India's economic growth plunging to a nine-year low in the quarter to March may have come as a big shock to many last week.
Now, data relating to equities and currencies shows the country's financial markets too are being exported as investors increasingly trade in Indian assets in overseas markets against the backdrop of retrospective taxation measures, policy paralysis and uncertainty.
Since April this year, a little after Pranab Mukherjee unveiled his budget that proposed a raft of tax measures, including retrospectively taxing indirect transfers, trading volumes in American Depositary Receipts (ADRs), which represent stocks of some of India's top companies such as Infosys, HDFC Bankand Dr Reddy's Laboratories (DRL), have spurted and in some cases are higher than volumes of such stocks on Indian exchanges.
Traded value of Infosys ADRs was as high as 154.93% of the total traded value of the stock in Indian markets at the end of May while it was 92% in the case of DRL, 88.43% for ICICI Bank and 85% for Tata Motors.
Since mid-March through Mayend, open interest of Nifty futures traded in Singapore has increased 26% to 3,49,666 contracts while that of Nifty futures in the local market has fallen by a similar extent to 5,08,193.
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Open interest is the outstanding position of traders and indicates the amount of money flowing into a market.
Nifty is India's premier stock market index while futures on the index facilitate its sale or purchase at a preset price on a future date.
The higher interest in Nifty traded on Singapore's SGX has been at the cost of Indian markets, which have seen a flight of foreign investors ever since the General Anti-Avoidance Rules (GAAR) to tax indirect transfers of Indian assets overseas were introduced in this year's budget.
A similar story is playing out on the currency trading front. Volumes in offshore, unregulated deals, known as non-deliverable forwards, or NDF, have also been on the rise.
The Bank for International Settlements estimating the trade at 50% of the total offshore and onshore volumes.Rupee volumes too have surged on the Dubai Gold & Commodities Exchange (DGCX), whose share of overall exchange-traded futures, including NSE, MCX Stock Exchange, United Stock Exchange and Bahrain Financial Exchange, in dollar-rupee contracts has jumped three-folds to 16% from the year-ago level against a 5-8 percentage point jump in NSE and MCX-SX volumes over the same period. (curtsey: economic times)
Rupesh Yatesh Dalal
Head Research Department
Head Research Department
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