Indian poll results boost DGCX rupee futures

June 5, 2014 6:04 pm

The outcome of the Indian general elections has not only impacted the Bombay Stock Exchange (BSE) index, which crossed the 25,000 mark today (Thursday, June 5), but also bourses such as the Dubai Gold and Commodities Exchange (DGCX).

The volumes at DGCX, where Indian Rupee Futures are listed, recorded a robust growth of 24 per cent in May 2014, when compared with April, aggregating 1,017,991 contracts valued at $31.5 billion.

The currency segment was the key driver of the volume growth, trading 923,491 contracts to record a month-on-month increase of 22 per cent. Among the currency pairs, Indian Rupee Futures grew by 25 per cent from last month, trading 809,285 contracts. Mini Indian Rupee Futures traded 105,421 contracts, registering an uptick of four per cent. Volumes on SENSEX futures rose significantly by 206 per cent, trading 35,317 contracts. The contract also recorded its highest daily volume of 7,744 contracts on May 9.

The DGCX SENSEX Futures is a contract based on the S&P BSE SENSEX, the blue-chip stock index of India’s leading bourse, the BSE. Recently co-branded, in partnership with S&P Dow Jones Indices, the SENSEX is considered the most popular gauge of the Indian equity market and has high brand recall among investors.

The SENSEX Index tracks the performance of 30 of the largest and most heavily traded stocks on the BSE. One of the main reasons behind the positive sentiment is the majority mandate given by Indian voters to its nationalist people party, or Bhartiya Janata Party (BJP), which is considered more market friendly than its predecessor, Congress.

India’s corporate world and foreign investors are eyeing the country comprising 1.2 billion people, because the newly elected lawmakers of BJP don’t have to rely on other political representatives in the parliament to pass market-friendly legislations.

Speaking to TRENDS, before the Indian elections, JP Morgan’s Global Head of FX Strategy, Sara Yates, said the international markets, investors and financial services providers view BJP as more business friendly.

In a note after the polls, she says: “After multiple decades of weak governments and worries about corruption, India looks set to be ruled by a single-party government. This is the strongest position Modi [Prime Minister Narendra Modi] could have wished for and, we believe, it gives him the best chance of delivering India’s much-needed reforms.

“When this is added to India’s great demographics, a central bank that is finally getting to grips with inflation, a cheap currency and a much better external position, it is hard not to be more optimistic about India’s future.

We think this will help encourage additional equity and FDI flows into India and potentially help USD-INR break through 58 in the next few months.”

Back in Dubai at DGCX, Gold Futures registered trade of 49,194 contracts, growing by 24 per cent month on month and nine per cent year on year.

Gary Anderson, CEO of DGCX, says: “The heightened trading activity on DGCX, especially with the performance of some of the exchange’s key contracts, such as gold, Indian rupee and the SENSEX, signifies the growing interest from market participants in using our diversified portfolio of derivative products to hedge against unpredictable price movements.

“As part of our strategic product plan, we are continuing to explore the introduction of new futures contracts in emerging market currencies and select commodities.”

Average daily volumes on DGCX grew by 19 per cent from the previous month to trade 46,272 contracts per day. Generally, equities and futures gain momentum in May and June before losing steam during the summer’s lean period (July to August) in the region and, this year, the phenomenon will be more evident, as the Holy Month of Ramadan is expected to begin on June 28 – subject to the sighting of the moon.