Indian Central Bank Allows Overseas Investors to Hedge FX Risk

The Reserve Bank of India has granted QFI’s permission to hedge currency risk resulting from their investment in India’s equity and

The Reserve Bank of India has granted QFI’s permission to hedge currency risk resulting from their investment in India’s equity and debt markets.

Since the global economic crisis Indian equity markets have suffered, the government recently went on a tour to lure in individual investors to boost markets. The RBI made changes to the FII laws by introducing a new law allowing overseas individuals to invest in the Indian markets. The Qualified Foreign Investors (QFI) includes HNW individuals, trusts and companies who are interested to invest and take exposure in India, they can invest up to $1 billion.

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India’s financial markets have been closed off to foreign investors. Only Foreign Institutional Investors (FII) were allowed to invest in the nation once approval was granted by SEBI the financial regulator. FII’s include; pension funds, mutual funds, insurance companies, university funds and others.

The India rupee has been the worst performing currency from the BRIC nations weakening by 10% over the last year, in addition to the domestic market suffering from commodity price spikes the economy has been facing problems.

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The Indian Rupee is trading at 55.52 against the greenback.

Currency risk arises as QFIs are allowed to invest in rupee-denominated units of domestic mutual fund schemes and listed equity shares.

A QFI is an individual, group or association resident in a foreign country that is compliant with Financial Action Task Force (FATF) standards.  Both QFI’s and FII’s have to register with SEBI.

India is one of the fastest growing economies of the world, with economic growth above 5% since the last 6 years. It has two major stocks exchanges and four commodity exchanges. Daily trade volume in NSE, the largest stock market is valued at $3 billion. India recently introduced currency futures (2008) for hedging purposes, INR based contracts can be traded with dollar, pound, euro and yen.

At the much awaited Forex Magnates summit 2012 panelists will be discussing the FX markets from a regional perspective, India is an exciting market for FX brokers, there are over 20 million retail investors participating in the local stock market. The RBI has made investments in margin products difficult for resident Indians with overseas companies.

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