In a significant endorsement of the decision to introduce a currency futures market in India, the sharp rupee volatility has spiked volumes in the market by over 44% in just two trading days. In the two days that the rupee lost nearly 2.41% since Friday, volumes on the NSE shot up to 1,23,332 from 85,536 recorded on Monday. Open interest, or positions taken by dealers to protect themselves against fluctuations, for the near-month contract was 1,20,625 at 47.75. The market expects the upward trend in the value of dollar to continue.
This could help the introduction of interest futures also soon. Finance minister P Chidambaram complimented Sebi and RBI on Monday for their fast response. “There is a storm blowing across the world. Our regulators have shown great agility. You saw Sebi move quickly and RBI also moved immediately thereafter.”
Rajesh Chakraborty of Indian School of Business, who tracks currency markets keenly, said the high volumes show the timeliness of the introduction of the market. India rolled off currency futures in July. ?The volatility is bound to push up participation in the market?, he said.
RBIs decision on Monday to cut CRR by 50 bps and Sebi?s relaxation of the rules on participatory notes also boosted investor sentiments.
?The CRR cut and the Sebi?s move to relax PN norms have played a role in pushing up volumes in currency futures?, said Madan Sabnavis, chief econimist, NCDEX. A large trader in the market said with the rupee touching an intra-day low of 48.17 against the dollar, there was heavy position building in the market, which led to trading volumes shooting up.
The rupee recovered from the lowest trough since December 2002 to end at 47.91/93 against the dollar, but still 0.2% weaker than 47.80/81 on Monday. Traders anticipate the volume on currency futures to remain on the higher side if the volatility in rupee continues.
?If the US market opens on a positive note today (Tuesday), we can see some more action in the Indian market on Wednesday. Moreover, if FII outflows continue pushing fluctuations in the equity markets, one can expect more corresponding speculation in the currency futures market; that will lead to higher volumes,? said the trader, who did not want to be identified.
The rupee?s continuing depreciation has made most companies with foreign exchange exposures to move for cover to hedge themselves against the fluctuations. However, trading was dominated by large brokerage houses and leading banks on Tuesday.
Chiragra Chakrabarty, principal consultant with PricewaterhouseCoopers, also said that volumes in such a volatile scenario are bound to go up.
?Right now, the currency futures market is evolving well in India. Going forward, there will be more changes in the market. As of now, there is just one product in this market?rupee/dollar. There should be more products coming by,? he said.
Meanwhile, total volumes in the recently opened BSE currency futures market stood at 15,506. India?s newest currency derivatives exchange, MCX Stock Exchange, also went live on Tuesday. On the very first day, 59,952 contracts each valuing $ 1,000 were traded.