A Study On Individual Investors Behaviour In An Organized Commodity Futures Market Market In Bengaluru City

Abstract

In the year 2002, the Government of India permitted the setting up of National level, multi-commodity derivative exchanges to promote commodity price risk management and provide an efficient hedging platform for all the stakeholders. After a decade of re-introduction of commodity futures in India, there has been exponential growth in trading volumes in Indian Commodity Derivatives Exchanges (henceforth referred as Comex), the average daily volumes of which is Rs.23,658 Crores1. Indian Comex ranks among the top three commodity exchanges in the world in terms of silver and crude-oil futures trade volume. Unfortunately, low open interest in most of the agricultural and base metal commodity futures contracts prove that participation from the key stakeholders like manufacturing industries and farmers in Commex has been very negligible. Though the industrial users like copper wire manufacturer in South India are affected by the high volatility in the copper price, they are hesitant to participate in Commex for the reason that the copper price in the domestic spot market is different compared to the prices reflected in Commex due to the factors like transportation cost and supply constraints. Physical settlement in commodity futures is also limited to 0.50% compared to the overall trade volume in the exchange. Prevalence of VAT2 and other exercise duty prevent buyers (consumers) and sellers (producers and processors) from taking physical delivery of commodities through the exchange warehouse. Several academic research works have been carried out in the past to find if the agricultural commodity futures are leading to price discovery. The findings of these research studies are not very encouraging. Thus, Commex has become a venue for alternative investment and speculation.The economic growth of India has not only fueled the domestic inflation level but also led to an increase in global commodity prices especially like bullion and crude-oil.( Frankel and Rose ,2010) have highlighted in their research work that growth of India