A slew of new products, giving investors multiple investment avenues, is set to hit the capital market by the end of the year. In the pipeline is futures trading of India’s volatility index (VIX) enabling investors to hedge market volatility as well as launch of overseas equity indices like S&P 500, Dow Jones Industrial Average (DJIA) and FTSE 100, in rupee terms, that will give local investors exposure to overseas market, without the risk of exchange rates. Amongst other are currency options contracts, an SME exchange and a ?call auction? system, which is expected to reduce volatility during the opening session of the market.
Next week, stock exchanges will launch what?s called a ?call auction? in the pre- opening session. The system, prevalent in overseas exchanges like Nasdaq, NYSE and LSE, will receive and match trade orders during the pre-opening session to arrive at a single opening price. ?The system will reduce the high gap-up and gap-down opening of equity indices and individual stocks. This will take into account both price and quantity,? said Manasije Mishra, MD and CEO of HSBC InvestDirect. ?Currently, customers push a large number of orders at different price levels in the first few seconds of market opening which results in high volatility,? he explained.
On the other hand, the introduction of overseas equity indices in rupee values will help domestic investors to diversify their portfolio beyond Indian borders without having the need to expose them to currency risk. ?If these overseas indices were available during 2008, when Lehman Brothers collapsed, domestic investors could have gone short on them to hedge their local portfolio since the development was hurting the US markets more than anyone else,? said Shashank Khade, head- PMS, Kotak Securities.
NSE has already tied up with Chicago Mercantile Exchange (CME) for bringing S&P 500 and Dow Jones while it has partnered with London Stock Exchange (LSE) for introducing FTSE 100. Bombay Stock Exchange (BSE) too is also keen on exploring listing of overseas products once Sebi comes out with detailed regulatory framework, which is expected shortly.
Further, in order to provide investors an effective hedging tool against volatility, NSE is planning to introduce futures trading in India?s Volatility Index (VIX) once it receives the regulators final nod. The exchange has already started providing live feeds on volatility index (VIX) on a real time basis. VIX is a measure of expected market volatility and futures trading in VIX will give investors an additional tool to take a call on the expected volatility.
While these products are expected to hit the market soon, Mirae Asset Global CEO Arindam Ghosh feels that initially these new products will find favour with only institutional and high net-worth investors. ?Introduction of these products should be backed with adequate awareness programme to make it popular among retail investors,? he said.