Mumbai: Capital will always find the way,” notes Rajiv Malik, the Singapore-based executive director of Asia economic research at JPMorgan Chase & Co., adding that the Indian financial market regulator’s efforts to reduce capital inflow into the country will not really damp inflows or dent the global investor’s appetite for Indian securities.
Interestingly, the industry seems to have found a way to bridge investor demand and the decision of the Indian equity market regulator Securities and Exchange Board of India (Sebi) to ban fresh positions on Indian stock orindex derivatives through participatory notes (PNs), a product popular with high networth individuals and unregulated funds outside India, which are not registered as foreign institutional investors (FIIs) with the Indian regulator.
Sensex, the representative index of Indian stocks, will be available for futures trade on US Futures Exchange (USFE), a Chicago-based entity that offers specialized products for retail, hedge funds and institutional customers, starting22 February. USFE is 49% owned by MF Global Ltd, the US-based financial services firm. MF Global Sify Securities India Pvt. Ltd, the Indian arm of MF Global, is among the top brokerages in India in the derivative segment.
“Sensex futures available for trade on USFE is of strategic importance,” agrees KevinDavis, chief executive ofMF Global Ltd. “Many priority clients in the US, who are not registered investors in India, can now take derivative positions on the popular Indian benchmark index without having to go through the process of registering as an FII.”
Sebi had banned foreign investors from taking fresh derivative positions through PNs. However, it has given an 18-month period to unwind the current positions.
“This (Sensex futures on USFE) would help substitute the lack of fresh derivative buying opportunity in Indiafor many clients, while also serving as a base for a larger pool of potential investors,” says Vineet Bhatnagar, managing director and chief executive of MF Global Sify Securities India.
USFE is newest among the 10-odd commodities and futures trading platforms that are regulated by the Commodity Futures Trading Commission, an independent agency of the US federal government.
“The US investor is under-invested in India,” says Satish Nandapurkar, chief executive of USFE.
“There is huge demand for Indian products among US investors. With Sensex now available for trade on USFE, this need will be met.”
Sensex is the only benchmark index of a country that will be listed on USFE. Two other similar products, which are currently available, are exchange-traded funds based on the Morgan Stanley Capital International Brazil index and the FTSE China index.