NDF volumes take wing

Punting by Indian banks on yuan revaluation lends momentum

Dollar-rupee denominated volumes in the South East Asian derivative market "" popularly known as the non-deliverable forward (NDF) market "" has shot up to $400 million due to speculative positions being taken by Indian banks on expectations of Chinese yuan revaluation.

According to foreign exchange dealers, positions are being taken by banks and corporates which have exposures in the South East Asian markets.

This is because with the underlying exposure, they are buying forward dollars at a premium of 43.50 for three-month forwards in the NDF market. In Indian market, they are reselling forward dollars and receiving a higher premia of 43.60.

Similarly, six-month forwards are trading at 43.60 in the NDF market and fetching 43.76 in the Indian market.

Explaining the logic, a dealer said while the South East markets have already factored in the yuan revaluation, the Indian market is yet to price in the impact fully. Therefore, the arbitrage opportunities are leading to brisk trades in the NDF market.

The RBI is keeping a close tab on the NDF market indirectly through checks and queries, said a dealer.

These markets referred to as NDF exist in Hong Kong, Taiwan and Singapore where forward dollars for any maturity is available at a premium compared to the value in the Indian spot market. Unlike the Indian market, deals are settled on net basis and not based on actual delivery.

Meanwhile, the Indian corporate bond market witnessed volumes worth Rs 200-300 crore following the restoration of stamp duty charges on corporate bond deals on a par with government securities by the Maharashtra government.

The government on May 10 raised the stamp duty charges to one paise for Rs 100 deal which got reversed to 0.05 paise for Rs 100 deal on Thursday. The volume in the corporate bonds market has dried up over the last two days.