Investor s Awareness and Perception about Commodity Future Market D.Senthil Asst. Professor, Management Wing, DDE, Annamalai University. Annamalai Nagar - 608 002, TN - India ABSTRACT Commodity Future is observed as an avenue to invest directly in commodity market. The study has aimed to evaluate Investor s trading frequency habits,goals of investors,literacy and awareness level andemotional risk tolerance.a sample of 100 respondents are taken for this study. The study concludes that most of the investors are involved in short term trading. It indicatesthat the investor is ready to take high risk in trading. The mainaim of the investor to increase their wealth through commodity future marketwhich is one of the extended avenue for diversification. INTRODUCTION Indian markets have already thrown open an avenue for retail investors and traders to participate: in commodity derivatives. For those who want to diversify their portfolios beyond shares, bonds and real estate, commodities is the best option. Commodities actually offer immense potential to become a separate asset class for market-savvy investors, arbitrageurs and speculators. Retail investors, who claim to understand the equity markets may find commodities a vast market. But commodities are easy to understand as far as fundamentals of demand and supply are concerned. Retail investors should understand the risks and advantages of trading in commodities futures before making an investment. Historically, pricing in commodities futures has been less volatile compared with equity and bonds, thus providing an efficient portfolio diversification option.like any other market, the one for commodity futures plays a valuable role in information pooling and risk sharing. The market mediates between buyers and sellers of commodities, and facilitates decisions related to storage and consumption of commodities. In the process, they make the underlying market more liquid. REVIEW OF LITERATURE Naik,GopalandJainSudhirKumar(2002),emphasised that agricultural commodity futures market has not fully developed as competent mechanism of price discovery and risk management. The study found some aspects to blame for deficient market such as poor management, infrastructure and logistics. Dominance of spectators also dejects hedgers to participate in the market. Desgupta, Basab (2004), described the monopolistically competitive nature of the Indian Commodity Derivate market which stabilizes the spot price. Result showed the comovement among future prices, production decision and inventory decisions. Ahuja, Narender L. (2006), concluded that Indian commodity market has made enormous progress since 2003 with increased number of modern commodity exchanges, transparency and trading activity. The volume and value of commodity trade has shown unpredicted mark. This had happened due to the role played by market forces and the active encouragement of Government by changing the policy concerning commodity derivative. He suggested the promotion of barrier free trading in the future market and freedom of market forces to determine the price. Roy, Ashutosh (2006), suggested the participation of banks in the commodity futures market for effective commodity price risk management as financing by banks could provide efficient hedge against price risk. Bhattacharya,Himdari (2007), pointed out that significant risk returns features and diversification potential has made commodities popular as an asset class. Indian futures markets have improved pretty well in recent years and would result in fundamental changes in the existing isolated local markets particularly in case of agricultural commodities. IRJBM (www.irjbm.org ) Volume No VIII, March 2015, Issue 4 Page 51
Nath, Golka C. and Lingareddy, Tulsi (2008), emphasised that trading in commodity futures contributed to an increase in inflation as result showed that during the time period of future trading the spot price of selected commodities and their volatilities had posted remarkable increase. Kaur,Gurbandini and Rao, D.N. (2010), The commodity spot and future prices had closely tracked each other in selected agri commodities and no significant volatility has been found in the prices of future and spot contracts of those agricultural commodities. Brajesh, Kumar and Pandy, Ajay (2009) Observed that commodity futures market in India provide higher hedging effectiveness in agricultural commodities as compared to non agricultural commodities and price risk management role of Indian commodity futures market has also increased with increased activity in market. Senthil D (2012) investigated the investor s behaviour in terms of goals, preferences, factors influencing while selecting the schemes, service expectations etc,. The study found that the investor s main goal is wealth appreciation and suggests that the mutual fund companies should control the charges to be paid by the retail investors and bring the expense to a reasonable level. Kumar, Brajesh and Pandy, Ajay (2013), investigated the short run and long run market efficiency of Indian commodity futures market. They had tested four agricultural and even non- agricultural commodities for market efficiency and unbiasedness. The result confirmed the long run efficiency of commodity futures prices and inefficiency of futures prices in short run prices. He found many factors like lack of participation of trading members, low market depth and thin volume with Government s interference in Commodity markets etc., as major evils for inefficient price risk management. OBJECTIVE OF THIS STUDY The main objective behind this research work is to find out the investor s awareness and perception about commodity future in the current market scenario. It was conducted to find the potential of commodity future in the coming near future. The main purpose is to come out with those factors which make them hold to invest in commodity futures. It also tries to find out the trading frequency habits of the investors, goals, literacy and awareness level and their emotional risk tolerance. RESEARCH METHODOLOGY Sample and Procedure:- The data used in this study was obtained from 100 investors who had more than one year experience in this field. Questionnaire was constructed based on the following aspects of trading. (1) Personnel demographic data: a) Monthly income b) (2) Contributing variable: a) Trading frequencies habit b) Goals of investor c) Literacy and awareness level d) Emotional risk tolerance HYPOTHESIS 1.H0 = There is no association between income and trading frequencies habit 2.H0 = There is no association between income and goals of investor 3.H0 = There is no association between income and literacy and awareness level 4. H0 = There is no association between income andemotional risk tolerance 5. H0 = There is no association between age and trading frequencies habit 6. H0 = There is no association between age and goals of investor 7. H0 = There is no association between age andliteracy and awareness level IRJBM (www.irjbm.org ) Volume No VIII, March 2015, Issue 4 Page 52
8. H0 = There is no association between age and emotional risk tolerance LIMITATIONS OF THE STUDY The study is limited to only 100 investors. The survey is conducted only in one city (Neyveli) The study has also the limitation of time, place and resources ANALYSIS OF DATA based The result of the table 1 indicates that the frequency of respondents trading on commodity future. 38% of the investors traded on commodity future on weekly basis. 27% of the investors traded on daily basis. 19% of the investors traded monthly once. 16% of the investors entered into long term contract (6 months). This implies that the commodity future market is dominated by active investors. Table 2 indicates that the main goal of the investor is diversification. So it clearly states that majority of the investor invest only part of the money in commodity future market. The investors construct their portfolioincluding commodity future. 35% of the investor goal is to increase their wealth. 24% of the investor invest in commodity future market for generating their regular income Table 3 clearly states that most of the investors level is medium i.e. their knowledge level is average. Their knowledge about the commodity future is not to the mark. Hence investors should gradually equip their knowledge. 31% of the investors agree that their knowledge about commodity future is very low. 12% of the investors state that they possess enough literacy about commodity trading. Table 4 clearly states that 33% of the respondentsare moderately. 30% of the respondent are moderately. 21% of theinvestorsare neutral based Table 5 states that 38% of the investors involve with trading weekly once, 27% trade daily and 19% of the investor trade monthly once Table 6 states that 41% of the investor goal is diversification 35% of the investor indicate that their goal is increasing their wealth. Table 7 shows that 57% of the investor agree that their knowledge about the commodity future trading is average. 31% of the investor agree that their knowledge is not to the mark.12% agree that they possess enough knowledge about commodity future. Table 8 shows that 33% of the investor are moderately and 30% of investor are moderately. FINDINGS. 38% of the investors traded weekly once 27% of the investor traded daily 14% of the investor traded monthly once 16% of the investors enter into long term contract 41% of the investor s goal is diversification 35% of the investor s goal is to increase their wealth 57% of the investor literacy level about commodity future is average 33% of the investor s emotional risk tolerance level is moderately. 30% of the investor s emotional risk tolerance level is moderately. SUGGESTIONS The following suggestions are brought out on the basis of the result of the study. Most of the investors are involved in short term trading. It indicates high risk involved in short term trading than long term trading. In this case investor should maintain high rate of margin money, avoid false recommendation and rumors. Instead they should take decisions on the basis of technical analysis. Further if the investment portfolio is enhanced to gold, silver, crude oil, natural gas etc., it helps to reduce the risk involved in short term trading in the commodity future. IRJBM (www.irjbm.org ) Volume No VIII, March 2015, Issue 4 Page 53
The mainaim of the investor to increase their wealth and commodity future market is one of the extended avenue for diversification. So investors should choose the right product to enter into the market on the basis of time ability skill. It helps to reduce the risk of their portfolio. The government, stock exchange, and brokers shall conduct awareness programme regarding commodity trading in the urban and semi urban areas. It will help todevelop the investor s literacy level. The investor should equip themselves about the net selectivity skill and time ability skill. It helps the investor to improve their emotional risk tolerance. CONCLUSION Commodity future market has shown tremendous development in the last decade and also has a long history in our country. Market has seen ups and downs. The policy maker if they update the policy periodically, it will help to protect the interest of the investors. REFERENCES 1. Ahuja, Narender L. (2006), Commodity Derivatives market in India: Development, Regulation and Future Prospective, International Research Journal of Finance and Economics, 1, 153-162. 2. Bhattacharya,Himdari (2007), Commodity Derivatives Market in India, Economic andpolitical weekly, Money Banking and Finance Vol. 42 No. 13, pp. 1151-1162 3. Brajesh, Kumar and Pandy, Ajay (2009), Role of Indian Commodity Derivative Market in Hedging Price Risk: Estimation of Constant and Dynamic Hedge Ratio, and Hedging Effectiveness. Electronic copy available on http://ssrn.com/abstract=1452881 (accessed on 30 September 2012). 4. Desgupta, Basab (2004), Role of Commodity Futures Market in Spot Price Stabilization, Production and Inventory Decisions with Reference to India, Indian Economic Review, Vol. XXXIX No.2, pp. 315-325 5. Kaur,Gurbandini and Rao, D.N. (2010), Efficiency of Indian Commodities Market: A Study of Agricultural Commodity Derivatives Traded on NCDEX, electronic copy available on http://ssrn.com/abstract=1600687 (accessed 30 September 2012). 6. Kumar, Brajesh and Pandy, Ajay (2013), Market Efficiency in Indian Commodity Futures Markets., Journal of Indian Business Research, Vol.5 No. 2, pp. 101-121. 7. Naik, Gopal and Jain Sudhir Kumar (2002), Indian Agricultural Commodity Futures Market: A Performance Survey, Economic and Political weekly, Vol. 37, No. 30, pp.3167-3173. 8. Nath, Golka C. and Lingareddy, Tulsi (2008), Impact of Futures Trading on Commodity Prices, Economic and Political Weekly, Vol. 43 No.3, pp. 18-23. 9. Roy, Ashutosh (2006), Indian Agri Commodity Market, Risk Management and its Sustainable Growth: An Integrated Framework, electronic copy available on http://ssrn.com/abstract=1178702 (accessed 30 September 2012). 10. Senthil.D.(2012) Investor s perception Regarding the Performance of Indian Mutual Funds. International Journal of Social and Allied Research, ISSN2319-3611, Vol1(1) October 2012,pp41-45. IRJBM (www.irjbm.org ) Volume No VIII, March 2015, Issue 4 Page 54
Annexure Table-1 Vs Trading frequency habits Below200 200- Daily 9 10 8 27 value df Weekly 10 15 13 38 0.441 6 Monthly 6 7 6 19 Biannually 5 6 5 16 30 38 32 100 The Probability is0.922this proves that there is no association between the variables group and Trading frequency habits Table-2 Vs Goals of investor Below200 200- To increase wealth 10 14 11 35 value df Regular income 9 8 7 24 0.920 4 Diversification for reduced risk 11 16 14 41 30 38 32 100 The Probability is 0.922This proves that there is no association between the variables group and Goals of investor Table-3 VsLliteracyand awareness level Below200 200- High 7 3 2 12 value df Average 16 22 19 57 5.55 4 Low 7 13 11 31 30 38 32 100 The Probability is 0.236This proves that there is no association between the variables group and Financial literacy level IRJBM (www.irjbm.org ) Volume No VIII, March 2015, Issue 4
Table-4 Vs Emotional risk tolerance Below 200 200-2 3 2 7 value df 8 12 10 30 1.76 8 Neutral 8 6 7 21 9 13 11 33 3 4 2 9 30 38 32 100 The Probability is 0.989This proves that there is no association between the variables group and Emotional risk tolerance Table-5 Vs Trading frequency habits Below 30 31- Daily 8 13 6 27 value df Weekly 13 16 9 38 1.76 6 Monthly 5 8 6 19 Biannually 6 5 5 16 32 42 26 100 The Probability is 0.941 This proves that there is no association between the variables group and Trading frequency habits Table 6- Vs Goals of investor Below 30 31- above To increase 10 14 11 35 value df wealth Regular income 7 10 7 24 1.68 4 IRJBM (www.irjbm.org ) Volume No VIII, March 2015, Issue 4
Diversification for reduced risk 15 18 8 41 32 42 26 100 The Probability is 0.794 and Goals of investor This proves that there is no association between the variables group Table-7 Vs Awareness literacy level Below30 31- above Low 9 13 9 31 value df Average 18 25 14 57 0.860 4 High 5 4 3 12 32 42 26 100 The Probability is 0.930This proves that there is no association between the variables group and Financial literacy level Table-8 Vs Emotional risk tolerance Below30 31-3 3 1 7 value df 10 12 8 30 1. 8 Neutral 6 8 7 21 10 15 8 33 3 4 2 9 32 42 26 100 The Probability is 0.993This proves that there is association between the variables group and Emotional risk tolerance IRJBM (www.irjbm.org ) Volume No VIII, March 2015, Issue 4