Bombay exchange branches out

Volume started off low - but is expected to pick up

By Sanjeev Srivastava in Bombay

Indian stock markets took a step forward on Friday with the introduction of derivatives trading in the form of the Bombay Stock Exchange (BSE) index futures.

Futures trading will also commence on the rival National Stock Exchange on Monday.

No more than 100 trades were registered in index futures on day one.

"Its a big event because it is giving investors an opportunity to go for medium to long term hedging

BSE President Anand Rathi

The beginning may have been modest - but analysts say the move is likely to catch on as it provides a hedging instrument to investors against excessive volatility in the markets.

Initially, the exchange approved trading in contracts valid for the next three months - only ie contracts up to 9 August could be traded today.

On the opening day, the BSE index futures traded at 4800, 4825 and 4700 level for August, July and June respectively.

According to Anand Rathi, president of the BSE, the introduction of index futures marks a milestone for Indian capital markets.

'Markets maturing'

"It is a big event because it is giving investors an opportunity to go for medium to long-term hedging.

Anand Rathi: A big event for Indian markets

"They can buy or sell the index futures and hedge against their present holding. It also signals a maturing of the Indian capital markets and provides an opportunity to investors to hedge their portfolios."

Indian markets, which have recently witnessed volatile swings in the share prices of technology companies, are characterised by a great deal of speculation.

According to analysts, trading in index futures should help investors take a look on the country's macroeconomic numbers and the market as a whole, rather than concentrating on just some individual stocks.

Ramesh Damani, investment analysts and BSE broker, says futures trading is a very easy instrument for both the retail investors and speculators.

"In one quantum leap, we join the more developed world financial markets," says Damani.

Low volumes

He is also not unduly perturbed about the low volumes on day one of the futures trading.

"Once Indians get used to the concept of futures trading and come to grips with how this instrument can be used by every section of the market - speculator, hedger as well as those who want to do arbitrage trades - the volumes here will also go up sharply."

Volumes are usually brisk in the Indian cash markets with an average of about 80m trades every day.

Analysts expect the futures market to touch the 100,000 mark by the end of this year.