Even as India is trying hard to get back the equity market derivative volumes it lost to the Singapore bourse SGX, Hong Kong Futures Exchange (HKEX) is now opening a new front.
On January 16, HKEX will relaunch derivative contracts of MSCI India index with new features. Experts say this could become another catalyst for foreign money to trade in Indian markets outside the country.
The amount of funds that foreign portfolio investors (FPIs) pump into any country is directly dependent on the MSCI indices, which caters to more than $ 16 trillion worth of equity assets under management (AUM) of the global fund industry.
Therefore, the MSCI India index is a benchmark for the FPIs that want to take a bet on the country and over $300 billion worth of AUM is linked to it. The index covers over 85 percent of India’s underlying stock market with most major large and small cap stocks as its constituents. Often it is noticed that mere news of inclusion and exclusion of stocks into the MSCI index can rattle Indian markets.
“Everybody realises that foreign funds have tasted blood with Singapore Nifty and India has been ineffective in halting it. Hence, it is a roaring move by Hong Kong to re-launch derivative contracts on the MSCI India index. China, which fully controls Hong Kong now, is sharpening its knife. If the contract specifications of MSCI index suit the foreign funds then it would be a nightmare for Indian markets,” said a manager with one of the largest India centric funds.
HKEX will trade the India theme index for 16 hours a day with only one new year holiday and it has restructured all parameters including block trade volume threshold, contract multiplier, minimum fluctuation and position limits of the MSCI India (USD) Index Futures Contract, the exchange said.
The view among fund managers is that everybody tracks MSCI indices and if there is a derivative contract on the index that takes away the tax hassle and also provides them a perfect legal veil to keep their flows hidden, it would be a big draw.
Much of the survival for exchanges like HK and Singapore is due to their laissez faire policy of not seeking to know the ultimate beneficiary of the funds that invest in their jurisdictions. Also, the HK MSCI index may turn out to be an alternative for Chinese funds to bet on India, since they have been facing a clampdown by the Indian government for a long time now, experts say.
On several occasions it was seen that SGX Nifty volumes and open interest was more than the Mumbai markets, which effectively meant that FPI were deciding the direction of Indian markets outside the country.