Investment Behaviour of Investors towards Commodity Market * P.Jeevanandham and ** Dr.A.A.Ananth * Ph.D. Research Scholar, Business Administration in Bharathiyar University ** Associate Professor, Business Administration, Annamalai University ABSTRACT It should find out the behaviour of investors. Indian markets have recently thrown open a new avenue for retail investors and traders to participate commodity derivatives. Commodity are the best option for retail investors could have done very little to actually invest in commodities such as gold and silver or oilseeds in the futures market. This was nearly impossible in commodities except for gold and silver. As there was practically no retail avenue for pumping in commodities. In this paper, commodity market, commodity market futures, investing in commodity market, objectives of commodity futures have been considered. For measuring various phenomena and analysing the collected data effectively and efficiency for Percentage analysis and Anova has been used to analyze the various demographic factors. A Sample of 50 respondents is taken for this study. Key words: commodity market, commodity exchange, investment pattern I Introduction Investment is the sacrifice of certain present value for the uncertain future reward. It entails arriving at numerous decisions such as type, mix, amount, timing, grade, etc. of investment and disinvestment. Further, such decisionmaking has not only to be continuous but rational too. Broadly speaking, an investment decision is a trade off between risk and return. All investment choices are made at points of time in accordance with the personal investment ends and in contemplation of an uncertain future. Since investments in securities are revocable, investment ends are transient and investment environment is fluid, the reliable bases for reasoned expectations become more and vaguer as one conceives of the distant future. Investors in securities will, therefore, from time to time, reappraise and re-evaluate their various Available online: P a g e 75
investment commitments in the light of new information, changed expectations and ends. Investment choices or decisions are found to be the outcome of three different but related classes of factors. The first may be described as factual or informational premises. The factual premises of investment decisions are provided by many streams of data which taken together, represent to an investor the observable environment and general as well as factors entering into investment decisions may be described as expectational premises. Expectations relating to the outcomes of alternative investments are subjective and hypothetical in any case but their foundations are necessarily provided by the environmental and financial facts available to investors. These limit not only the range of investments which may be undertaken but also the expectations of outcomes which may legitimately be entertained. The third and final class of factors may be described as valuational premises. For investors generally these comprise the structure of subjective preferences for the size and regularity of the income to be received from and for the safety and negotiability of specific investments or combinations of investments, as these are appraised from time to time. Commodity Commodity is any physical substance such as food grains, metals, which is inter changeable with any other product of the same type with which on investor or trader is able to buy or sell, generally future contract. The Indian forward contracts (regulation) act (FCRA), 1952 defines kinds of goods allowed for commodity trading. This FCRA defines every kind of moveable property other than money, actionable claims and securities as goods for commodity trading. At present, all products and goods of agricultural, metals, minerals and fossil origin are recognised under FCRA for commodity trading. The Government of India has set up on a change, called National Commodity Exchange for commodity trading. The commodities permitted by the Government of India for trading through this exchange are: nonferrous precious metals like Gold and Silver, cereals and pulses, ginned and unginned cotton, oil seeds, oil and oil cakes, raw jute and jute goods, sugar and gur, potatoes and onions, coffee and tea, rubber and spices. Investing in Commodity Market Available online: P a g e 76
If an investor wants to invest in the Commodity Market and he/she wants to purchase steel from the market, then he/she will go through following stages: 1. He / She must now the general characteristics of steel 2. He / She must be familiar with the categories of steel 3. He / She should be aware of global as well as Indian scenario 4. After considering the factor he/she should know which factor will affect the demand and supply of steel. The duty imposed on import of steel and its fractions also have an impact on steel prices. The price trend in steel in Indian markets has been a function of world s economic activity. Prices of input materials of iron and steel such as power tariff, fright rates and coal prices also contribute to the rise in the input costs for steel making. Commodity Futures A Commodity Futures is an agreement between two parties to buy or sell a specified and standardised quantity of a commodity at a certain time in future at a price agreed upon at the time of entering into the contract on the commodity futures exchange. The need for a futures market arises mainly due to the hedging function that it can perform. Commodity markets, like any other financial instrument, involve risk associated with frequent price volatility. The loss due to price volatility can be attributed to the following reasons: Consumer Preferences: In the short-term, their influence on price volatility is small since; it is a slow process permitting manufacturers, dealers and wholesalers to adjust their inventory in advance. Changes in Supply: They are abrupt and unpredictable bringing about wild fluctuations in prices. This can especially be noticed in agricultural commodities where the weather plays a major role in affecting the fortunes of people involved in this industry. The futures market has evolved to neutralize such risks through a mechanism namely hedging. Objectives of Commodity Futures Hedging is with the objective of transferring risk related to the possession of physical assets through any adverse moments in price. Liquidity and Price discovery ensure base minimum volume in trading of a commodity through market information and demand supply factors Available online: P a g e 77
that facilitates a regular and authentic price discovery mechanism. Maintaining buffer stock and better allocation of resources as it augments reduction in inventory requirement and thus the exposure to risks related to price fluctuation declines. Resources can thus be diversified for investments. By price stabilisation along with balancing demand and supply position, futures trading leads to predictability in assessing the domestic prices, maintaining stability, thus safeguarding against any short term adverse price movements. Liquidity in contracts of the commodities traded also ensures in maintaining the equilibrium between demand and supply. Flexibility, certainty and transparency in purchasing commodities facilitate bank financing. Predictability in prices of commodity would lead to stability, which in turn would eliminate the risks associated with running the business of trading commodities. This would make funding easier and less stringent for banks to commodity market players. II. REVIEW OF LITERATURE Iqbal mahmood (2011) in the research examine the role of various socioeconomic and demographic factors affecting the investment decision of investors. An investment model was developed that described the impact of past investment experiences of investors, variation in regulatory policies, asymmetric information, their marital status, gender, and reinvestment intentions of investors. They suggested that risk perception performs the key role in the investment decision process and that the variation in the government policies can impact the risk perception of an investor. Nirmal and Balaji (2011) investigated the investors opinion about commodities future trading in India. They have observed that the commodity market was growing that great speed though derivatives trading commenced in the securities market only in June 2000. They further stated that institutional players are restricted to participate in commodities further trading in India leading to retail investors as the major players in this market. The research design chosen is descriptive and the data were collected Available online: P a g e 78
using a questionnaire instruments by employing convenient sampling method. The statistical analyses were performed by using chi square, weighted average Method, One way ANOVA and Rank Correlation. The major outcome of this paper is that there is no significant relationship between the Gender and the Category of Investment. There is significant difference between the perception and the saving percentage for the commodity futures. Harikanth.D & Pragathi.B (2012) indicated that there is a significant role of income and occupation in investment avenue selection by the male and female investors. Geographical horizon of the investors, risks bearing capacity, educational level, age, gender and risk tolerance capacity etc, also impacts their selection. Harwinder pal Kaur and Dr. Bimal Anjum (2013) in his research paper Agricultural commodity futures in india- A Literature Review Indian economy has witnessed mini resolution in commodity future market since 2003 as a result of the revival of commodity futures in a big way. They found there is no integration between the commodity futures markets and spot market. Neeti Agarwal and Gurbandini Kaur (2013) in his study titled Agricultural commodity future trading and its implications- An Overview the discussion based on various parameters of the commodity market as a whole show that the researchers have a mixed view. There is no defined viewpoint on any of the variables selected. This clearly shows the uncertainty prevailing in the market which forms the basis of the research Nilanjana Kumari (2014) in his research paper India s foreign trade with china with special reference to agricultural commodities investigated the sino-indian bilateral trade relationship took an impressive turn during the last decade as Available online: P a g e 79
china gradually ascended to become the largest trading partner of India since 2008. It can be observed from the study above that the liberalization of trade in Indian economy has positively affected our relation with the Chinese government Thirumagal Vijaya.M and Suganya.D (2015) in his study titled Marketing of Agricultural products in india Selling on any agricultural products depends on some couple of factors like the demand of the product at that time, availability of storage etc. the task of distribution system is to match the supply with the existing demand by whole selling and retailing in various points of different markets like primary, secondary or terminal markets. Most of the agricultural products in India are sold by farmers in the private sector to moneylenders or to village traders III RESEARCH ETHODOLOGY Objectives of the Study 1. To find out the relationship between socio-economic characteristics and investors decision making of commodity market Hypothesis H1: There is a significant difference between investors monthly income and technical analysis regarding before investment in commodity market. Statement of the problem Investment behaviour is a complex subject in nature. The commodity market in India has its effect on economic growth and development. This factor can give a broad idea to understand the market and to take necessary steps to improve investments potential in the sample area. So, the study like this on based on views of present investors of commodity market will help future investors to avoid problems due to lack of knowledge mechanisms in the commodity market. Sample Size and Data Collection The study on investment behaviour of investors towards commodity market is mainly based on primary data. The secondary data, such as articles in journals, publications, books relevant for the research area also used in present study. The target population is retail investors in commodity market in Dindigul district. The researcher was able to identify 50 respondents based on simple random sampling technique in the Available online: P a g e 80
target population and distributed questionnaire-cum-interview schedule in person to every selected respondent. Statistical Techniques The collected data were applied with various statistical techniques from descriptive. The particulars of the statistical tool used in the present research work are given below: Research Design: The descriptive statistics such as mean and standard are calculated to know the level of opinion of entire sample or a group of respondents and degree of consistency in their opinion. The frequency and percentage analysis and Anova used in this study to find out the distribution of the respondents across different socio-economic groups Iv Analysis &Interpretation Analysis of data is a general ways involves a number of closely related operations, which are performed, with the source of summarizing the collected data, organizing these in such a manner that they answer the research questions INTERPRETATION: Table above shows that out of 50, 10 respondents earn below Rs. 10000 per month, 16 out of them earn between Rs.10000 and Rs.20000 per month, 13 respondents have monthly income between Rs.20000 and Rs. 40000 and 08 respondents earn Rs.40000 and Rs.60000, Available online: P a g e 81
and 03 respondents earn above Rs.60000 per month. In order to have a clear idea about monthly income of respondents, it is observed from the table that two-fourth 32(%) of the investors are in the monthly income up to 10,000 to 20000. ANOVA Technical Analysis Sq DF Mean Square F Sig. Between Groups 31.707 4 7.927.422.792 Within Groups 844.473 45 18.766 Total 876.180 49 INTERPRETATION H1: There is a significant difference between investors monthly income and technical analysis regarding before investment in commodity market. The above table shows the ANOVA test for investment difference of investors to invest in the commodity market on the basis of their monthly income. It is gathered from the above result about the investment difference of investors to invest in the commodity market, the obtained F -value indicates 0.422 and the p value (0.792) is higher than 0.05. So, the null hypothesis is accepted; the alternative hypothesis is rejected. Hence the proposed hypothesis is rejected. So there is no significant difference between the investment differences of investors to invest in the commodity market on the basis of their monthly income. SUGGESTIONS Based on the findings of the study, the followings suggestions are given: Investing in commodity market based on speculation is high risk activity. Hence, investors are advised to trade on evenly between arbitration and speculation basis. The investors are suggested to consider technical analysis first Available online: P a g e 82
followed by market trend before making investments. Investor s may take high risk in investment in commodity market to earned high return since many of the investors are only taking moderate return. Investor has to discuss about the market condition and performance with the share broker and dealers beyond discussing only with friend to make efficient investment decisions. In generally, the arrangement of commodity market experts and specialist seminar to investors will help to improve their awareness. The investors also give importance to attending this type of program in frequently. The government and regulatory authority shall create awareness margin money, to avoid the investors losing their money. CONCLUSION In this present study, investment behaviour of the investor s about commodity market evaluated empirically. In present days, commodity market has a very important function to play in the price risk management progression, particularly in agriculture and non-agriculture. However, they have been developed in a very limited scale in India. Various investors under each and every one socioeconomic status have implemented the tolerable way to deal with the risk and contributed as investor s in the commodity market. the investment behaviour of investors in the direction of commodities market investments, various investor s believe the varied aspects to obtain their investment decisions mostly in commodities market investments, as it is having more jointly risk and return factors, if the agencies/brokers/government guidance to create the investor s to recognize the extended profit, they will too turn their eyes on commodities market. REFERENCES [1] Gupta, S.P., Statistical methods, 3 rd ed., New Delhi, Sultan Chand & sons, 2004. [2] Harikanth, D. and Pragathi,B. (2012). Role Of Behavioural Finance in Investment Decision Making- A Study on Select Districts of Andhra Pradesh INDIA International journal in Multidisciplinary and Academic Research (SSIJMAR), 1 (4). [3] Iqbal Mahmood, H. A. (2011). Behavioural implications of investors for Available online: P a g e 83
investments in the stock market. European journal of social science 20. [4] Kothari, C.R., Research methodology methods & techniques, 2 nd ed., New Delhi, wishwa prakshan, 1997. [5] Kothari C.R., Research Methodology Methods & Techniques, 2 nd ed., New Delhi, New age international(p) Limited, 2004. [6] Neeti Agarwal and Gurbandini Kaur, (2013). Agricultural commodity future Trading and its implications An Overview, AIMA Journal of Management & Research, ISSN: 0974-497, May 2013, Volume 7, Issue 2/4. [7] Nilanjana Kumari, (2014). India s Foreign Trade with China with Special Reference to Agricultural Commodities, ABHINAV National Monthly Refereed Journal of Research in Commerce & Management, Online ISSN-2277-1166, Volume 3, Issue 9 (September, 2014), pp. 40-49. [8] Nirmal Kumar, R. T. and Balaji, K., (2011). An empirical investigation of the investors perception towards commodities futures Trading in India with special Reference to Puducherry, India, ZENITH international journal of Business Economics and Management research, Vol.1, No.2, November, Pp.175-189. [9] Thirumagal Vijaya, M., and Suganya, D., (2015). Marketing of Agricultural Products in India, International Research Journal of Business and Management- IRJBM, ISSN: 2322-083X, Volume No. VIII, February-2015, Issue-3, pp.102-105. [10] Punithavathy Pandian, Security Analysis and Portfolio Management. Vikas publishing house. WEBSITES www.moneycontrol.com www.bseindia.com www.nseindia.com www.sebi.gov.in Available online: P a g e 84