Long-duration contracts soon

Long-duration products will be made available in the Indian markets soon, encouraging investors and stock traders to take six-month and even one-year calls in the derivatives market.

The new products, which will help investors in taking long-term directional calls on the Indian markets, will form a part of an expert committee's recommendations to the Securities and Exchange Board of India (Sebi) in the coming weeks, according to sources.

FUTURE PERFECT

The new products will form a part of an expert committee's recommendations to Sebi in the coming weeks

Currently, NSE, which has near monopoly in the futures and options (F&O) segment, offers only one-, two- and three-month contracts for over 200 stocks and in its Nifty and other popular indices

Trading in derivatives in India, which started in June 2000 with the launch of futures trading on NSE's Nifty index, is now second only to Korea in Asia in terms of turnover

"We are looking at all kinds of products, including long-duration contracts in the derivatives segment. We will submit our interim report to Sebi in the next two to three weeks," said M Rammohan Rao, the dean of the Indian School of Business, Hyderabad, who heads Sebi's Derivatives Market Review Committee.

Currently, the National Stock Exchange, which has near monopoly in the futures and options (F&O) segment, offers only one-, two- and three-month contracts for over 200 stocks and in its Nifty and other popular indices.

But currently, only the near-month contracts are popular, while the two- and three-month (or far month) contracts are yet to attract significant volumes.

Derivatives analysts reckon that the introduction of six-month and one-year products will activate the two- and three-month contracts.

Trading in derivatives in India, which commenced in June 2000 with the launch of futures trading on NSE's Nifty index, is now second only to Korea in Asia in terms of turnover. The average turnover in NSE's F&O segment stands at over Rs 71,000 crore-plus.

Following the curbs on participatory notes (P-notes), which have virtually put an end to sales of synthetic products outside India by foreign institutional investors, Sebi may also allow the introduction of such sophisticated products onshore itself, according to sources.

The launch of LEAPS (Long-term Equity Anticipation Securities), which allows investors to make a long-term option investment, is under consideration for India debut.

Typically, the contract duration for LEAPS is six months to a year. LEAPS are traded like normal options, but allow investors to benefit from the appreciation of equities while placing a lot less money at risk than is required to purchase stocks, according to an analyst of a local brokerage outfit.

Other products that are likely to find mention, according to sources, include index-linked deposit schemes, structured notes and call warrants.

"There are institutional investors who would want to buy these sophisticated products. It is likely that only foreign investors may find these products attractive, to begin with," said an analyst.

NSE Managing Director Ravi Narain, speaking at an investors' conference recently, said Indian investors had lapped up its derivative products first, well before FIIs entered the segment. It is likely that in the proposed new products too, domestic investors would show interest first, ahead of the FIIs.