The Bombay Stock Exchange has taken a leap of sorts in the effort to make Indian equities a global phenomenon by tying up with the US Futures Exchange (USFE) to offer Sensex futures contracts to investors across the world. While it is a big boost for both brand Sensex and the stock exchange this share price index represents, this move could also offer a solution to regulators and policymakers faced with the unenviable challenge of maintaining the interest of global fund managers in Indian equities while also keeping the consequent capital inflows at manageable levels. In that sense, dollar-denominated Sensex futures are both far-sighted and pragmatic?just as derivatives are supposed to be. Through this tie-up, global investors, hedge funds and anybody else who wants to take a punt on the Indian capital market can simply opt for Sensex futures on the USFE without having to exchange dollars for rupees in the bargain and ?enter? India with funds. Sudden speculative gushes of investment, therefore, need not disturb liquidity conditions within India. This will ease some pressure on India?s monetary managers, who, despite a Rs 50,000 crore raise in their MSS limit to mop up excess cash, have been chewing their nails over capital inflows. Now, chances are that a large portion of the ?hot money? going around will adopt USFE?s Sensex futures. These also come as relief to players who found their entry to India barbed by the recent tightening of rules related to participatory notes (PNs). So, this move should allay fears that India could get relegated in status as a favoured investment destination by the imposition of such capital controls.
If bets on India were likely to be taken overseas anyway, it is better that these are done through approved channels. The USFE contracts would be truly global, marketed actively in 14 different countries by the Chicago-based exchange, with trades open 23 hours a day. Moreover, the price discovery process will have inherent informational value for other investors who need to gauge global sentiment. It will also let institutional investors develop advanced hedging tools to manage their risks better. The recent 1,700-point crash in the Sensex, the day after Sebi announced its draft guidelines for PNs on October 17, for example, could have been hedged by taking fresh positions in the US market.
