Managing Price Risk Using Futures-Evidence from Indian Commodities Market

Over the years, the prices of commodities have been moving in an upward direction and hence Commodities Investment is considered an attractive portfolio diversification. Risk is a part of all investments and investors need to use a mechanism which can help them to minimize their risk in investment. Derivatives, mainly futures contracts are used as a tool to effectively manage the risks involved in investments. The present study evaluated the pricing behaviour of Indian Commodities Markets and assessed the hedging effectiveness of futures contract for selected sample commodities, traded at Multi Commodity Exchange India Limited. The major results of the study indicated that the future price of commodities determines the spot price for majority of sample commodities and natural gas future contracts provided a higher hedging effectiveness when compared to other sample commodities.