'NSE-CME cross-listing pact good for diverse portfolio'

Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 01/06/12 Are Mutual Funds betting on Nifty?

Q Any concerns of exports of our capital market volumes because the NSE got a bit edgy when the SGX volumes started increasing a few months back and some believed that the early morning extension was partly to arrest that? When you start trading in dollars to the Nifty product in the US, do you think it might obviate the need for a lot of global investors from those markets to participate in the Nifty futures or either hedging or taking directional bets? Can it take away from the Nifty futures volumes for a lot of FII clients?

Shah: Theoretically, yes but our belief is basically because of the fact that you have more and more players coming in and buying into the Nifty futures outside of the country, the guys who are providing that liquidity will have to come and hedge themselves in our market and the only market in which they can hedge themselves is India. If you look at what happened at Tokyo and Singapore, the futures started off in Singapore and the volumes went up, but as soon as Tokyo started doing futures in Tokyo itself the volumes came back and increased on both exchanges.

We believe that the volumes will grow in the US market but the commensurate increase will happen in the Indian market because people will have to come and hedge. We think that the market itself will grow substantially.

To answer your question about SGX, the reason why the volume moved to SGX was because of the PE note not being allowed and people not being able to access the Indian market in a sense. So we think when you have open markets in India and in the US the volume in both markets will grow.

Q: What could we be talking about in terms of potential volumes for the Nifty listing overseas because at any given day what the Nifty futures generates, the SGX nifty is really a small margin of that?

Shah: To start with, we have not seen major volumes happening. Our belief is that if you look at the Indian market to or you look at the future volume of about USD 20 billion or thereabouts, I wouldn't be surprised if even the international markets especially the US market trade about USD 5-7 billion and that volume kicking in and increasing or volumes to about USD 30-40 billion in a year or two. I wouldn't be surprised about that.

Q: There are some HNI who already try and invest abroad to the limit of the USD 200,000 which is allowed to them. Due to these new products coming in, the Dow and S&P futures do you think there will be more participation and the comparable products? Are there significant advantages for new products which are coming in versus the old usage of this money?

Bansal: If you look at from the investor point of view, when they consider investing abroad they basically look at two things one is the potential opportunity for the market and also they consider the currency relating to that. Once they get an opportunity to invest in the Dow and the S&P directly, on one hand they are comfortable that the currency what they are comfortable with is already taken care of. So they are investing in rupee for a pure market exposure and not an exposure mixed with currency.

To an extent yes it gives them the comfort of taking a non currency and a pure market bet.

The current restriction of remitting only 200,000 per family per year does not come in the way. So they are able to take a much larger bet on the market than what they are able to do. They would be able to invest in these markets at their own comfort and in their own time zone. This is the greatest comforts the clients look for otherwise they are not so much clued about what's happening but for the fact that they need to track those markets for its impact on the Indian market.

Now I will see possibly a greater interest coming in from the HNI investors to track these markets for the potential these markets have for the clients in its pure form. So I believe this is going to help investors get better integration with the global opportunities and this is a step in the right direction.

On the other hand if I look at the Nifty being made available to trade on the US markets, the current challenge of some of these investors not being able to trade in the currency of comfort and in their own time zone would be taken away. We would see a much better participation and I won't be surprised if the impact caused for trading in the market comes down far more significantly than what its today. We would have greater liquidity on both sides.