Singapore Exchange (SGX) Nifty Index Futures’ volume for the first quarter surged over 30% compared to the same period last year. At the same time, SGX INR/USD currency futures achieved a record daily volume of 32,055 contracts traded (over US$1 billion in notional turnover) on 8 April.
The Organisation for Economic Co-operation and Development (OECD) forecasts growth of over 7% for India, making it the fastest-growing economy in the world. The Indian government has vowed to raise exports to boost jobs growth.
India’s retail investors are starting to get back into the stock market via the mutual funds route.
Modi Gathers Garlands of Approval
In a sign of affirmation for Prime Minister Narendra Modi's leadership, Moody's ratings revised India's sovereign rating outlook from "stable" to "positive" on 8 April.
The decision to revise the ratings outlook, which is a step closer to an upgrade of the credit rating, is based on a prognosis of improving economic conditions – “there is an increasing probability that actions by policy makers will enhance the country's economic strength and, in turn, the sovereign's financial strength over coming years,” the agency said in its release.
"India's relatively weak business environment and standards of governance, as well as widespread infrastructure bottlenecks, will not change overnight, but there is ample room for improvement," the ratings agency added.
Separately, the OECD on 9 April forecast India’s economic expansion to continue even as growth slows in neighbouring China.
The optimistic assessment is based on OECD’s Composite Leading Indicators (CLIs) that are designed to anticipate turning points in economic activity relative to the prevailing trend.
“CLIs signal growth easing in China and Canada, albeit from relatively high levels. In Brazil and Russia, CLIs point to a loss in growth momentum while in India, the CLI continues to indicate firming growth,” it said in a statement. India’s CLI has been on the rise since October 2014, and touched 99.5 in February this year.
On the basis of new GDP calculation implemented earlier in the year by the Indian government, the nation’s economy is estimated to expand at 7.4% this fiscal year, which would make India the fastest-growing economy in the world.
Exports Cloud Growth Outlook
Despite positive growth projections, India’s falling exports could be a cause for concern.
India's exports in 2015 fell for the second time in three years, declining 1.23% year-on-year or US$4 billion. Market analysts have said the rupee must be eased to more competitive levels if ambitious targets for India’s growth in manufacturing are to be achieved.
In nominal terms, the rupee has gained against other majors such as the euro and the pound sterling since the start of the year.
Chart 1: India Merchandise Exports Data
The Indian government vowed to double the country's exports to US$900 billion in the next five years as part of Prime Minister Narendra Modi's plans to boost the economy and provide more jobs for the growing population.
Commerce Minister Nirmala Sitharaman said “the government wants to increase India's share of global trade volume from the current 2% to 3.5%”.
Critics, on the other hand, have expressed doubts on the viability of the target, warning that the government would first have to tackle corruption, unreliable power supplies, and the country's run-down infrastructure.
Two years ago, India’s export story looked convincing. Merchandise exports grew at a healthy annual average growth rate of 22% in the five years preceding the Lehman crisis. However, India’s export growth stalled in 2013 and dipped in 2014.
India’s Stock Market Revives
Since the start of the year, the CNX Nifty Index has delivered 6.66% (13 April) or 8.05% returns in US dollar terms. Stock market turnover has also increased gradually.
On the other hand, there are fresh signs that retail investors, who almost gave up on equity participation after the 2008 financial crisis, are dipping their toes into the bourses via the mutual funds.
“India's equity market remains a foreign show with US$335 billion current foreign ownership, 23% stake in top 500 companies with ongoing flows to match," Citigroup said in a report.
"But with domestic Mutual Fund flows beginning to match foreign flows (US$6m), a possible bottoming in insurance outflows, and equities rising in retail saver Mutual Fund wallets (over 50%), we see a domestic dawn...in a foreign landscape," the report added.
Chart 2: India Stock Market Turnover
SGX’s India-related products saw larger trading interest in the first three months of 2015.
Volume for the SGX Nifty Index Futures has vastly surpassed 2014’s, growing by over 30% year-on-year, corresponding to the 30% rise in the index.
Concurrently, the SGX INR/USD futures contract achieved a new record daily volume of 32,055 contracts on 8 April, representing over US$1 billion in notional trading turnover. Tighter futures bid-ask spreads averaging less than the equivalent of 0.5 NDF pips have contributed to the surge in trading activity, culminating in a record total monthly volume of 216,215 contracts traded in March 2015, which is more than 20 times the volume a year earlier and up 15% month-on-month.
Chart 3: Monthly Performance and Volume of SGX CNX Nifty Index Futures
Chart 4: Monthly Volume Performance of SGX INR/USD Futures
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