Marketmen reaction was mixed to the RBI allowing foreign institutional investors to hedge their currency risk by using exchange traded currency futures in the domestic exchanges.
While some welcomed the long-pending decision as a positive measure to add to market depth and liquidity and reduce cost of trading, others dubbed it as a non-event given the range-bound outlook on the rupee price and the limited share of currency trading in the overall capital market in India.
Announced by the Finance Minister in his Budget speech for 2013-14, this move permits FIIs to participate in the currency derivatives segment of the exchanges to the extent of their rupee-denominated exposure in the country.
“In line with this announcement, it is proposed to allow FIIs to hedge their currency risk by using exchange traded currency futures in the domestic exchanges. Draft guidelines will be issued by end-July 2013,” said the RBI in its Monetary Policy statement 2013-14.
According to Savio Shetty, Research Analyst — Institutional Equity Derivatives, Prabhudas Lilladher, the operationalisation of the idea is a step in the right direction as it signals that RBI has realised that India needs a fully developed market for currency derivatives.
“We cannot have an efficient and developed market where we allow FIIs to invest in underlying assets and not its derivative or futures market,” he added.