INDIAN COMMODITIES MARKET

March 14, 2007

2

NCDEX – 6NCDEX – 6thth largest commodity exchange largest commodity exchange in the worldin the world

169,213

99,17593,138

78,629

61,81450,698

42,05533,790 33,150 28,473

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

in '0

00s

NYMEX Dalian CBOT LME TOCOM NCDEX ICE ShanghaiFutures

NYBOT Zhengzhou

Source: UNCTAD, SFOA “ The world’s commodity exchanges – September 2006

3

NCDEX- 3NCDEX- 3rdrd largest agro-commodity exchange largest agro-commodity exchange in the worldin the world

99,175

91,872

43,287

33,14928,473

25,575

12,5019,503 8,499 7,156

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

in '0

00s

DalianCommodityExchange

CBOT NCDEX NYBOT ZhenzhouCommodityExchange

TokyoGrain

Exchange

ChicagoMercantileExchange

ShangaiFutures

Exchange

EuronextLIFFE

TokyaCommodityExchange

Source: UNCTAD, SFOA “ The world’s commodity exchanges – September 2006

4

Market growth of 265% over FY05 volumes; Market growth of 265% over FY05 volumes; 56% growth over FY0656% growth over FY06

Unlike developed markets, participation in Indian market is more Unlike developed markets, participation in Indian market is more retail & individual and not institutionalretail & individual and not institutional

14.77 29

127

474.33

739.2

0

100

200

300

400

500

600

700

800

900

1000

FY03 FY04 FY05 FY06 April-Feb2007

US

D B

illio

n

5

Current physical volumes

Value chainFutures Traded

Volumes

17.5 175

48.0 239

175 1,225

85 426

325 2,065

*

Bullion

Metals etc

Agriculture

Energy

Total

FarmersAgents

WholesalersProcessorsRetailers

Present volumes a fraction of the potential Present volumes a fraction of the potential USD Bn

Source: NCDEX

6

Present legal & regulatory environment Present legal & regulatory environment

7

Market Structure- Futures and SpotMarket Structure- Futures and Spot

Spot marketsSpot markets

Futures MarketFutures Market

Forward Markets

Commission

Forward Markets

Commission

Ministry of consumer

Affairs

Ministry of consumer

Affairs

Unlike Forex and Stock markets; Spot markets in commodities

are not within the purview of the Exchanges/Regulators

State GovernmentState Government

8

Regulatory Structure in IndiaRegulatory Structure in India

Banking /

NBFCs

RBI

Ministry of Finance

SEBI

Capital

Markets

NABARD

Co-operative Banks &

Regional Rural Banks

Ministry of Consumer

Affairs

FMC

Commodity

Exchanges

Insurance Regulatory

Development Authority

(IRDA)

InsurancePension

Funds

SIDBI

State Financial

Institutions

National

Housing Bank

Housing Finance

Companies

Company

Law Board

Corporates

Pension Funds Regulatory

Development Authority

(PFRDA)

9

20 Other Regional 20 Other Regional ExchangesExchanges

20 Other Regional 20 Other Regional ExchangesExchanges

NMCENMCENMCENMCE

CommodityCommodity ExchangesExchangesCommodityCommodity ExchangesExchanges

MCXMCXMCXMCX

Structure of Indian Commodity Futures Exchanges

NationalNational exchangesexchangesNationalNational

exchangesexchangesRegionalRegional

exchangesexchangesRegionalRegional

exchangesexchanges

FMCFMCFMCFMC

NBOTNBOTNBOTNBOTNCDEXNCDEXNCDEXNCDEX

10

Going forward …Going forward …

11

New ProductsNew Products Market would move towards trading more exotic

products Index based products

Commodity Indices Rainfall & other weather indices

Spread Trading Electricity Real Estate Emission Credits

..Idea will be to forge closer links with global commodities

12

InstrumentsInstruments to be introducedto be introduced

Options Provide up-side benefits to the market

participants Offer a market driven MSP to the farmers

Indices Built-in diversification

Exchange for Physicals (EFPs) Easy of trade for hedgers who would like to take

or make deliveries

..new instruments to attract new market participants

13

Attracting new participantsAttracting new participants

Farmers Offering them pre & post harvest risk mitigation

platform Ease of trade through aggregators

Banks Role of aggregators Proprietary trade

Mutual Funds Attracting retail trade to the commodity

exchanges FIIs FDIs

14

Risk Mitigation: Pre-harvestRisk Mitigation: Pre-harvest

Small FarmersSmall

FarmersSmall

FarmersSmall

Farmers

AggregatorsAggregators

Banks

Insurance

NCDEX

NCMSL

Banks

Insurance

NCDEX

NCMSL

Future price ensuredFuture price ensured

Liquidity enhancedLiquidity enhanced

Weather Weather derivatives /Crop derivatives /Crop

Insurance Insurance

Weather Weather derivatives /Crop derivatives /Crop

Insurance Insurance Bank lendingBank lendingBank lendingBank lending

Large FarmersLarge

Farmers

15

Risk Mitigation: Post-harvestRisk Mitigation: Post-harvest

Small FarmersSmall

Farmers

Sell forwardSell forward

Storage facilityStorage facility

Assaying & gradingAssaying & grading

Commodity backed Commodity backed bank finance (WR)bank finance (WR) Commodity backed Commodity backed bank finance (WR)bank finance (WR)

Large FarmersLarge

Farmers

Banks

NCDEX

NCMSL

Banks

NCDEX

NCMSL

16

Survey carried out by A C NielsenSurvey carried out by A C Nielsen

Yes12%

No88%

Yes78%

No22%

Wide Area Sample, Sample Size - 255 Narrow Area Sample, Sample Size - 473

Over 78 % of farmers from NAS & 12 % of WAS agreed that they have benefited out of the price discovery taking place through commodity exchanges

As NAS respondents are well aware of market dynamics ( including futures market, they are able benefit through better price realization)

Increase in awareness level in interior areas about commodity futures will help the farmers

17

Typical farmers awareness programmesTypical farmers awareness programmes

A large number of participants Alwar, Rajasthan on 27 February 2007

Speakers include the regulators – FMC; key officials of NCDEX; important officials of the government machinery

18

Increased bank participation on the Increased bank participation on the exchange platformexchange platform

farmer

farmer

farmer

Bank branchBanks takes consolidated position on behalf of its customers

Bank branch

Exchange

farmer

farmer

Bank to also take proprietary positions

19

Facilitating lending against commodities Facilitating lending against commodities

Banks’ lending against commodities in FY06 was USD 1,334 million

NCMSL facilitated finance against commodities to the tune of about  USD 80 million as on 31st March, 2006  ICICI  Bank: USD 50 million HDFC Bank:  USD 22 million Other banks: USD 8 million 

Average Interest rate charged: 9.5% - 10.5% Number of defaults so far: NIL 

20

Facilitation requiredFacilitation required

RBI Working Group Recommendations

Banks to be allowed to have proprietary positions in

agricultural commodity derivatives

Evolution of a system for warehouse receipts which

would be freely transferable

Banks to be granted general permission to become PCMs

of commodity exchanges

21

Foreign AccessForeign Access

Foreign access permitted in securities market- equities & bonds under regulation

Currently can access commodity markets by setting up a domestic entity – for broking & investment Require prior approval from FIPB

Precedents: Permission granted for Proprietary trade only

No precedents for Client trade

22

Permits Foreign Investment in infrastructure companies in Indian Stock Exchange to the tune of 49%, of which

26% - FDI (Foreign Direct Investment)o With specific prior approval of FIPB

23% - FII (Foreign Institutional Investment)o FII will be allowed purchases in secondary marketo FII shall not seek & will not get representation on the

Board No foreign investor, including persons acting in concert, will

hold more than 5% of the equity capital

Similar notification expected for commodity markets…

RBI/SEBI notification dated 22.12.2006RBI/SEBI notification dated 22.12.2006

23

Regulatory Action in Jan-Feb 2007Regulatory Action in Jan-Feb 2007

24

Sudden delisting of important cereals & Sudden delisting of important cereals & pulses - Jan-Feb 2007pulses - Jan-Feb 2007

Delisting of Urad & Tur contracts – Jan 07

Suspension of Rice & Wheat contracts – Feb 07

Future Prices as of Jan 23 Spot Prices as of Jan 23

Spot Price as of Mar 06

Feb Expiry

March Expiry

May Expiry

Urad 71.86 69.88 65.31 78.88 71.88

Tur 50.68 55.04 56.95 51.93 49.24

(USD/Quintal)

Urad: Crop arrivals from Andhra & Burma expected in Feb-March

Tur: Arrivals in March; 30-40% expected production shortage

25

NCDEX wheat price movements NCDEX wheat price movements

800

850

900

950

1,000

1,050

1,100

1,1500

1/0

2/2

00

7

02

/02

/20

07

03

/02

/20

07

05

/02

/20

07

06

/02

/20

07

07

/02

/20

07

08

/02

/20

07

09

/02

/20

07

10

/02

/20

07

12

/02

/20

07

13

/02

/20

07

14

/02

/20

07

15

/02

/20

07

16

/02

/20

07

17

/02

/20

07

19

/02

/20

07

20

/02

/20

07

21

/02

/20

07

22

/02

/20

07

23

/02

/20

07

24

/02

/20

07

26

/02

/20

07

27

/02

/20

07

28

/02

/20

07

01

/03

/20

07

Rs/ quintal

Spot F-Feb-07 F-Mar-07 F-Apr-07F-May-07 F-J un-07 F-J ul-07 F-Aug-07

Temporary ban on wheat imposed

Temporary ban; expected to be lifted soon…

26

Innovations by NCDEXInnovations by NCDEX

27

Spot price pollingSpot price polling

Commission Commission AgentsAgents

Commission Commission AgentsAgents

ManufacturersManufacturersManufacturersManufacturers

RefinerRefinerRefinerRefiner

Mill ownersMill ownersMill ownersMill owners

TradersTradersTradersTraders

MandiMandiMandiMandi

Statistical Statistical

Cleansing Cleansing

of of

raw dataraw data

Statistical Statistical

Cleansing Cleansing

of of

raw dataraw data

Polled PricesPolled Prices

Exchange WebsiteExchange WebsiteExchange WebsiteExchange Website

Trading TerminalsTrading TerminalsTrading TerminalsTrading Terminals

Info-vendor terminalsInfo-vendor terminalsInfo-vendor terminalsInfo-vendor terminals

Media– electronic & printMedia– electronic & printMedia– electronic & printMedia– electronic & print

Near real-time Near real-time nationwide pricesnationwide prices

Polling done independently by CMIE & Crisil MW

28

Dematerialized holding of commodity Dematerialized holding of commodity balances balances

CLIENT DP NSDL R&T AGENT

WH

WH

WH

WH

- Open Demat a/cWith DPGets goods to the WH, fills in Demat Request form for Demat credit

Empanelled DPs in which members/clients open Demat account

-Holds commodity balances in electronic form Facilitates transactions in commodities

Link between the warehouse and the Depository. Standardized Screens

Accepts goods for storage/ deliveryAssaying done and information given to NSDL via R&T

29

Collateral managementCollateral management

Set up National Collateral Management Services Ltd. (NCMSL) Warehousing, assaying Collateral Management Commodity backed financing Food procurement for FCI

2005-06 Paddy procurement project 1.2 lakh MTs paddy from MP, Orissa

2006-07 Paddy project 80,000 farmers involved 600,000 MTs of paddy

30

Price DisseminationPrice DisseminationELECTRONIC PRINT

TV and radio News agencies Mobile phones Integrated kiosk Kisan (farmer) Call centres

Regional newspapers Training material Agri-journals

TICKER BOARDS Future plans

Member offices Mandis Bank’s rural branches Rural warehouses Bus stations Abidjan- Cote D’Ivoire Singapore- View Terminal

Rural Post offices Railway platforms Co-operative offices Panchayat offices

31

Automatic weather stations Automatic weather stations

Cabled Vantage Pro 2 Plus

Collecting & disseminating data over multiple weather parameters

32

About NCDEXAbout NCDEX

33

Our ShareholdersOur ShareholdersInstitution Share Domain Expertise

NABARD 15 % Apex bank for agricultural lending

ICICI Bank 8 % Largest private sector bank in India. Listed on NYSE

NSE 15 % Largest stock exchange in India. Highest volume in single stock futures in world.

LIC 15 % Largest life insurance company in India

CRISIL 12% India’s first & largest credit rating agency. Now a Standard & Poor company

IFFCO 12% Largest farmer cooperative with affiliation of 36,000 cooperatives

PNB 8% Large public sector bank with strong rural reach specially in North India

Canara Bank 8% Large public sector bank with strong rural reach specially in South India

Goldman Sachs

7% Global Expertise in commodity markets

34

Ncdex’ market share in total volumes of key agri-commodities (April 2006 -Jan 2007)

Cereals & Pulses

  Chana\Gram 87%

  Wheat 98%

  Maize 99%

  Barley 100%

  Guar Seeds 85%

  Urad 87%

  Tur 91%

     

Processed agri-products

  Guar Gum 99%

  Sugar 83%

  Gur 75%

  Mentha oil 15%

     

Fiber

  Medium Staple Cotton 100%

  Kapas 50%

  Indian 28 MM Cotton 100%

Spices

  Pepper 85%

  Chilli 98%

  Turmeric 100%

  Jeera 95%

     

Oil & Oil seed complex

  Rape/Mustard Seed 98%

  Soyabean Seeds 99%

  Refined Soya Oil 27%

  Soya_Meal 86%

  Castor 100%

  Groundnut (IN SHELL) 100%

  Rape Mustard Oilcake 100%

35

Exchange ProfileExchange Profile

Number Remarks

Products 51 41 agro, 2 bullion, 2 energy and 6 metals

Members 852 Spread across India

Terminals 18,500 Accessible from 700 centres

Delivery Centres 550 All over the country

Depository Participants 59

Clearing Banks 12

Weather Stations 194 By associate company NCMSL

36

Thank YouThank You

37

Market Share – Agri. CommoditiesMarket Share – Agri. Commodities

N C D E X

M C XO t h e r

Exchange Share (%)

NCDEX 85.0

MCX 11.0

Others 4.0

  100

38

Large number of Physical Deliveries taking Large number of Physical Deliveries taking place on NCDEX Platformplace on NCDEX Platform

Globally less than 2% volumes result in deliveries

Physical deliveries are incidental

Exchanges not delivery platform

However, NCDEX has seen an average delivery of 40-50,000 MT per month

Exchange’s are a platform for better prices discovery

Period Deliveries (MT)

Q4' FY05 43214

Q1 ‘FY06 109562

Q2 FY06 83081

Q3 FY06 77160

Q4 FY06 134260

Q1 FY07 103,444

Q2 FY07 125,989

Q3 FY07 94,128

Jan-Feb FY07 37,136

39

Strategic PartnersStrategic Partners

GlobalGlobalGlobalGlobal

BusinessBusinessBusinessBusiness

Warehouse & Warehouse & othersothersWarehouse & Warehouse & othersothers

Grading & Grading & StandardsStandardsGrading & Grading & StandardsStandards

Tokyo Grain Exchange (TGE)

Dalian Commodity Exchange (DCE)

Intercontinental Exchange (ICE)

Bharat Petroleum

Gas Authority of India Ltd (GAIL)

Bombay Bullion Association (BBA)

Central Institute for Research on Cotton Technology (CIRCOT)

Indian Agriculture Research Institute (IARI)

Food Corporation of India (FCI)

CRIDA

Punjab State Cooperative Supply & Marketing Federation

40

Number of contracts traded - Economic Number of contracts traded - Economic Survey Survey

Exchange / Year

2004-05 2005-06 2006-07

NCDEX 11 27.42 23.65

Others 4.3 16.3 28.38

% market share in India

71.90 63 45.45

In millions