Agenda

2. Agenda • Overview • Arbitrage Opportunities • Hedging Opportunities • Investment Opportunities • Institutional Participation • NCDEX

3. Role of an Exchange • Anonymous auction for price discovery • Neutrality - conflict of interest avoided • Transparent real time price dissemination • Benchmark reference price • Liquidity to participants • Risk Management in a volatile market • Robust Clearing & Settlement systems - counter party credit risk mitigated • Fair, safe, orderly market - rigorous financial standards and surveillance procedures

4. Benefits of trade on Futures Market • Risk transfer platform from actual users to traders / speculators • Helps hedgers concentrate on core activity • Long term price signals help • Farmers to decide cropping pattern • Corporate managers to take investment / capital expenditure decisions • Cover sales and raw materials risk • Cost of Capital reduced • A good investment option • Arbitrage opportunities

5. Myths about commodity exchanges • Commodity exchanges are speculative markets not meant for actual users • Speculators infuse liquidity to enable hedgers to transfer their price risk • If commodity exchanges do not enable physical delivery, they are then only for speculators • Exchanges are meant for price discovery and physical delivery is only incidental As Exchanges gain liquidity actual users will separate hedging from physical delivery

6. Myths about commodity exchanges • How can trading volume be greater than actual production in that commodity? • Open Interest is the only true indicator of the depth of the market • E.g.: Trading volume in Infosys / Reliance in the Capital markets is a multiple of the outstanding shares • Can an Exchange have a price view? • Exchange is a platform for price discovery– It is only the thermometer of the price movements and is not responsible for the price movements NCDEX rigorously monitors & controls level of and composition of Open interest in any commodity

7. Evolution of Commodity markets in India • Ban in forward trading in mid-sixties • Emergence of national level online multi-commodity exchanges • 3 National level and 21 regional • Trade in 60 commodities compared with just 8 in 2000 • Volumes of Rs 571,000 crores in 2004-05 • Volume first two months of 2005-06 reached 1,90,000 crores (800 % growth over 25,000 crores in 2004-05) Traded volume in 2004-05 around 20% of India’s GDP

8. Regulatory Structure in India Regulatory Structure in India Ministry of Finance Ministry of Finance Ministry of Consumer Affairs Ministry of Consumer Affairs National Housing Bank Company Law Board FMC National Housing Bank Company Law Board FMC Insurance Regulatory Development Authority (IRDA) Pension Funds Regulatory Development Authority (PFRDA) Insurance Regulatory Development Authority (IRDA) Pension Funds Regulatory Development Authority (PFRDA) Commodity Exchanges Commodity Exchanges Housing Finance Companies Insurance Pension Funds Corporates Housing Finance Companies Insurance Pension Funds Corporates SIDBI RBI SEBI NABARD SIDBI RBI SEBI NABARD State Financial Institutions Banking / NBFCs Capital Markets Co-operative Banks & Regional Rural Banks State Financial Institutions Banking / NBFCs Capital Markets Co-operative Banks & Regional Rural Banks

9. Structure of Indian Commodity Futures Exchanges FMC CommodityExchanges Nationalexchanges Regionalexchanges NCDEX NMCE MCX NBOT 20 Other Regional Exchanges

10. Growth in volumes of Indian Commodity Exchanges Rs Crores Impressive growth of 341 % between 2003-04 to 2004-05

11. Volumes of Indian Commodity Exchanges Rs Crores

12. Agenda • Overview • Arbitrage Opportunities • Hedging Opportunities • Investment Opportunities • Institutional Participation • NCDEX

13. Arbitrage opportunities • Law of One Price – “a commodity cannot command two different prices in two different markets ” • Arbitrage opportunities emerge out of pricing inefficiencies • Between the cash & derivatives market • Between two futures contracts with different expiry dates • Between two or more exchanges

14. Arbitrage Opportunities

15. Agenda • Overview • Arbitrage Opportunities • Hedging Opportunities • Investment Opportunities • Institutional Participation • NCDEX

16. Raw material intensive industry Source: CMIE

17. Steel: Need for hedging mechanism • Characterized by high volatility during the last 2 years • Steel market expected to remain volatile • Participants need a mechanism to reduce price risk • Steel futures can help mitigate price risk • Steel futures will give an indication of future trend in steel prices

18. Seller’s hedge - assumptions • Price of saleable steel falls by 10% in FY02 • Steel hedged at FY01 prices • Decrease in PBDIT solely due to fall in price of saleable steel

19. Seller’s Hedge (* Saleable steel constitutes approx. 72% of sales) If hedged completely, could have made incremental profits of Rs 518 crores, 44% higher

20. Buyer’s Hedge - assumptions • Prices increase by 17% in FY04 • Prices hedged at FY03 prices • Decrease in PBDIT is solely because of increase in raw material component

21. Case Study-Buyers Hedge The company could have saved the loss of around Rs 97 crores by hedging, i.e. 15% higher profits

22. Effect of Price shock Rs crores Source: CMIE Even an increase of 5 % in cost of raw materials could wipe out the profits of a raw material intensive commodity

23. Agenda • Overview • Arbitrage Opportunities • Hedging Opportunities • Investment Opportunities • Institutional Participation • NCDEX

24. Conducive drivers • Beginning of the Bull phase after 20 years of Bear market • Escalating commodities demand from Asia, especially China • Depreciating dollar – shift to hard currencies like Gold • Inflationary pressures build-up • Surging energy prices – leading to energy crisis • Rise in commodity demand with economic recovery

25. 1350.00 2500 1300.00 2000 1250.00 1500 1200.00 1150.00 1000 1100.00 500 1050.00 1000.00 0 16-Dec-02 05-May-03 22-Sep-03 09-Feb-04 28-Jun-04 15-Nov-04 04-Apr-05 NCDEX Index NSENIfty NCDEX Agri vs. NSE-Nifty Correlation coefficient is 0.02

26. Correlation: 1997-05 Data: LBMA bullion prices, NSE Nifty, NSE G-Sec Index Benefit of diversification can be seen from the Risk Adjusted Returns

27. Volatility comparison – 1997-05 Average annual volatility • Sensex or Nifty - 25-30% • Govt Sec Index - 5-10% • Gold - 12-18% • Silver - 15-20% • Cotton - 10-12% • Oil seeds - 15-20% • Commodities are less volatile compared to equity market, but more volatile as compared to G-Sec’s

28. Portfolio diversification & value investing • Low co-relation between stocks/bonds and the commodities market • Better diversification of portfolio • Commodity markets are less risky compared with stock market. • Reduces risks in a diversified portfolio

29. Risk-Adjusted Returns:1997-05

30. Agenda • Overview • Arbitrage Opportunities • Hedging Opportunities • Investment Opportunities • Institutional Participation • NCDEX

31. Regulatory Facilitation Institutional Participation Banks,MFs, PFs, FIIs Pool the retail money to the market, boost liquidity & volume Exchange Traded Options Benefit of ‘upside’ for value-investing Trading on Commodity Indices Benchmarking the market

32. Banks - Present Scenario • Not allowed to trade on commodity exchange • Not allowed to do margin financing against commodities • Bank lending to commodities remained very low • Commodity a ‘sensitive sector’ • Not under priority sector lending • Credibility of Warehouse receipts • Reliability of the warehouse • Hedging not possible Bank lending against commodities was only Rs 9,952 cr out of Rs 8,64,143 cr i.e. 1.1% as on March’04

33. Involvement of Banks • Banks as aggregators • Institutions with good rural presence and sufficient financial expertise and infrastructure • Banks can hedge their agri and corporate loans • Banks as market makers for price stabilization • Role similar to the role of RBI for stabilization of dollar prices • Banks as dealers in commodity markets

34. Benefits More liquidity Broaden and deepen markets Help in the utilization of capital Global experiences Research Best practices Issues involved Concentration and control over prices of crucial commodities Physical delivery Withdrawal from the country FII presence

35. Involvement of Mutual Funds • Mutual Funds can bring liquidity and professional skill in the commodity market • Mutual Funds can mobilize small savings and invest in commodities and commodity derivatives • Easiest route for retail investment

36. Options and indices • Options • Provides benefit of upside • Substitute MSP of government • Not allowed under FCRA • Need for changes in the Act • Indices • Weather indices • Regulatory changes needed

37. Agenda • Overview • Arbitrage Opportunities • Hedging Opportunities • Investment Opportunities • Institutional Participation • NCDEX

38. NCDEX – Current shareholders NABARD 15% NSE 15% IFFCO 12% CRISIL 12% ICICI Bank 15% LIC 15% Canara Bank 8% PNB 8% • Only institutions are our shareholders • NCDEX fully compliant with shareholding guidelines

39. Independent Board of Directors

40. Product Calendar Apr-Dec 2004 Jan – May 2005 In pipeline Dec 2003 Gold, Silver, Crude Palm oil, RBD Palmolein, Cotton, Mustard seed, Mustard oil Soybean, Refined soy oil Guar seed, Jute sacking, Chana, Rubber, Pepper, Wheat, Castor seed, Guar gum, Raw jute, Urad, Yellow peas, Sugar, Turmeric, Soymeal Gur, Rice, Maize, Raw silk, Cocoon, Jeera, Chilli, Steel, Cashew, Cottonseed oilcake, Sesame seed, Tur, Arabica & Robusta Coffee, Copper Cathode Other base Metals, Energy Products, More Agricultural products Each product is selected after an in-depth research & market feedback

41. Average daily volumes Rs cr Peak Volume for a single day Rs. 4271 cr on Mar 30 ‘05 Impressive growth of NCDEX with 85% volume contribution from agriculture

42. Robust Deliveries - 2005 Deliveries of over 1,10,000 MT in first quarter 2005-06

43. Deliveries to Open Interest – June 2005 Deliveries in over 18 commodities

44. Architecture for Price Discovery 610 members Spot Price polling 6600 terminals 70,000 daily trades 490 centres 155,0000 daily orders 37 commodities 80% agri volume 250 Awareness Programmes 100 delivery centres Monthly Deliveries of 40-45000 tt

45. Price dissemination: Choose your crop Radio TV Channels E-chaupals N-logue News agencies PCOs Newspapers & journals Kisan call centres AGMARKNET IFFCO, HAFED Warehouses Bank branches

46. NCDEX’s integrated financial solution for farmers

47. Pre-harvest Price hedging NCDEX Farmers Aggregator Insurance Bank Finance Buffering yourself from nature’s vicissitudes

48. Post Harvest Scenario Farmer sees NCDEX spot and futures prices Sells futures On NCDEX Approaches mandi of choice Lodges goods in NCDEX/NCMSL warehouse 90 WAREHOUSES Goods assayed by approved assayers Working with all leading assayers Warehouse Receipt in electronic form NCMSL arranges credit Bank finance against WR

49. Grading and Standards: Improve your prospects IARI Grading in rice, wheat maize Quality standards CIRCOT Grading in cotton

50. Impact of NCDEX on Prices Prices are those received by the farmers after adjusting for the taxes and other incidentals. The Prices are from the following mandis: Bikaner, Calcutta and Ahmedabad. Numbers marked in red pertain to Prices after trading was enabled on NCDEX.