The Hindu Business Line : FIIs shifting to SGX Nifty

The market melt-down in the June has witnessed traders going into an over-drive to make money on short positions. However, it is not the domestic traders alone who are keen to benefit from the declining prices, the trading volumes on the Nifty futures traded on the Singapore Stock Exchange have recorded their highest monthly turnover in the month of June.

There has been plenty of negative news flow in June with domestic inflation climbing above 11 per cent, Reserve Bank of India hiking the credit reserve ratio and the reverse repo rate and the international crude prices crossing above $140. Resurfacing of the problems stalking the financial stocks in the US and rate hikes by other Central Bankers only added fodder to the fuel.

The trading fraternity has been making the most of these ill-tidings. The futures and options side of the National Stock Exchange that had witnessed lacklustre turnover after October 2007, witnessed a 20 per cent increase in monthly turnover in the month of June.

It may be recalled that in October 2007, the Securities and Exchanges Board of India (SEBI) had banned issue of participatory notes with derivatives as underlying. This had closed the doors for many of the external investors who wished to trade in the Indian derivatives market. The Nifty future traded on the Singapore Stock Exchange (SGX) has provided the route for such external investors to take a call on the Indian stock price movement.

Monthly volumes

The monthly volumes in SGX Nifty were languishing at less than 20000 contracts prior to October 2007. Post the P-notes decree, the volume jumped to almost 30000 in November 2007. This instrument appears to be gaining in popularity as the adjacent table shows. The June monthly volume of this instrument has risen almost 45 per cent over May.

This increase is clearly reflective of the fact that FIIs and hedge funds were taking a directional call on the Indian markets, betting that the markets would decline based on the concerns listed above. The over-20 per cent jump in the open interest at the end of June too denotes that the external investors are willing to retain the short positions initiated at higher levels.

Daily volumes

Though the daily volumes of the SGX Nifty is not high enough to influence the pricing in the domestic markets, since the trading in this instrument starts earlier than the domestic Nifty futures due to the time difference between the two countries, traders do look at the level at which the SGX Nifty is trading prior to market opening, to give them clues regarding the Nifty’s opening level in India.

The Sensex futures traded on the U.S. Futures Exchange has not yet caught the external traders’ fancy; the daily traded volume on this instrument is less than 200 contracts. Lack of liquidity in Sensex futures and options in domestic exchanges could be reason why this instrument has not taken off.

More Stories on : Foreign Institutional Investors | Stock Exchanges

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page