Very good step, its better for corporates to manage the exposure to exchange rates via hedging rather than hope that the government will take a very blunt macroeconomic weapon to trying to manage the exchange rates.
India’s financial market regulators and stock exchanges are speeding up the introduction of currency futures amid government concern that a sharp appreciation in the rupee against the dollar is hurting politically sensitive export sectors.
Ravi Narain, managing director and chief executive of the National Stock Exchange, India’s largest bourse, said talks were under way with regulators about bringing in currency futures, possibly by early next year. The timing seems a no-brainer,” he said. “Everyone is keen to see this introduced sooner rather than later.”
A strengthening of more than 10 per cent in the rupee against the dollar this year has prompted layoffs in India’s textile, jewellery and other labour-intensive export industries.
In its battle to sterilise a flood of foreign dollars into the country’s booming equity and real estate markets, the Reserve Bank of India has accumulated a record $95.4bn in reserves over the past 12 months, bringing the total to $262.5bn.
There are concerns the RBI can slow but not stop the rise of the rupee, leading regulators to conclude that exporters need more tools with which to hedge foreign exchange risk, such as a large and liquid currency futures market.
Mr Narain said regulators were also working on developing interest rate futures, seen as crucial to the development of the country’s debt markets.
Bankers welcomed the moves. Sanjay Nayar, Citigroup chief executive officer for India and head of Nepal, Sri Lanka and Bangladesh, said: “If Mumbai is to become a financial centre, the development of the bond, currency and derivative markets is critical. People need to be able to hedge their risk, and regulators seem to be gaining traction in that direction.”
The stock market regulator, the Securities and Exchange Board of India, has promised to fast-track new products following measures last month aimed at curbing the use of offshore derivative instruments, or P-notes, that allowed investors to trade Indian stocks without registering locally.
Mr Narain said he was cautious about the prospect of consolidation among global exchanges, including those in Asia, partly because of a “stratospheric” rise in valuations on some bourses.
He said he had not seen a departure of liquidity from India following the crackdown on the use of P-notes, which were favoured by hedge funds.
The NSE accounts for 85 per cent of India’s combined equities and derivatives trading. In the year ending March, it made revenues of about $450m and profits of about $200m.
All this to be taken with a grain of piquant salt!!!