Stocks gain 4-10%

Tags: News
Sector-specific action was seen in the stock market on Monday after the government announced measures to aid the ailing sugar industry and hiked rail fares to improve the financials of the struggling Indian Railways.

Major cement and steel makers gained despite last week’s hike in the freight charges. Shares of 28 sugar companies led by Shree Renuka climbed between 4 per cent and 10 per cent. Railway-linked stocks such as Kalindee Rail and Titagarh Wagon, on the other hand, gained between 1.5 per cent and 3 per cent.

Shree Renuka Sugar shot up 10.32 per cent to Rs 29.40. Eastern Sugar, Bannari Amman Sugars and Bajaj Hindusthan hit their upper circuits. Triveni Engineering, Dam­per Sugar Mills, Paramour Chini Mills, Mawana Sugars and Shree Renuka Sugars gained between 4 per cent and 10 per cent.

“Typically, as we have seen in the past, currency volatility has its impact on the equity market, but with hedging facility, there will be less pressure,” Dhawan said.

FIIs will be more comfortable in taking a hedge in the domestic market rather than the non-deliverable forward (NDF) platform. At present, the local currency futures market may not be deep enough. But over the next few quarters, volumes and depth will grow, he added.

At present, exchanges offer futures trading in four major currencies against the rupee, including the US dollar, euro, pound and yen (USD-INR, EUR-INR, GBP-INR and JPY-INR) while options are available on the USD-INR pair.

“The RBI move should boost activities in the domestic currency futures market. FPIs, who used to go offshore to hedge their currency risks could come onshore to hedge their currency risks,” says C Chandrasekhar, senior vice-president at Mecklai Financial Services.

Trading volumes in exchange-traded currency derivatives took a hit as margins were increased and broker level position limits were fixed last year to curb volatility in rupee. For instance, NSE saw its daily turnover dropping from over Rs 20,000 crore to just Rs 8,000 crore at present, after these curbs were introduced.

“RBI decision to allow foreign funds to hedge in the domestic market is a welcome move. If we have to deepen the market, margins and position limits should be relaxed,” says Amit Gupta derivative analyst at ICICI Direct.

“FIIs may find it difficult to take positions in the domestic bourses due to lack of depth, unless players like banks, companies and SMEs participate in the market,” said Gupta.

The central bank also partially lifted the curb put on banks’ proprietary trading, allowing them to take long or short positions of up to $10 million without establishing any underlying exposure.

In July last year, RBI had barred all banks from taking any proprietary positions in the currency futures market. The drop in volumes was due to these measures taken by the regulators.

Now that the curbs have been partially lifted, players are expecting that liquidity in the market will go up.

There is also expectation that more FIIs may come to the Indian market as they are allowed to take onshore hedging facility. Some FIIs don’t operate in market where onshore hedging facility is not allowed.

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