Jour of Adv Research in Dynamical & Control Systems, 05-Special Issue, July 2017

Investor’s Awareness and Perception about

Commodity Market: with the Special
Reference to Salem
M. Venkateswari, Research Scholar, PhD (PT), Karpagam University, Karpagam Academy of Higher Education, Coimbatore.
E-mail:[email protected]
Dr.R. Karthikeyan, Research Supervisor, Professor, Department of Management Studies & Research, Karpagam University,
Karpagam Academy of Higher Education, Coimbatore. E-mail:[email protected]
Abstract--- Commodity Future is observed as an avenue to invest directly in commodity market. The aim of the
study is to evaluate Investor’s trading frequency habits, goals of investors, literacy and awareness level and
emotional risk tolerance. A sample of 100 respondents is taken for this study. The study concludes that most of the
investors are involved in short term trading. It indicates that the investor is ready to take high risk in trading. The
main aim of the investors is to increase their wealth through commodity future market which is one of the extended
avenues for diversification.
Keywords--- Futures, Risk Tolerance, Diversification.

I. Introduction
Indian markets have already opened an avenue for retail investors and traders to participate in commodity
derivatives. Commodity is the best option for those who want to diversify their portfolios beyond shares, bonds and
real estate. Commodities actually offer immense potential to become a separate asset class for market-savvy
investors, arbitrageurs and speculators. Retail investors claim to understand the equity markets and find
commodities a vast market. But commodities are easy to understand fundamentals of demand and supply are
concerned. Retail investors should understand the risks and advantages of trading in commodities futures before
making an investment.
The well-organized and strictly regulated environment of the Indian commodity markets has helped in the
formation of the controlled and structured platform making it more beneficial for the investors of commodity
markets, Salem District in Tamil Nadu. Salem is a financially active district being a hub for the horticulture (mango,
banana, coconut, tomato, brinjal), agriculture (paddy, sugarcane, and turmeric are cultivated then cash crops such as
cotton, groundnut, tapioca, gingerly, tomato), mineral resources (bauxite, dunite, magnetite, quartz, limestone,
soapstone, granite) and steel industries.
Historically, pricing in commodities futures is less volatile compared with equity and bonds, thus providing an
efficient option of portfolio diversification. Like any other markets, 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 the decisions related to storage and consumption of commodities. In the process, they make the
underlying market more liquid.

II. Review of Literature

Boundless studies are available about investor’s awareness in Indian commodity futures and capital market. In
spite of a considerable empirical literature, there is no common consensus about the efficiency of commodity futures
market.
Naik, Gopal and Jain Sudhir Kumar (2002), emphasized 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. The result showed the co- movement among future prices, production
decision and inventory decisions.

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Ahuja, Narender L. (2006), concluded that Indian commodity market has been making 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 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 the 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.
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 behavior 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 biasedness. 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.
Dr. S. Rajamohan, G. Hudson Arul Vethamanikam and C. Vijaykumar (2014) in his study entitled “Commodity
Futures Market in India” examined that the commodity trading has a long history and it has been modernized in the
market. The commodities trading are occupied an important place in the economy and it depends on the
international trade. A structural system has been created for commodity trades. It creates awareness and the more
opportunity to the investors and public. They found the market volatility which is based on these commodities
performance. However, the commodity market is providing huge support to the Indian economy.
N. Kumar and D. Balaji, (2015) in “An Empirical Investigation on the Investors Perception Towards
Commodities Futures Trading in South India with Special Reference India argues that since 2003, the growth of
the commodity derivative market in the country is impressive . With institutional players prevented from
participating in the commodity futures market, the retail investors, as a group, have emerged as major players in the
said market.
Manesh K.L. Kiranth Kumar (2016) in this study identified and stated that a perception lies with majority of
investors that future trading will lead to profits and it is not used for other purpose like hedging.

III. Objectives
1) The main objective is to find the potential of commodity future in the coming near future
2) The main purpose is to come out with those factors which make them hold to invest in commodity futures.
3) It also tries to find out the trading frequency habits of the investors, their goals, literacy and awareness level
and their emotional risk tolerances.

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IV. Research Methodology Sample and Procedure

The study adopts the empirical research design. Empirical research relies on experience or observation alone,
often without due regard for system and theory.
It is data-based research, coming up with conclusions which are capable of being verified by observation or
experiment.
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) Total monthly income
(b) Age
(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 and emotional 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 and literacy and awareness level
8. H0 = There is no association between age and emotional risk tolerance
Limitation of the Study
[1] The proposed study is confined to the investors in commodities market and people with varied from socio-
economic status and Commodities market services available at Salem District, Tamil Nadu.
[2] The results of the study are based upon the information given by the investors in Salem District, Tamil
Nadu.
[3] The data collected are based on the questionnaire and the results of the study and would be varying
according to the opinions of individuals.

V. Analysis and Discussion

Income Based
Table 1: Income Vs Trading Frequency Habits
Income/ Factors Below25000 25000-50000 Above 50000 Total Chi-square test
Daily 9 10 8 27 value df
Weekly 10 15 13 38
Monthly 6 7 6 19 0.441 6
Biannually 5 6 5 16
Total 30 38 32 100
The Probability is 0.922. This proves that there is no association between the variables Income group and Trading
frequency habits
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 long term contract (6 months).
This implies that the commodity future market is dominated by active investors.

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Table 2: Income Vs Goals of Investor

Income/ Factors Below25000 25000-50000 Above 50000 Total Chi-square test
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
Total 30 38 32 100
The Probability is 0.922. This proves that there is no association between the variables Income group and Goals of investor
Table 2 indicates that the main goal of the investor is diversification. So it clearly states that majority of the
investors invest in commodity future market. The investors construct their portfolio including commodity future.
35% of the investor’s goal is to increase their wealth. 24% of the investors invest in commodity future market for
generating their regular income.
Table 3: Income Vs Literacy and Awareness Level
Income/ Factors Below25000 25000-50000 Above 50000 Total Chi-square test
High 7 3 2 12 value df
Average 16 22 19 57
5.55 4
Low 7 13 11 31
Total 30 38 32 100
The Probability is 0.236. This proves that there is no association between the variables Income group and Financial literacy
level
Table 3 clearly states that most of the investors level is moderate 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: Income Vs Emotional Risk Tolerance
25000-
Income/ Factors Below 25000 Above 50000 Total Chi-square test
50000
Very conservative 2 3 2 7 value df
Moderately conservative 8 12 10 30
Neutral 8 6 7 21
1.76 8
Moderately aggressive 9 13 11 33
Very aggressive 3 4 2 9
Total 30 38 32 100
The Probability is 0.989.This proves that there is no association between the variables Income group and Emotional risk
tolerance
Table 4 clearly states that 33% of the respondents are moderately aggressive. 30% of the respondents are
moderately conservative. 21% of the investors are neutral
Age Based
Table 5: Age Vs Trading Frequency Habits
Age/ Factors Below 30 31-50 Above50 Total Chi-square test
Daily 8 13 6 27 value df
Weekly 13 16 9 38
Monthly 5 8 6 19 1.76 6
Biannually 6 5 5 16
Total 32 42 26 100
The Probability is 0.941. This proves that there is no association between the variables Age group and Trading frequency
habits
Table 5 states that 38% of the investors involve with trading weekly once, 27% of the investors trade daily and
19% of the investors’ trade monthly once.

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Table 6: Age Vs Goals of Investor

Age /Factors Below30 31-50 above50 Total Chi-square test

To increase wealth 10 14 11 35 value df
Regular income 7 10 7 24
Diversification for reduced risk 15 18 8 41 1.68 4
Total 32 42 26 100
The Probability is 0.794. This proves that there is no association between the variables Age group and Goals of investor
Table 6 states that 41% of the investors’ goal is diversification, 35% of the investor’s indicate that their goal is
increasing their wealth.
Table 7: Age Vs Awareness Literacy Level
Age /Factors Below30 31-50 Above50 Total Chi-square test
Low 9 13 9 31 Value df
Average 18 25 14 57 0.860 4
High 5 4 3 12
Total 32 42 26 100
The Probability is 0.930. This proves that there is no association between the variables Age group and Financial literacy
level
Table 7 shows that 57% of the investors’ agree that their knowledge about the commodity future trading is
average 31% of the investors’ agree that their knowledge is not to the mark.12% agree that they possess enough
knowledge about commodity future.
Table 8: Age Vs Emotional Risk Tolerance

Age/Factors Below30 31-50 Above 50 Total Chi-square test

Very conservative 3 3 1 7 Value df
Moderately conservative 10 12 8 30 1.50 8
Neutral 6 8 7 21
Moderately aggressive 10 15 8 33
Very aggressive 3 4 2 9
Total 32 42 26 100
The Probability is 0.993. This proves that there is association between the variables Age group and Emotional risk tolerance
Table 8 shows that 33% of the investors’ are moderately aggressive and 30% of investors’ are moderately
conservative.

VI. Findings
1) 38% of the investors’ traded weekly once
2) 27% of the investors’ traded daily
3) 14% of the investors’ traded monthly once
4) 16% of the investors’ enter into long term contract
5) 41% of the investors’ goal is diversification
6) 35% of the investors’ goal is to increase their wealth
7) 57% of the investors’ literacy level about commodity future is average
8) 33% and 30%of the investors’ emotional risk tolerance level is moderately aggressive and conservative

VII. Suggestions
The following suggestions are brought out on the basis of the result of the study. As most of the respondents are
not regularly watching the changes in the world level of commodities trading position before they start to invest in
Indian commodities market, it is recommended that each investor should be advised to regularly listening the world
level of commodities market news and update their knowledge in the trade.
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

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enhanced to gold, silver, crude oil, natural gas etc., it helps to reduce the risk involved in short term trading in the
commodity future. The main aim of the investor to increase their wealth and commodity future market is one of the
extended avenues for diversification. So, investors should choose the right product to enter the market on the basis
of time ability skill. It helps to reduce the risk of their portfolio.
SEBI and Forward Market Commission conducting awareness program regarding commodity trading in the
urban and semiurban areas and also to understand the operations of commodities market. So, a proper beginner’s
guide to the investors of commodity market has to be available at all share broking offices, stock market websites
etc. It helps to develop 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.

VIII. Scope for Future Research

As more number of investors choose to invest in commodity future market instead of other options, there
emanates an artificial demand in terms of either increase or decrease in value of commodity price in the future
market. This is a dimension and could be a potential area for future researchers.

IX. Conclusion
Commodity future market shows tremendous development in the last decade and also has a long history in India.
Market sees ups and downs. The policy makers if they update the policy periodically, it will help to protect the
interest of the investors.

References
[1] Ahuja, N.L. Commodity Derivatives Market in India: Development. Regulation and Future Prospects 1
(2006) 153-162.
[2] Bhattacharya, H. Commodity derivatives market in India. Economic and Political weekly 42 (13) (2007)
1151-1162.
[3] Kumar, B. and Pandey, A. Role of Indian Commodity Derivatives Market in Hedging Price Risk:
Estimation of Constant and Dynamic Hedge Ratio and Hedging Effectiveness. 22nd Australasian Finance
and Banking Conference, 2009.
[4] Dasgupta, B. Role of Commodity Futures Market in Spot Price Stabilization, Production and Inventory
Decisions with Reference to India. Indian Economic Review (2004) 315-325.
[5] Kaur, G. and Rao, D.N. Efficiency of Indian commodities market: a study of agricultural commodity
derivatives traded on NCDEX. electronic copy available on http://ssrn.com/abstract=160068 (2010).
[6] Kumar, B. and Pandey, A. Market efficiency in Indian commodity futures markets. Journal of Indian
Business Research 5 (2) (2013) 101-121.
[7] Naik, G. and Jain, S.K. Indian agricultural commodity futures markets: a performance survey. Economic
and Political weekly, 2002, 3161-3173.
[8] Nath, G.C. and Lingareddy, T. Impact of futures trading on commodity prices. Economic and Political
Weekly 43 (3) (2008) 18-23.
[9] Roy, A. Indian Agri Commodity Market, Risk Management and its Sustainable Growth: An Integrated
Framework. electronic copy available on http://ssrn.com/abstract=1178702 (2006).
[10] Senthil, D. Investor’s Perception Regarding the Performance of Indian Mutual Funds. International Journal
of Social and Allied Research (IJSAR) 1 (1) (2012) 41-45.

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