Currency futures market set to revive with FII entry

Tags: News
With the Reserve Bank of India allowing foreign portfolio investors (FPIs) to hedge their currency risk in the onshore market, the domestic exchange-traded currency futures market offered by leading stock exchanges like NSE, BSE and MCX-SX is likely to see spurt in volumes and trading.

Volumes in the currency futures market offered by the domestic bourses had dropped sharply in recent months following restrictions imposed the central bank to curb volatility in the currency last year.

From a peak of over Rs 64,000 crore turnover clocked in June last year, the combined turnover in the three exchanges have dropped below the Rs 15,000 crore level.

Last week, RBI allowed FPIs to hedge onshore currency risks arising out of their exposure to the Indian debt and equity markets using curency futures or exchange traded currency options up to $10 million.

Vikram Dhawan director Equentis Capital, a UK-based investment advisory said, “It is a very positive move to allow foreign funds to hedge in the domestic currency futures market.”

Food minister Ram Vilas Paswan, in a bid to boost domestic industry, on Monday announced an interest-free loan scheme, hiked import duty on sugar to 40 per cent and extended the export subsidies till September.

“At present, the landed cost of imported sugar is less than domestic sugar prices. With hike in import duty, domestic players are set to gain. In addition, the export subsidies will help the sugar makers offload the surpluses,” said Paras Bothra of Ashika Stock Broking.

Verma said that these decisions would improve the liquidity of sugar mills and help clear pending dues to cane farmers. He said the 10 per cent ethanol blending would save forex of $1.6-$1.7 billion.

Bothra believes Bajaj Hindustan and Balrampur Chini would be major beneficiaries of hike in ethanol blending.

“All these measures would boost the sector in the near term though, we would retain our cautious view on stocks,” said Amar Ambani, head of research at IIFL.

Meanwhile, stocks of wagon makers and other rail equipment providers advanced on hopes that hikes in rail fare (on Friday) will improve the finances of the Indian railways and will bring in more orders for the related sectors.

Texmaco Infrastructure, Kalindee Rail and BEML advanced 3.12 per cent, 2.72 per cent and 2.68 per cent, respectively. Titagarh Wagons and Texmaco Rail were up 2.42 per cent and 1.42 per cent, respectively.

The government on Friday hiked passenger fare by 14.20 per cent while raising freight charges by 6.5 per cent.

“Constrained resources have held back much needed investment in replacement/renewal of assets and operational activities. Under the Narendra Modi administration we expect a very strong focus on rebuilding Indian railways through both private and public investment,” said Abhay Laijawala of Deutsche Bank.

Sectors for which hike in freight charges were seen negative, including cement and steel, witnessed healthy buying in an otherwise weak trading session.

Ramco Cement climbed 3.85 per cent; Ambuja Cements, ACC and JK Cement were up 2.11 per cent, 2.08 per cent and 2.03 per cent, respectively.

Steel makers JSW Steel, Jindal Steel and Tata Steel rose between 1.39 per cent and 2.72 per cent. State-run was down 0.85 per cent at Rs 93.10.

Pankaj Pandey, head of research at ICICI Securities said that while there will be some short term impact of higher freight rates for cement and steel makers, it would benefit them in long term. “In addition, the recent rally in stocks of these sectors signals hopes that the government will revive capex cycle in the infrastructure space by addressing policy issues and offering sops that would eventually raise revenues for these sectors. Thus the near-term negatives were shrugged off,” Pandey added.

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