be available for trade for delivery on November 20, December 20 and January 20.

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The lot size of trading is fixed at 10 tonnes of each contract. According to the exchange data, the castor seed contract for December-expiry opened at `3,442 a quintal, chana at `2,440 a quintal, soyabean at `2,244 a quintal, mustard seed at `573 for every 20 kg and refined soy oil at`545.90 for every 10 kg.

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Trade Timings:

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Agri: 10:00 a.m. to 05:00 p.m. (Monday to Friday)

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10:00 a.m. to 2:00 p.m. (Saturday)

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Bullion/Metals: 10:00 a.m. to 11.30 p.m. (Monday to Friday)

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10:00 a.m. to 2:00 p.m. (Saturday)

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Risk Management

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The Exchange assumes the counter party risk by guaranteeing trade settlement. The Risk Management framework of the Exchange ensures timely settlement.

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More hands working on…..

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Haryana State Cooperative Supply and Marketing Federation (Hafed) is planning to set up spot exchanges of the recently launched Ace Derivatives and Commodity Exchange (ACE) in mandis soon. The association of Hafed with the ACE will help it in playing the role of an aggregator and a risk manager on behalf of thousands of farmers, who will be motivated to become participants of the ACE in the coming decade.

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In addition to its convenient trading platform, Ace provides a robust clearing & settlement infrastructure that supports the complete process of trade intermediation – including registration of trades, settlement of contracts and mitigation of counter party risk; giving traders the peace of mind in times of increased market volatility.

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Weekly Update 1-5th November 2010

Global markets saw profit booking ahead of the Federal Reserve’s decision on monetary easing at its meeting on 2-3 November 2010 in order to spur growth and to reduce the unemployment rate. Economists expect the Fed to buy between $80 billion and $100 billion worth of assets each month in a new program to stimulate the economy. IMF pointed out that global liquidity, by whichthey meant money supply growth in the G-4 economies of Japan, the US, the euro zone and the UK, has an impact five times as large as domestic liquidity on what it called the liquidity receiving economies, or the emerging markets.

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The U.S. gross domestic product rose at a 2 percent annual rate in the third quarter after a 1.7 percent increase in the previous three months. Japanese factory production fell 1.9 percent in September from August and core consumer prices saw a decline of 1.1 percent from a year earlier added to worries that stronger yen is affecting economy expansion. G-20 finance ministers and central bankers said they will refrain from “competitive devaluation” and let markets have a bigger role in setting foreign-exchange values.

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Citing Inflation a major concern, RBI has last hiked the policy rates by 25 bps in September for the fifth time. Headline inflation has come off to single digit and is likely to come down further going ahead as harvest season produce is expected to come in the market. The government recently allowed duty-free import of rice and wheat and has released grains from its stocks to rein in food price rise. On the manufacturing side, Industrial production growth dropped to 5.6 percent in August from 15.2 percent in July. The growth of six infrastructure industries has further slowed to 2.5% in September, pulled down by contraction in output of coaland petroleum refinery.Though possibility of hike of another 25 bps by RBI in its meeting on 2nd November cannot be ruled out but a large section of the market believes that this timearound RBI may not touch upon the policy rates citing inflation coming down going forward and moderation in manufacturing activity.

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Further the actions taken so far by RBI has yet to give any material affect in the economy as even after the hikes in policy, the banks have yet to make adjustments in interest rates. Nifty has support between 5930-5840 and Sensex between 19640-19200.Sea saw movements in commodities is showing the nervousness among the investors ahead of Fed meeting which is scheduled in this week. If Fed goes for second round of quantitative then it can give confidence to economy and spill over can be seen in commodity as well. On the other side, if Fed goes for less than expected money injection in economy then we can see some downside in base metals and energy.

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Dollar index slid about 6 percent since early September on the talk of same “QE2” in US. Bullions were the major beneficiary of this fall in dollar index. October was a volatile month for commodities in which commodities reacted on every speculation over quantitative easing and agricultural markets going their own way as crops forecasts were cut. Commodities end month with modest gain. Investors should adopt cautious approach ahead of meeting.

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SHIFT IN GOLD DEMAND: PERFORMANCE OF ETFs

Gold’s appeal as an alternative investment option remains high. Historically equities have performed better than gold barring certain minor aberrations here and there. However, asset allocation is an important aspect of any investment strategy. By balancing asset classes of different correlations, investors hope to maximize returns and minimize risk. While many investors may believe that their portfolios are adequately diversified, they typically contain only three asset classes – stocks, bonds/fixed income instruments and cash. To counter adverse movements in a particular asset or asset class, many investors now strive to achieve more effective diversification in their portfolios by incorporating alternative investments such as commodities. While gold has shown strong returns over recent years, its most valuable contribution to a portfolio lies in the fact that it is not correlated with most other assets. This is because the gold price is not driven by the same factors that drive the performance of other assets. Demand for gold may continue to rise as investors diversify their portfolio with an asset that is not correlated with the equity markets. In the melt down seen in 2008-09, gold was not correlated with the other assets and hence saved.

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Gold’s price action in the past few months has frustrated many traders. High volatility in prices created much risk for the investors as well as for intra day traders. At this time ETFs plays a major role as Gold ETFs provides investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold, and to buy and sell that participation through the trading of a security on stock exchange. Gold ETF would be a passive investment; so, when gold prices move up, the ETF appreciates and when gold prices move down, the ETF loses value. Each unit is approximately equal to price of 1 gram gold. But, there are Gold ETFs which also provide a unit which is approximately equal to the price of ½ gram of gold.

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Gold exchange traded funds (ETFs) serve several functions in both good times and bad. These days, we’re seeing it primarily workingas a safe haven for investors. According to the World Gold Council’s (WGC) latest Gold Investment Digest (GID), the quarter Q2 2010 recorded significant net inflows into various gold backed investment vehicles, as investors sought to harness gold’s investment benefits at a time of weakness and pronounced volatility in other asset classes. Investors bought 273.8 net tonnes of gold via exchange traded funds (ETFs) in Q2 2010. This represents the second largest quarterly inflow on record with the total amount of gold held in the ETFs monitored by WGC to over 2,000 tonnes (worth US$81.6 billion).

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Till now India has been the biggest consumer of gold but gold exchange traded funds (ETFs) were not much popular in India. However, things are changing fast inIndia. With increasing popularity more and more people are now putting their money on Gold ETFs. As a sign of this, India’s gold collection under exchange-traded funds rose 76 per cent in June 2010 from a year ago to 10.453 tonnes. There has been an increase of customers by 70-80 per cent (on year). Most of the participation  was from high net worth individuals and other retail investors. The gold ETFs, instruments that trade like shares and are backed by physical gold holdings, are more than three year old and may get crowded with some other funds planning their entry.

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Over the past nine years, gold has managed to post successive increases in its annual average price, navigating the choppiest of waters.

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From the above mentioned chart it is clearly visible that gold ETF’s has given significant return on yearly basis.GOLDBEES does the best and it does quite well in volumes also, thatis due to the fact that its expenses are lower than the competitors. More competition is always good for the customer, but unless someone comes up with an ETF with expenses lower than GOLDBEES, we can imagine GOLDBEES to be the best on this chart.

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ETF have shown consistent growth in volumes both in terms of number of trade and turnover. Based on the underlying asset different types of ETFs have been identified. The turnover and price of each class of ETF listed on NSE is given below.

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Advantages of Investing in Gold ETFs

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•Potentially cheaper to have price exposure to gold price as compared to other available avenues.

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•Quick and convenient dealing through demat account.

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•No storage and security issue for investors.

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•Transparent pricing.

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•Taxation of Mutual Fund.

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•Can be traded on stock exchange like buying / selling a stock.

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•Ideal for retail investor as minimum lot size to trade is one unit on secondary market.

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•NAV of a unit tracks price of approximately ½ or 1 gram of gold.

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The above mentioned benefits make gold ETFs much better investment avenue for the investors rather than investing in gold through any other source. However as we are seeing that strong investment demand for gold is quite visible, with investors viewing gold, a real asset and as a hedge against medium-term inflationary pressures and potential US dollar weakness. While also providing important diversification benefits, investors may continue to look to gold as a safe haven asset and an alternative currency in the face of volatile currency markets in coming period. Also the rising awareness among Indian investor regarding investment through gold ETFs may boost the demand in near future.

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GLOBAL BOARD OF TRADE (GBOT)

Adding another trading floor in the whole list of numerous exchanges around the world, Global Board of Trade (GBOT) ”the first international multi-asset exchange”  based out of Mauritius, was officially launched by that country’s Prime Minister Navinchandra Ramgoolam.

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GBOT is a wholly owned subsidiary of Financial Technologies (INDIA) Limited, a leading provider of trading technology solutions and a global leader in creating and operating transparent, efficient, and liquid tech-centric exchanges transacting a broad spectrum of asset classes, including equities, commodities, fixed income, and foreign currency instruments. GBOT is also a member of leading industry associations such as Association of Futures Markets (AFM), Futures and Options Association (FOA), Swiss Futures and Options Association (SFOA), and Defra EU Emissions Trading Scheme (EU ETS).

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In the Hands of………..

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GBOT has a very strong board comprising reputed names such as Mr. Venkat Chary (Chairman), Mr. Jignesh Shah (Vice- Chairman), Mr. Mohammad A. Vayid (Director), Mr. V. Hariharan (Director) , Mr. Joseph Hadrian Bosco (Managing Director and Chief Executive Officer).

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Trade Timings

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It is proposed that the normal market trading hours on Global Board of Trade for Currency and Commodity Derivatives Segments will be 09:30 Hrs Mauritian Time (05:30 Hrs GMT) till 23:30 Hrs Mauritian time ( 19:30 Hrs GMT). Any decision about revision of the trading hours, as and when it happens, will be informed to the market participants via trading circulars.

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Value Propositions

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  • The strategic location of Mauritius (i.e. GMT +4) with respect to the rest of the world will enable the investing community to hedge price risk movements vis-à-vis the asian, Europenn and American markets.

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  • Trades will be in the form of standardized contracts and participants will be anonymous , thus ensuring the price discovery  process will be free from the influence of any vested interest or non-market forces.

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  • The commodity market segment of GBOT will enable sellers and buyers of commodities to protect their business from the adverse effects of price volatility in the terrestrial markets. The price risk management will be through the time-tested process of ‘hedging’.

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  • The advantage of a moderate tax regime prevailing in Mauritius will be of immense benefit to investors and traders alike.

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  • GBOT would offer commodity as well as currency derivative products on its state-of-the-art electronic exchange platform with efficient clearing and settlement systems to ensure counter-party guarantee for all trades.

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  • For the first time worldwide, two African currency futures will be traded.

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Products:

Bullions: Gold, Silver

Currencies: EUR/USD, GBD/USD, JPY/USD, USD/MUR, ZAR/USD

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Weekly Update 25th – 29th October

Losses due to profit taking in the Indian markets during initial part of the week were recouped seeing the huge response for Coal India offering especially from the overseas investors. The issue attracted bids that exceeded the combined gross domestic product of Latvia and Iceland. However most of the Asian markets corrected in the week gone by after China unexpectedly raised interest rates to curb inflation and to prevent an asset price bubble in the economy on concerns over regions economic growth.

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The move indicates that the consensus has been reached for lower growth. Albeit past experience has shown that initial interest rate hikes does not give much harm to economic growth. China’s economy expanded by 9.6 percent in the third quarterless than the growth experienced in the prior quarter but higher than the median estimates of 9.5 percent.

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Results of companies from Europe to U.S. supported markets. According to Bloomberg data of the 132 companies in the S&P 500 that reported results since Oct. 7, more than 85 percent have topped analysts’ per- share earnings estimates.Whereas in Europe, of the 46 companies in the Stoxx 600 that have posted results since Oct. 7, 32 have beaten estimates for per-share income.

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The result season has so far been good in India. Banks have posted decent to strong earnings growth. In the Information technology sector TCS and Infosys surprised positively while Wipro surprised negatively. Auto companies are expected to deliver strong set of numbers on the back of higher volumes with price increase. Higher metal prices are likely to provide good earnings to manufacturer of base metals. Cement companies are likely to post bad set of numbers on the back of lower realization and good monsoon season.

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Market is eyeing over G-20 finance chiefs meet to try to resolve differences over countries that are devaluing their respective currencies in order to spur economic growth and to endorse market-based exchange rates in a fresh effort to defuse mounting trade tensions before they hurt the world economy. We may see some volatility in domestic markets on account of expiry week.

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Stock specific activity is likely to play out as the results season is still going on. Nifty has support between 5950-5870 and Sensex between 19640-19200.Good corporate earnings amid falling dollar index are offering opportunities to bulls to keep the momentum in their favour, especially in base metals. 19-commodity Reuters-Jefferies CRB index, which serves as a broad benchmark for commodities investors, was up for a ninth straight week since Aug. 22.

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Monetary tightening by China could not give much impact on base metals prices. In case of bullions, trend is little different. Bullions prices retreated across the board as dollar index grew stronger and investors opted to sell some of their holdings for aprofit. For the time being bullions should move in a range. Market players appears cautious to some extent ahead of next month’s decision from the Federal Reserve about whether to take steps to stimulate the economy. Even energy pack is moving in a range on mixed fundamentals. Bulls are more active in agricultural commodities owing to the ongoing festive fever.

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RED HERRING PROSPECTUS: A CAREFUL EXERCISE

Initial Public Offering (IPO) is an exercise done by a company for raising capital by going public. IPO is raised generally in two ways either through fixed price or through Book Building. Generally, most of the companies follow the book building process. For this purpose, the company assigns the Merchant Banker as a Book Running Lead Manager (BRLM) for the IPO to handle the responsibility of Book Building Process.

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Book Building is a mechanism through which a consensus price of IPO can be determined on the basis of bids received from the informed investors such as Qualified Institutional Buyers (QIBs), Non-Institutional Buyers (NIBs) and Retail Investors. The process helps in making a correct evaluation of a company’s potential and the price of its shares. In most of the IPOs generally the allocation of the total issue into these 3 categories comprises of 50%, 15%, 35% of the total issue respectively.

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However when the dilution of the promoters stake is less than 25% the minimum allocating proportion for these categories changes to 60%, 10%, 30% of the total issue,respectively. The company aspiring to be public, files Red Herring Prospectus (RHP),framed by merchant banker, to the regulatory body SEBI that is supposed to cover all the important information about the company, its promoters and its businesses with due diligence.

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RHP is supposed to be the most important document for the company as it acts as a medium of imparting all the critical information regarding the issuer company to the public.Generally prospectus spreads over 300-400 pages. However, investors can concentrate on few key chapters to have the overall understanding of the public issue. Industry Overview, Company Overview, Capital Structure, Objects of the issue, Financial Information and Management discussion and Analysis are some of the chapters that one should necessarily focus on.

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Let’s understand the relevance of each of these topics one by one:

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Industry Overview: This chapter covers the prevailing market scenario of the industry in which the company operates. We get to know that how much the particular industry contributes to the growth of the country’s economy. That is the behavior of the industry with respect to the growth momentum of the country’s economy. Moreover it entails the government plans and initiatives, budgetary allocation in accordance with five year plans for the industry. This gives the picture of potential opportunity in the industry and its key drivers. It also includes the various linkages regarding the relation of industry to the domestic and global economy.

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Business Overview: This compasses all the information related to the business domain of the company – how the business commenced its operations, grown over the period. The product details of the company and where does it lies in the value chain of the industry. The product scope,how the distribution channel works, the marketing strategy, raw material procurement, details about the vendors, clients and their relation withthe company, the revenue generation process, target market, location of operation. All these information helps in knowing the strengths and weaknesses of the company. It also gives information regarding the future aspects of the company.

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How the company is expecting to expand its business, strategies to increase the market share of the company.

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Capital Structure: It tells us about the shareholding pattern of the company. The constituents of the present equity capital of the company, since inception to the present pattern of the shareholding. The details of the how it has raised its capital under the due period. It gives us the details aboutwho are the stakeholders along with their respective stake in the company.

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Objects of the Issue: This chapter assumes high degree of significance in the RHP as it answers the very first question that comes to the mind of the investors that for what reason the company is going public. It entails the objectives of the issue as where and how the company is going to deploy the funds raised from the issue. At times the company induces the fund requirements from the internal accruals that can be from the present business profits of the company or through the debt syndication from banks along with the issue proceeds.

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Company sometimes also utilize the issue proceeds to repay its debt so as to reduce its interest burden. Thus, it contains the purposes of the issue with their respective amount being required.

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Financial Information: This includes all the financial statements of the company on the stand alone and consolidated basis viz. Profit and loss statement, balance sheet, fund flow statement. These statements show the performance of the company from past 4-5 years along with the annexure that details various heads of these statements. Financial Statements helps the investors in knowing the health of the company in numbers.Various ratios and multiples are arrived with the help of these statements.

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Management Discussion and Analysis: This chapter summarizes the company businesses and its development in due course of time. Year-on-year financial comparison is explained in this part of the document. This helps us in knowing the management’s efficiency to grow a company. Certain important events, factors affecting the operations of the company or some specific strategies of the company are explained in this part of the document.To sum up, RHP being the formal document of the company plays an integral role in assessing the company’s business prospects and thus helps investors in taking decision for subscribing an IPO or otherwise.

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However, it is generally perceived as a lengthy exercise by some section of investors.This can be achieved by going through the above discussed topics that can impart all the relevant information of the company leading to a wise investment decision. After all, “Moneywise Be wise”.

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Turmeric………Golden Spice

Turmeric is a very important spice in India from ancient times. India is the biggest producer with account of nearly 90% of the world’s total production and consume 80%of it. Turmeric, basically a tropical plant of ginger family is the rhizome or underground stem Global Trade and production The main producing countries of turmeric are India, Pakistan, Bangladesh, Sri Lanka,Taiwan, China, Burma (Myanmar) and Indonesia.

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The total yearly consumption of Turmeric all around the globe is approximately 38 Lakh bags to 40 Lakh bags.India is largest exporter (approximately 90%) of Turmeric. Taiwan, Thailand and other Southeast Asian countries are other exporter. United Arab Emirates (UAE) is the major importer accounting for 24.06 % of the total exports followed by United States of America (USA) with 12.93 %. Japan, Sri Lanka, Iran, United Kingdom and Middle Eastern countries are other major Importers of Turmeric.Production of Turmeric in India Generally, India produces almost 7 to 9 lakh ton per annum.

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The important varieties produced in India are: ‘Alleppey Finger’ (Kerala) and ‘Erode and Salem turmeric’ (Tamil Nadu), ‘Rajapore ‘and’ Sangli turmeric’ (Maharashtra)and ‘Nizamabad Bulb'(Andhra Pradesh).As per latest Statistics last year India has 185320 hectares under turmeric cultivation with a total production of 7.01 lakh tonnes. Andhra Pradesh topped both in area and production. Andhra Pradesh contributes nearly 31 per cent of the area under turmeric.Acreage under turmeric in the State has increased to 0.65 lakh hectares as on October 13th this year.

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Tamil Nadu is second largest producer state. In Tamil Nadu, the area under turmeric is expected to increase 9 per cent to 0.43 lakh hectares.India exports about 10% e.g. 40,000 to 50,000 tons of turmeric per annum. Turmeric isthe third-largest spice exported from India. In terms of quantity and value, it accounts about 12% and 5% respectively. USA, Malaysia and china are major importer of Indian turmeric.Turmeric exportswere lower in theApril-August 2010 quarter with a slip of 13%in volume to 22,500 tonnes compared to 25,500 tonnes in same period of last year.

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Prices seasonality

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Turmeric prices will be hovering lower between January and June.This could be mainly attributed to supply pressure due to new crop arrivals. From June onwards prices will start moving up as the market approaches lean season. Prices peak during October and December month of every year. As per seasonal trend,words of caution may enter into turmeric prices, as the trade may remain in a broader range with some bulk buying & festive season demand. Generally, the new crop hits the market during February-March. But this year it is expected to arrive a little early. Farmers will bring the crop early due to high returns earned last year. Therefore, increased arrivals at spot market will put pressure on the prices next year.

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Turmeric update

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•Turmeric production in 2010-11 is expected to improve by 43-45 per cent to 65-70lakh bags compared with 48 lakh bags in 2009-10.

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•Turmeric production in Andhra Pradesh in 2010/11 is expected to jump by 40 percent to 368,000 tonnes compared to 263,000 tonnes, the state horticulture department data showed.

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•Farmers considerably increased the area under the spice as prices were remunerative

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•The total stocks of turmeric are currently at 11 lakh bags against 7 lakh bags reported last in the same period.

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•The price of turmeric soared to an all time high of `15,500 a quintal in the Erode market.

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