Forex Trading – Insights And Challenges In The Current Indian Financial Market Scenario

Forex (FX) has established itself as an exciting avenue for trading by seasoned investors, especially with a conducive environment, regulatory policy setup, and a favourable market outlook. To understand the FX trading scenario in the Indian market in detail, MoneyControl, in partnership with Refinitiv, organized a webinar on “Insights and Challenges of Forex Trading” as a part of the series on “Headwinds and Tailwinds: Navigating Indian Financial Markets”. A distinguished set of panelists comprising Sankara Sambasivan, Proposition Sales Manager, Refinitiv; Bhaskar Panda, Senior Vice- President HDFC Bank and Brejesh Chalill, Head of Treasury Markets and Sales, Axis Bank deliberated on the current FX trading scenario and the challenges ahead.

Fed Tapering: Impact on INR?

The webinar kickstarted with a discussion on the outlook for the Indian currency. Sankara observed that the recent Fed Tapering would negatively impact the Indian Rupee in the near term, with supply chain constraints further depreciating the currency. Brejesh seconded Sankara and viewed an upside risk in Indian Rupee (INR) performance vis-à-vis US Dollar (USD) due to Fed tapering, oil shock, and supply-side issues induced due to pandemic. Bhaskar recounted how a 2013 instance of Fed tapering unleashed an economic tsunami across economies, impacting currencies worldwide, including the INR. But this time around, he viewed the Indian economy as structurally different and better equipped to handle the latest Fed tapering. He also ruled out a “runaway depreciation”, considering the favourable Balance of Payments (BoP) and Current Account Deficit (CAD) scenario.

COVID and asset classes performance

The panel also discussed the performance of various asset classes in the last 8-12 months, as seen from the prism of a post-pandemic scenario. Brejesh opined on the current outlook as a high liquidity scenario, leading to stock market rush, private-equity valuations, and unicorn setups. In terms of currency outlook, he voted for a bullish INR in the short-to-mid-term, with inflation impacting growth in the longer term. Sankara held that a depreciating rupee is always better for an export economy, though the year-on-year BoP would fall due to unfavourable trade but still stay in positive territory. Bhaskar held that the current FX reserve surplus is good enough to handle any economic shocks.

On the impact of fragmentation of FX liquidity across multiple avenues, Brejesh opined that in the post-pandemic era, there is a common realisation across the board about the potential of digital transformation. Though digital fragmentation might take time to settle down, he hoped that markets would consolidate and give rise to more liquid assets. He also highlighted the role of Fintech companies in ushering in an era of convenience, with banks acting as compliance partners.

Taking the cue forward on the technology landscape, Sankara explained how cryptocurrencies could facilitate a conducive environment to adopt newer technologies through collaborative partnerships with market stakeholders. Brejesh added that regulated crypto markets are the way forward in India, with many investing actively and considering cryptocurrency as a valuable asset category.

GIFT – a boon for FX

Concerning the impacts of Gujarat International Finance Tec-City (GIFT) city operations on FX markets, Sankara considered GIFT to be a stepping-stone towards enabling India as a capital account convertible economy, contributing significantly towards arbitrage between onshore-offshore trading and lowering currency volatility. Brejesh emphasized that GIFT was a proactive step by RBI in ensuring stability to the currency market, bringing alignment through Non-Deliverable Forwards (NDFs) and wished it to become a pool of liquidity in the future, with participation from all stakeholders across markets.

In terms of technology’s impact on FX workflows, Sankara batted for better operational efficiency due to price aggregation by bringing different avenues together using technology. Brejesh rounded off the insightful discussion on a positive note that all the stakeholders are on the right path of undertaking the digital transformation required for a digital FX market.