Summer Training Report

at
RELIANCE SECURITIES LTD.
on

A Comprehensive Study of Commodity Market at Reliance Securities Ltd and


Submitted by
PREETI ROHILLA
In partial fulfillment of the requirement for the degree of
Master of Business Administration


Project Supervisors


Mr. ARPAN SETHI Dr. P.V.RAJEEV
Company Mentor Faculty Mentor



Faculty of Management Studies
Banaras Hindu University



Roll Number: Enrolment No: Batch 2013-15
30

ABSTRACT

A major concern for any Indian brokerage firm is lack of interest of investors in the
commodities market. The individuals prefer to trade in the segment they are comfortable
with. As a result the highly potential market of commodities trading is still very less
penetrated in India. This research aims at finding the factors affecting the investment
decisions and preferences of investors / clients at Reliance Securities, along with the
problems faced by them. For the purpose of understanding the individual investor's
preferences, a survey was conducted and a sample f 150 clients was selected amongst them
to draw the inference.
The findings of the analysis suggested that lack of knowledge was amongst the dominating
reason for lack of interest in commodity market.
The research also includes a commodity specific analysis (Crude Oil) for India. The focus
of this part was to see the crude oil prices over a period of time, then use a tool to highlight
the instances where the buying or selling could have been favorable. The tool used was
simple moving average. The advantage of using SMA is that it is very easy to calculate and
the trends are easily understandable.


INTRODUCTION
The two major economic functions of a commodity futures market are price risk management
and price discovery. Forward contracting in commodities is an important activity for any
economy to meet food and raw material requirements, to facilitate storage as a profitable
economic activity and also to manage supply and demand risk. Forward contracts, however, give
rise to price risk; so there arises the need of price risk management. Price risk in forward
contracts can be managed through futures contracts.

A commodity futures contract is an agreement to buy (or sell) a specified quantity of a
commodity at a future date, at a price agreed uponthe futures pricewhen entering into the
contract.

Price Discovery is the process of arriving at a price at which, a person buys and another sells a
futures contract for a specific expiration date.

In determining the futures price, market participants compare the current futures price to the spot
price that can be expected to prevail at the maturity of the futures contract. In other words,
futures markets are forward looking and the futures price embeds expectations about the future
spot price. If spot prices are expected to be much higher at the maturity of the futures contract
than they are today, the current futures price will be set at a high level relative to the current spot
price. Lower expected spot prices in the future will be reflected in a low current futures price.
The diversity of requirements and opinions of the market participants leads to efficient price
discovery in the market.

As an investment product commodity futures are quite different from financial derivatives. They
do not raise resources for firms to invest; rather, commodity futures allow producers (both
agricultural and industrial) to obtain insurance for the future value of their outputs (or inputs).

The inherent difficulty with commodities, and hence commodity futures, is that within the asset
class they display many differences. Some commodities are storable and some are perishable;
some are input goods and some are intermediate goods, and within the same commodity group
there may be vast differences in quality. These features make the development of commodity
markets that much more difficult and command more resources for infrastructure as compared to
financial markets.



SCOPE OF THE STUDY
The study is confine itself to stake-holders associated with commodity derivative markets.

OBJECTIVES:
o To study the Clients perception towards trading in Commodity Market.
o To study the mechanism of trading in commodity market.
o To know about problems faced in trading by investor at Reliance Securities Ltd.
o To do a commodity specific analysis of crude oil and use SMA to identify various
historical instances that could have been potential buy or sell points .


RESEARCH METHODOLOGY
This study is a descriptive research that uses the survey method. The study is designed to gather
descriptive information on certain aspects or dimensions of the identified problems.


RESEARCH DESIGN

Research design adopted is descriptive in nature and the data obtained is subjected to quantitative
analysis.

DATA COLLECTION
Data required for the research is collected from both primary and secondary sources.

o Primary data will be collected by administering Interview Schedules and interviewing
respondents.
o Secondary data will be collected from various books relating to the topic, articles, reputed
journals, newspaper articles, government publications, websites and company annual
reports.

SAMPLE SIZE
Interview Schedules is administered to 150 Clients having account in Commodity Segment.
Reviews received from the 150 respondents are selected for the study.

LIMITATION OF THE STUDY

As an Intern student this project is based on my making mistake and learning experience,
the information collection and data interpretation may lack the expertise.
Study of awareness and perception of the investor is only based on sample size.


FINDINGS:

o Most of the traders find lack of knowledge and unsatisfactory services of broking firm as
biggest problem in trading.
o Most of traders perceive Reliance Securities Ltd. as a good broking firm.
o The clients of Reliance Securities Ltd suggested that it should improve more in customer
services and provide much better services.
o People are aware about Reliance but not totally aware about the product and services
offered by it.
o Investors are inclined towards the equity market and few are interested about investing in
the commodities market.
o In commodity market maximum people are interested to invest in precious metal (gold,
silver etc.) and energy product (crude oil).
o The investors provided valuable suggestions about better service of a broking firm.
The most popular suggestions are:-
- Good tips and calls.
- Easy money transfer (pay-in and pay-out).
- Good trading software.
- Regular research reports.
- Good relation with the dealers and the relationship manager.
o The study of crude oil prices over a period of three years suggested a fluctuating trend in
short run. Although in long run the price overall has been rising.
o The SMA of the prices have been relatively very stable over this time
o Any trader/investor who does not have extensive knowledge can take advantage
from this SMA as a tool to support decision making.
o Shorter the period of moving average, more closely it follows the price line.
o The investor, depending on his goals chooses the period of moving average to be
used.
o As a common practice, 200 days moving average will be used by a long term
investors, while 10 days or 20 days SMA is used by traders.
o SMA proves to be a powerful tool to support decision making



Conclusion
Capital market is already matured and reached at high level, every investor interested to invest
but not in commodity Future Market due to lack of awareness. As per Data analysis most of
the investors do not have much idea of commodity market in Belgaum they are required to be
given awareness training and knowledge with the help of workshops and seminars, as investors
are willing to know more about commodity market. There exists a high degree of positive
correlation between Spot Commodity Market and Commodity Future Market. If an amount of
small change in the spot crude market prices has the direct impact on the future prices of
crude in commodity market.
For any Investor or trader the futures price and spot prices are both of equal relevance. The
main decision is about when to buy and when to sell. Simple moving average as a tool can be
used to understand the trend of the prices and make appropriate decisions. Depending upon
the goal i.e. long term or short term trading, the person trading can use long period SMA like
200 days SMA, or a short term SMA like 20 or 10 or 5 days.
For a brokerage firm, this basic knowledge about SMA can be delivered to the clients, apart
from other tools, so that he can become confident in trading. This is a simple mechanism to
understand the behavior of prices and hence a simple yet powerful decision support tool.
















SUGGESTIONS:

The investors do not have much knowledge about the commodities market and the
various concepts like hedging and arbitration present in these markets. The first priority
should be to educate the investors about the market and the various techniques to invest
in these markets which will enable the investors to extract better return from these
markets.
More Awareness program has to be conducted by Reliance commodities consultants so
that already aware investor takes the challenge to invest in this commodity future market.
Because since this was new to the market and also risky but gives good return. so it can
be done through by giving advertisements in local channels, News papers, by sending E-
mail to present customers etc
From survey it is found that most of the potential customers are concerned about the
genuine information and moderate brokerage so Reliance commodities can look upon
this. If it can give good information and charge moderate brokerage it will help to attract
more and more customers.
Providing the clients better guidance to diversify their portfolio to minimize the risk
involved.
Apart from knowledge about how to trade , simple knowledge and training of tools like
SMA can be given to clients to help them make decisions and motivate them to trade
more.
Using disruptive ideas to attract and motivate investors can prove to be a major
breakthrough. Some suggestions for the same are -
1. Using a social trading platform where in a social framework, people can share
experience together,, follow each other, compete and possibly trade in groups.
This will overall prove to be an unmatched experience for the users. Something
similar to a trading social network.
2. Providing users with information of their interest along with related articles and
videos that could motivate him to do research and eventually trade more
frequently. For example if someone asks for a historical chart of a commodity
price, giving him the news about the commodity, its future expectations, trade
volume information etc. could be very motivating.
3. Training the investors through audio visual tools and even organizing free
seminars for customers and potential customers. Sharing with them certain
techniques to avoid losses and motivating them to make recurring investment in
diversified segments.