NSE to become Market Leader in Marketcap

Riding on superior technology and FII preference, the National Stock Exchange is expected to surpass its older counterpart, the Bombay Stock Exchange, in market capitalization this year for the first time in history.
According to a report by global consultancy Celent, 2009 would be the first year when NSE's market capitalisation is expected to exceed that of BSE.
"NSE is expected to overtake BSE in market capitalization in 2009. Already far ahead in turnover, NSE is expected to further its lead over its older counterpart," the report titled, 'Indian Exchange-Traded Securities: Poised for Further Growth' stated.
NSE's market capitalization stood at Rs 47,01,923 crore at the end of trade on Friday last week, not far behind the Bombay Stock Exchange's valuation of Rs 50,12,966.76 crore, according to data available on the two bourses.
In terms of the relative size of the two main Indian equity markets, NSE has become the exchange of choice, it added.
According to Celent estimates, the market turnover of NSE for 2009 would be more than two times the turnover of BSE. On August 7, NSE turnover in value terms was around Rs 17,650 crore as against BSE's about Rs 5,443 crore.

Foreign Investment

According to the Securities and Exchange Board of India (SEBI), as many as 120 foreign institutional investors (FIIs) have registered in India since the global financial crisis broke out in September, and according to a study by Venture Intelligence, venture capital investments in India grew by 36 per cent to US$ 290 million during July-September 2008. Significantly, investments in the Indian healthcare sector have grown to US$ 450 million in the first six months of this fiscal, compared to US$ 125 million in the same period a year ago, according to a study by Feedback Ventures.

FIIs direct India entry!!

The Securities and Exchange Board of India (Sebi) is working on a policy to allow certain categories of foreign investors to invest in Indian securities markets through the automatic route, without having to register themselves with the regulator, as is the current norm.

The proposed automatic approval will be subject to KYC (know-your customer) requirements being complied by brokers and custodians, through whom foreign investors carry out their transactions.

FIIs such as pension funds, endowment funds, university funds, insurance companies, banks and mutual funds are likely to be among the foreign institutional investors that may be allowed to invest directly in the Indian market, officials familiar with the development told ET.

They said the capital market regulator was deliberating whether to do away with the registration process for any entity. However, the view taken by RBI on this will be crucial in formulating the policy. In the past, the central bank had expressed reservations relating to KYC norms given the threat of money laundering and terror financing.

Currently, even though Sebi does the FII registration, it is the custodians of these investors who ensure that KYC norms are being complied with, and also maintain their own records of transactions.

Sebi has already started discussions with market intermediaries to understand how the FII registration process works in other emerging markets such as South Korea, Taiwan and Singapore. In some of the markets such as South Korea and Taiwan, foreign investors have to just fill an application form and can start trading within two days.

Financial sector regulators are also looking at the issue of distinction between foreign direct investment (FDI) and foreign institutional investment. Their view is that portfolio investment should not be considered for FDI limit since portfolio investors just have trading interests.

Another important move considered by policy makers is to allow any overseas entities, including NRIs (non-resident Indians) and OCBs to invest in the local stock markets, provided they identify themselves under the KYC norms.

“There should be no discrimination between non-resident Indians and other investors...since NRIS are already bringing in so much of foreign exchange remittances into the country,” an official associated with the exercise said.

Currently, NRIs are allowed to invest through different category or schemes such as the Portfolio Investment Schemes — they can pick up to 5% in one company. They can also invest through a broad-based fund, which has at least 20 investors with no investor holding more than 10%.

“Once the restrictions on NRIs are removed, it will enhance the inflow of investments in India substantially,” said a senior official with a law firm involved in the FII registration process.

Following the stock market scam of 2001, investment by NRIs has become more difficult, since overseas corporate bodies or OCBs were banned. The regulator is likely to put out the consultative policy paper for public comments shortly.

Meanwhile, the Sebi board, which will be meeting this week, is likely to discuss the future of regional stock exchanges.

In the recent past, Sebi had appointed a committee to study the future of regional stock exchanges — post-demutualisation under the leadership of G Anantharaman, former Sebi whole-time member. 

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World's largest hedge fund firm now in India

Renaissance Technologies, the world's largest hedge fund firm handling assets worth $35.4 billion (Rs 1,41,600 crore), has received approval from the Securities and Exchange Board of India to operate in the Indian stock markets as a foreign institutional investor.
Renaissance is the latest -- and the biggest -- among several hedge fund players that entered India following a liberal approach taken by the Indian regulator on hedge fund participation in the booming Indian stock market.
Others that recently entered include Vikram Pandit-founded Old Lane, DE Shaw (the world's fifth-largest hedge fund with $29 billion or Rs 1,16,000 crore (Rs 1,160 billion) worth assets) and Och-Ziff Capital Management (the seventh largest with $28.6 billion or Rs 1,14,400 crore (Rs 1,140 billion) in assets), according to the Sebi Web site.
Renaissance, founded by 69-year-old Jim Simons, is based out of Manhattan, the US, and is perhaps the most interesting hedge fund. It has more than 260 employees -- many of them are PhDs and not conventional analysts from management schools.
The hedge fund major's Medallion Fund uses trading algorithms to invest across the world markets.
It returned more than 50 per cent in the first three quarters of 2007, according to a Bloomberg report. It had about $6 billion (Rs 24,000 crore) in assets as of July 1.
Renaissance's returns stand out as the turmoil in the US credit markets and the meltdown in stock prices across the world took a knock on many hedge funds. Bear Stearns, for instance, saw two of its mortgage-related hedge funds falling into bankruptcy.
Others such as Goldman Sachs' Global Alpha Fund, which competes with Renaissance's funds, lost more than 25 per cent in the same period.
The approval, which was given in January, follows efforts by Sebi to get hedge funds and other overseas investors to register and participate directly in the Indian markets instead of through Participatory Notes or P-notes, which are offshore derivative instruments used by investors that are not registered with Sebi to invest in Indian securities.
Sebi had tightened the rules for trading through P-notes in October last year to arrest the surge in foreign inflows.
"It is good. At the end of the day, it is money and Sebi has made the inflow of money into our markets more transparent," said Prabhat Awasthi, head of equity research and managing director (equities) at Lehman Brothers.
According to Hedge Fund.net, which tracks the hedge fund industry, January was tough for hedge funds that have emerging market strategies, though many believed that India and China's fast growing economies could withstand shocks to other parts of the international business system.

Interest rate futures

Sebi set for interest rate futures in Q4
Hedging Tool For Banks To Beat Fluctuations

After successfully commencing currency futures, Sebi now plans to implement interest rate futures in the
fourth quarter of this fiscal. Speaking on the sidelines of a programme organised by Merchants Chamber of
Commerce on Tuesday, Sebi chairman C B Bhave said an RBI-Sebi joint committee is working out the modalities for this and would submit its recommendations soon.
Bhave said it would take lesser time to implement interest rate futures compared to currency futures. “We started working on currency futures in March and finally implemented it on NSE in August-end. But, we have gained experience through this and so interest rate futures will not take that much time,’’ he said. Interest rate futures help banks and FIs to hedge during interest rate fluctuations.
The Sebi chief said the regulator would examine the possibility of introducing more currencies like euro in the futures platform. “Now, it is only rupee and dollar in currency futures. Later, we could see more hard currencies.
NRIs and FIIs too can be allowed on this platform,’’ he added.
Stressing the need for more co-operation between regulators, Bhave said products like interest rate futures
involves two regulators—RBI and Sebi. “In future too, there should be more co-operation for new products.
Otherwise, new product launches will be delayed,’’ he said. Bhave said Sebi would introduce a pilot project for small investors called Applications Supported by Blocked Amount (ASBA) on September 8.
The project would be kicked off with the IPO of 20 Microns. Sebi has roped in five banks for this purpose—ICICI Bank, HDFC Bank, Corporation Bank, Union Bank and SBI.
Under the scheme, small investors don’t have to pay anything along with IPO applications. The bank where an investor has an account will block the amount for the time being. Only if the share is allotted, would the money be transferred from the account.
Commenting on self-regulatory organisations (SROs), Bhave said intermediary organisations are not keen to
become SROs. “We need a change of mindset,’’ he added.