Morgan Stanley Investment Management is considering derivatives trading as part is global investment strategy, said Narayan Ramchandran, managing director, Morgan Stanley Investment Management.
"We are considering the option of trading in derivatives mainly for cash flow management and not for speculation or hedging," he said.
"In a scenario where fast churning of cash is the call of the day, it becomes difficult to take views for a slightly longer terms and also churn the cash. The mandates for funds were taken in early nineties do not provide for trading in derivative products as we have been offering cash asset products," he said.
Morgan Stanley's about 65-70 per cent investments are in the equity products, 15-20 per cent in debt and bond, about 10 per cent in real assets. Morgan Stanley has invested in India about $1 billion since early nineties when foreign funds were given permission to invest in India.
In India derivatives products were launched in June 2000 and currently futures and options are traded on S&P CNX Nifty, Sensex and 30 individual stocks. Nifty is also traded on the Singapore Exchange.
The US-based funds cannot invest in futures and options of any product including financial products unless approved by Commodities Futures Trading Commission (CFTC). However, offshore funds can invest without this rider.
Commenting on India as a destination for foreign funds, he said that the country had a wide basket of financial products and can be a constructive asset as it gives options to investors.
"India provides a variety of sectors to invest in, it has good services, manufacturing, pharmaceuticals, consumer goods, infrastructure, banking and financial sectors. Along with having good investment opportunities in diverse sectors, India also has futures and options which is certainly conducive to the entry of foreign funds with an eye on in emerging markets."
However, for better attraction of foreign funds, India needs to increase market capitalisation so that the P/E of the market as a whole improves, he said.
"It is similar to the sovereign rating block. Even if a company has a very attractive PE, it will not draw more funds if the entire market does not provide a higher PE than its peers," he said.
India has been marginalised over the past year in terms of its share in weightage in the emerging markets indices, Ramachandran said.
"There are investors who are shifting to emerging markets as the recovery in the US economy is not clear and also the deflation scenario, which is worse for equity markets than high inflation, is taking a toll on sentiment. In the US the savings rate had gone negative and the worries are to bring it above 2 per cent. In a scenario of deflation there are no chances of companies doing well and therefore the stocks," Ramachandran said.
"The anemic growth environment in the US is luring the investors to emerging markets like Korea," he added.
