Investors eye markets abroad

Lucknow-based Saurabh Mohan, 30, invests in the indices of Nasdaq, Nikkei and Dow Jones. He also bets on the movements of currencies such as the euro, the pound and the yen.

A former merchant navy officer, Mohan has been making these investments for the past two months, thanks to Reliance Money. His initial investment kitty of $2,000 has gone up to $3,200 in this period.

Vishal Shah, 28, has a silver shop on Breach Candy Road, Mumbai. He started trading silver on the New York Mercantile Exchange (Nymex) in January this year. His paltry investment kitty of $1,100 has brought him a return of $2,300 in less than three months, an annual return of nearly 450 per cent.

The two represent a growing breed of young Indian investors who are making good money by trading in overseas stocks and commodities. Ask them and they will tell you that they prefer foreign markets owing to comparatively lower margins than Indian exchanges.

One can trade in any commodity on Nymex with only a 1 per cent margin. The rate goes up 5 per cent for trading in foreign stock indices and 3 per cent on crude oil. Still, this is considerably lower than the 20 per cent margin one has to pay to trade in futures and options in Mumbai.

With the Reserve Bank of India (RBI) allowing a resident Indian to invest up to $50,000 a year, industry experts expect several domestic brokerage houses to tie up with international brokerage houses and offer trading facilities on international stock exchanges such as London, New York, and Nasdaq.

For instance, ICICI Direct is learnt to be in talks with a triple-A rated US firm for offering Indian investors international products. R-Money has tied up with CMC Capital Plc to offer offshore investment products to Indian consumers, while IL&FS Investsmart, in which US-based E*Trade has a controlling stake, is well placed to offer an international trading facility to its Indian clients.

"I know of some friends who use E*Trade's online trading platform to trade in the US markets. Till now, our markets were giving phenomenal returns and hence there was no major interest. Now, there is a feeling that international stocks could give better returns," said Vipul Shah, vice-president of IL&FS Investsmart.

C J George, managing director of Geojit Financial Services, said the brokerage outfit was ready to offer all the international markets to Indian investors through its joint venture partner BNP Paribas.

"BNP Paribas is a member in all the major international markets. We can offer these platforms when the RBI allows us to market products for Indian investors," he said.

"The RBI allows $50,000 per individual per year. We are looking at a potential $2,00,000 worth of investments for a family of four. This is no small amount," he added.

An investor who plans to trade on international products will have to register with these outfits. Typically, investors transfer an amount up to $50,000 into their trading account.

"Investors normally trade in crude, gold and in foreign exchange. International markets allow investors to take exposure up to 400 times. Since a movement of one dollar results in Rs 45, many opt for a high degree of speculation," said an executive at one of the outfits that offers global forex trading in India.

---

WIDER HORIZONS

THE PROCESS: An investor is required to register with an international brokerage house via the internet. He will, in turn, be given a trading account and password. Investors can start trading after they transfer up to $50,000 a year into their trading account.

ADVANTAGE: The main attraction of trading in overseas markets is the leverage an investor can take. Industry officials say most markets accept traders taking exposure of about 400 times. Though risky, many speculative investors are trying their luck.

WHY IT IS NOT PICKING UP: There are risks associated with the guarantee of your money. It is safer if you route the trading through a domestic entity that has a tie-up with an overseas company. Also, officials of domestic brokerage houses say the RBI is yet to allow them to directly market international products for Indian investors.