Transforming Challenges into Triumphs: AELs Inspirational Journey in Commodities Trading
ECONOMIC OVERVIEW
Global Economy1
In FY 2023-24, both the global and Indian landscapes were marked by significant economic events. Amid global uncertainties, India emerged as the fifth largest economy and sustained its reputation as the fastest growing.
In CY2023, the global economy exhibited resilience with a 3.2% growth rate, a trajectory projected to continue into CY2024 and CY2025. This steady growth is supported by balanced risks, declining inflation, and consistent economic expansion. Despite challenges such as Russias invasion of Ukraine and the global cost-of-living crisis, inflation rates have decreased more rapidly than anticipated since their peak in CY2022, mitigating negative impacts on employment and economic activity. This decline is attributed to favourable supply-side dynamics and the monetary tightening policies of central banks.
Indian Economy2
The domestic economy has seen a steady growth trajectory over the last decade, driven by stronger public sector investment and a robust banking sector. India is set to become the third-largest economy by 2027, surpassing China in USD at market exchange rates. The industry and services sectors were the main growth drivers in the first half of FY2024, with India clocking a real GDP growth of 8.2%, primarily fueled by robust domestic demand.
The governments emphasis on capital investment and reliance on domestic demand have shielded the Indian economy from macroeconomic shocks. Increased capacity utilization across the manufacturing sector has further fueled economic growth. The government has announced several measures and substantial investments to ensure the welfare of farmers and bolster the agriculture sector.
Outlook
Global growth is forecasted to remain steady at 3.2% in CY24 and continue at this rate into CY25. As inflation decreases more rapidly than expected in most regions, a softening of monetary policy is anticipated. This change is likely to spur a rebound in economic growth, creating a more favorable environment for investment and development. However, caution is necessary due to the evolving geopolitical landscape, especially with numerous elections scheduled worldwide. Geopolitical risks, such as ongoing conflicts in the Middle East and tensions in Europe, could impact economic stability and growth prospects. Despite these challenges, high-frequency economic indicators suggest positive momentum for most major economies. Lower inflation and increased government spending are expected to reduce fiscal pressures and attract investments for future growth.
Outlook
Amid a volatile global macroeconomic environment, the Indian economy remains optimistic due to its robust fundamentals. Key factors contributing to this positive outlook include sustained political stability, an increased focus on public capital expenditure by the government, a gradual uptick in private investment, rising credit demand, low debt levels, and strong cash flows for most companies. Additionally, the Reserve Bank of Indias proactive and decisive monetary policies, encompassing appropriate policy rates and liquidity measures, are significantly bolstering Indias rapid economic expansion.
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https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/world-economic-outlook-april-20242
https://rbi.org.in/Scripts/BS_ViewBulletin.aspx3
https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/0RBIBULLETINMAY2024346D124D297E4283A61D1814DD008642.PDFINDUSTRY OVERVIEW
Indias Commodity Market
The domestic commodity market is pivotal to the nations economy, encompassing both agricultural and non-agricultural sectors. As India emerges as a major producer and consumer of various agricultural commodities, it has established itself as a significant player on the global stage.
Agricultural Commodity
The agricultural commodity market offers a strong platform for trading in diverse range of commodities, facilitated by exchanges like the National Commodity and Derivatives Exchange Limited (NCDEX) and the Multi Commodity Exchange of India Limited (MCX). Rising domestic demand due to population growth and accelerating exports are driving factors for the growth of Indias agricultural commodity market.
Regulatory reforms have fortified the commodity market ecosystem, alongside initiatives like the e-NAM (National Agriculture Market) platform aimed at enhancing market access and transparency. Advanced trading platforms, online facilities, and technological integration have democratized commodity trading, attracting a larger number of investors and traders to the Indian market.
Non-Agricultural Commodity
In the non-agricultural sector, especially precious metals like gold, silver, platinum, and palladium have seen remarkable market expansion in both exchange-traded derivatives and spot markets. The rise in gold prices in spot markets is driven by factors like low real interest rates, inflation concerns, and geopolitical uncertainties.
Outlook
The Indian commodity market is poised for substantial growth over the next five years, driven by both agricultural and non-agricultural sectors. The agricultural commodities market is set to expand rapidly, fueled by the increasing adoption of advanced farming practices and government initiatives aimed at improving conditions for farmers. Projections indicate the market will grow from USD 372.94 billion in 2024 to USD 473.72 billion by 2029, with a CAGR of 4.90%. Smart agriculture and modern farming techniques are expected to boost crop productivity, further driving market growth.
In the non-agricultural commodities sector, robust growth is anticipated, particularly in precious metals like gold and silver. The global precious metals market is projected to rise from USD 323.71 billion in 2024 to USD 501.09 billion by 2032, at a CAGR of 5.6%. The bullion market, a critical component of this sector, continues to thrive, driven by Indias cultural affinity for gold and silver. The expanding economy and rising disposable incomes have further bolstered demand for these precious metals.
Physical trading activity in both agricultural and non-agricultural commodities is expected to remain strong, supported by Indias vast resources and diverse geography. The integration of advanced technologies in trading platforms and the liberalisation of commodity markets will further enhance trading efficiency and transparency, solidifying Indias position as a key player in the global commodity trading landscape.
Bullion Industry
The bullion industry, encompassing precious metals like gold and silver, plays a pivotal role in Indias broader commodity market. As one of the largest consumers of gold globally, India relies heavily on imports to satisfy its substantial bullion demand. This demand is deeply rooted in cultural traditions, with gold and silver being integral to weddings, festivals, and other auspicious occasions.
The expanding economy and rising disposable incomes, particularly among the middle class, have significantly boosted purchases of these precious metals. This growth is further supported by the capital markets, which facilitate investments in bullion through various financial instruments like Gold Exchange-Traded Funds (ETFs) and Sovereign Gold Bonds. These instruments provide investors with easier and more secure access to gold and silver, enhancing market liquidity and stability.
Indias bullion market also benefits from its strategic position in the global import-export landscape. The country imports a substantial amount of gold and silver, primarily from Switzerland, the UAE, and South Africa, while also exporting a significant quantity of crafted jewellery. This trade activity is supported by robust logistics and a regulatory framework that promotes transparency and efficiency.
As India continues to balance its rich traditions with modern financial practices, the bullion market is expected to remain vibrant. The integration of advanced technologies in trading platforms, along with liberalisation policies, further enhance the efficiency and transparency of bullion trading. This enduring interest in gold and silver underscores their status as essential assets in Indias economic and cultural fabric.
Indian Derivatives Market
The Indian derivatives market, encompassing instruments like futures and options, has experienced substantial growth. Futures are contracts to buy or sell a bundle of stocks, indices, or commodities at a predetermined
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https://www.ncdex.com/markets/volumedetails price and date on exchanges, providing a standardized and transparent way to speculate or hedge against price movements. Options, on the other hand, give the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price, offering flexibility and risk management opportunities.Commodity derivatives, in particular, have gained significant traction. These include futures and options on agricultural products, metals, energy products, and more. They enable producers, consumers, and traders to manage price volatility and secure future prices for their goods. By locking in prices, businesses can better plan and stabilize their operations, reducing the impact of unpredictable market fluctuations.
As India integrates more deeply into the global economy, the need for companies involved in international trade and cross-border transactions to hedge their foreign exchange exposure has grown significantly. This has driven increasing demand for currency derivatives, including futures and options, which are essential tools for managing currency risks.
Moreover, the rise in commodity derivatives has mirrored the growth of Indias diverse commodity market. The participation of a broader range of stakeholders, including farmers, processors, and exporters, in commodity derivatives have enhanced market depth and liquidity. The increased use of advanced trading technologies and the liberalization of commodity markets have further boosted efficiency and transparency.
In summary, the Indian derivatives market has become a crucial component of the financial ecosystem, offering sophisticated instruments for risk management and investment strategies across both financial and commodity sectors.
Indian Jewellery Manufacturing Industry
Jewellery has always been an integral part of Indian tradition and culture, symbolizing wealth, status, and auspiciousness. The Indian jewellery manufacturing industry is a significant contributor to the economy, creating extensive employment opportunities and driving economic growth. Historically, this industry has been largely unorganised, with numerous small-scale manufacturers dominating the landscape.
In recent years, however, there has been a noticeable shift towards organized players and branded jewellery retailers. India is renowned globally as a hub for diamond cutting and polishing, processing around 1 billion pieces annually. This reputation underscores the countrys expertise and significance in the global jewellery market.
The Indian jewellery industry faces several challenges, including the lack of advanced technology adoption, limited access to finance, and a shortage of skilled labour. To address these issues, the government has initiated measures such as the establishment of Mega Common Facility Centres (CFCs), which provide access to modern machinery and training facilities. These initiatives aim to enhance productivity, improve quality, and ensure the competitiveness of Indian jewellery on the global stage.
Moreover, the industry is increasingly focusing on sustainable practices and responsible sourcing of materials. Embracing digital technologies for design, marketing, and e-commerce platforms has become a priority to reach a broader customer base and adapt to changing consumer preferences. This digital transformation is helping the industry to modernize and align with global standards.
In essence, while the Indian jewellery industry continues to navigate its challenges, the ongoing shift towards organization, technological advancement, and sustainability positions it well for future growth and international prominence.
FINANCIAL OVERVIEW
Consolidated financial review
[in Crores]
| Particulars | 2023-24 | 2022-23 |
| Revenue | 1,775.53 | 1,877.36 |
| EBITDA | 34.73 | 24.22 |
| PBT | 21.01 | 18.39 |
During 2023-24, the Company witnessed a growth of 14.25% in the PBT revenues which grew from 18.39 crores in 2022-23 to 21.01 crores in 2023-24 primarily due to increase in profit margins by 20.80%.
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https://www.ncdex.com/markets/volumedetails6
https://www.mcxindia.com/market-data/historical-data# .7
https://www.mcxindia.com/market-data/historical-data#Opportunities and Threats
| Opportunities | Challenges |
| Growing Demand for Agricultural Commodities | Market Volatility |
| The increasing global population and rising disposable incomes are driving higher demand for agricultural commodities such as grains, pulses, and oilseeds. This presents significant opportunities for trading and expanding market share. | Commodities markets are inherently volatile due to factors such as weather conditions, geopolitical tensions, and economic cycles. This volatility can impact trading margins and profitability. |
| Expansion in Precious Metals Market | Regulatory Changes |
| The enduring cultural and economic significance of precious metals like gold and silver ensures a steady demand. The growth of digital gold investment platforms provides new avenues for trading. | Changes in government regulations and trade policies can pose risks. Compliance with varying regulations across different regions can increase operational complexities and costs. |
| Technological Advancements in Trading Platforms | Supply Chain Disruptions |
| The integration of advanced technologies such as blockchain and AI in trading platforms can enhance transparency, efficiency, and security in commodity trading, attracting more participants and boosting market activity. | Disruptions in the supply chain due to natural disasters, pandemics, or logistical issues can affect the availability and pricing of commodities, impacting trading operations. |
| Capital Markets Expertise | Global Economic Uncertainty |
| Leveraging expertise in capital markets allows for better risk management through derivatives, futures, and options. This can help in hedging price volatility and maximizing returns, thus providing a competitive edge in the commodities trading market. | Economic downturns and global financial crises can lead to reduced demand for commodities, affecting trading volumes and profitability. |
| Government Initiatives and Policies | Technological Risks |
| Favourable government policies and initiatives aimed at modernizing agriculture and boosting exports can create new opportunities for trading agricultural commodities. Support for sustainable farming practices and infrastructure development will also enhance the trading landscape. | While technology offers opportunities, it also brings risks such as cybersecurity threats and the need for continuous upgrades. Failure to keep up with technological advancements can result in operational inefficiencies and loss of market share. |
RISK AND CONCERNS
| Risks | Impact | Mitigation measures |
| Commodity price volatility risk | The commodity markets are subject to significant price volatility due to factors like supply-demand imbalances, weather conditions, geopolitical tensions and speculative trading activities. Adverse price movements can also impact AELs profitability and margins. | To mitigate this risk, AEL deploys hedging strategies on recognised stock exchanges. By taking counter positions on the exchange, the company can offset potential losses from adverse price movements. This approach helps stabilise financial performance and ensures that the impact of price fluctuations is minimised, thereby protecting the companys margins and profitability. |
| Regulatory and legislative risk | The Companys operations are bound by strict regulations. Any unfavourable changes in regulations, policies or legislative frameworks governing commodity trading, derivatives, bullion trading or jewellery manufacturing could adversely affect AELs operations and compliance costs. | AEL has an internal legal and compliance team that is well-versed in market regulations. This team continuously monitors regulatory changes and implements necessary strategies to ensure compliance. By staying proactive and informed, AEL can adapt quickly to new regulations, minimising potential disruptions and maintaining smooth operations. |
| Foreign exchange risk | AELs international operations in bullion trading can expose the Company to foreign exchange rate fluctuations through its Dubai subsidiary. It can also impact its financial performance and profitability. | The Company adopts several strategies, including maintaining dollar positions and implementing robust policies and processes for managing foreign exchange exposure. By taking well-informed positions in the international market, AEL can hedge against adverse currency movements, thereby protecting its financial performance and profitability from exchange rate volatility. |
| Operational and internal control risks | AELs operations involve handling and storing valuable commodities like gold and silver, as well as complex trading activities. Any lapse in internal controls, security measures or operational processes could lead to loss, theft or misappropriation of assets. | AEL implements robust internal controls, conducts regular audits and uses reputed third party vaulting agencies for storage of precious metals. It also has all the stock of precious metals insured. |
| Competition risk | The commodity trading, derivatives and jewellery manufacturing industries are highly competitive, with numerous players operating in the market. Intense competition could impact AELs market share, pricing power and profitability. | The Company leverages its position as a major player in the market with over a decade of presence. The companys competitive edge is further strengthened by its robust infrastructure and high trading volumes, making it one of the largest parties on the NCDEX. This established market presence and operational scale help AEL maintain its market share and pricing power. |
| Technological Risk | Failure to adopt and integrate advanced technologies, such as real-time trading platforms, inventory management systems or digital marketing tools, could put AEL at a competitive disadvantage and hinder its operational efficiency and growth prospects. | To mitigate this risk, AEL relies on its internal technology team and maintains an inhouse system to counter any technological disruptions. By not depending on third parties for critical technological needs, the company ensures that it can quickly adapt to new technological advancements and maintain operational continuity. |
Human resources
The Company utilises the expertise and dedication of its skilled workforce to ensure high-quality performance. By providing employees with opportunities to develop skills that will serve them well now and into the future, AEL has been able to establish an inclusive and diverse work environment that maximises employee satisfaction and experience.
Internal control systems and their adequacy
The Company has a robust system of accounting and administration supported by an Internal Audit System with an adequate system of internal checks and controls to safeguard and to properly record all the incomes, expenses, assets and liabilities of the Company. The procedures adopted not only provide assurance that the transactions are recorded accurately but also ensure completeness of the same with the right authorisation.
The Internal Auditor of the Company reviews all the control measures on a periodic basis and recommends improvements, wherever deemed appropriate and reports directly to the Audit Committee of the Board. The Audit Committee regularly reviews the audit findings. Based on their recommendations, the Company has implemented a number of control measures both in operational and accounting related areas, apart from the usual security related measures. The internal controls are designed to ensure that the financial and other records are reliable for preparing financial statements and other data. Internal Control and Audit is an important procedure and the Audit Committee of the Company has been empowered by the Board to review the adequacy of internal financial controls. Thus, the Audit Committee periodically reviews all matters relating to the functioning of the Internal Control Systems.
Safe Harbour
This report describing our activities, projections and expectations for the future, may contain certain ‘forward looking statements within the meaning of applicable laws and regulations. The actual results of business may differ materially from those expressed or implied due to various risk factors and uncertainties. We are under no obligation to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments, information or events and assume no liability for any action taken by anyone on the basis of any information contained herein.
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