Around 27.49 lakh rupee-dollar derivative contracts were traded on National Stock Exchange, followed by 14.44 lakh contracts on the BSE, and another 4.69 lakh contracts on Metropolitan Stock Exchange
As rupee-US dollar exchange rate continues to fluctuate wildly, India Inc is rushing to exchange traded currency derivatives market to cover up their positions and save on margins.
On Thursday, when the currency market remained highly volatile with rupee depreciating to Rs 64.23 per dollar, around 27.49 lakh contracts were traded on National Stock Exchange (NSE), followed by 14.44 lakh contracts on the BSE, and another 4.69 lakh contracts on Metropolitan Stock Exchange of India (formerly MCX Stock Exchange).
Sources at NSE, which handles over 50-55% of the currency derivatives trades in India, said there has been a substantial spurt in the USDINR futures and it has become the most traded currency pair. "Corporate groups and banks contribute to the increasing open interest at the exchange." In USDINR futures, the open interest has almost at 41 lakh contracts outstanding at NSE," according to the stock exchange.
"While the open interest has gone up thrice in last one year, the open interest to volume ratio has also doubled in USDINR futures," said an NSE official.
Several Indian exporters and importers, having an exposure to the dollar, are hedging their positions partly or fully on stock exchanges these days.
Girish R, AVP- finance, Aptech Ltd, told dna that he uses currency derivatives to hedge his entire positions since they are "very transparent and easy to handle".
"Our requirement varies every month at around $200,000-$300,000, and we depend fully on currency derivatives. At any point of time, NSE has 12 contracts. However, better price discovery is available for the near-term -- around 2-3 months," said Girish.
He believes that the OTC products provided by banks require a lot of documentation, making it cumbersome, and one may need a specialised desk to handle them.
A senior treasury official from Aegis Logistics, which handle LPG imports, said, "We cover all our contracts through stock exchanges and banks. Our monthly requirement goes up to $2 million."
A senior official from the treasury department of Hindalco Industries told dna that he depends heavily on exchange-traded currency derivatives, which, he said, is an excellent tool for risk management.
Navneet Damani, associate vice-president, Motilal Oswal Securities, said the dollar-rupee exchange rate has seen huge volatility in last six months. "It has swung from 62 to 64, and then back to 62, and now falling to around 64.50. Such volatility hits corporate margins badly," said Damani.
According to him, exchange traded currency derivatives provide a hassle-free platform for corporates. "Quotes are freely available. Margins are fixed at 2-3% whereas banks have different margins for different set of players," he said.
Beginning April 1, the Reserve Bank of India (RBI) hiked the limit for domestic entities and Foreign Portfolio Investors to take foreign currency positions in the USD-INR pair on exchange-traded currency derivatives market to $15 million per exchange. The central bank also doubled the limit for domestic importers of goods and services to take hedging positions in currency derivatives to 100% of the higher of the average of their last three years' imports turnover or the previous year's turnover. Further, the RBI also rationalised documentation and other administrative requirements for hedging on the exchange traded currency derivatives markets.
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