Now, you can trade in the futures of BRICS's economies

The country's oldest stock exchange, BSE, today launched trading in equity index derivatives of these countries enabling Indian investors to bet on their economies that - including India's - accounted for 20 per cent of global gross domestic product in 2010.

For instance, Indian investors can now buy or sell futures contracts listed on Brazil's IBOVESPA Index, Hong Kong's HANG SENG Index Futures contracts (Hong Kong is a part of China), Russia's MICEX (Moscow Interbank Currency Index) and South Africa's JSE (Johannesburg Stock Exchange) Top 40 Index Futures contracts in Indian rupees.

The event was attended by Madhu Kannan, MD & CEO, BSE, Josal Luis Pellegrino, consul general, Brazil, Zhukov Prokhor, consul, Russian Federation, Qingbao Niu, consul general, People's Republic of China, Pule Malefane, consul general, Republic of South Africa and Rajeev Agarwal, whole-time SEBI member.

Rediff.com's Prasanna D Zore spoke to V Balasubramaniam, chief business officer, Bombay Stock Exchange on what this means to Indian investors on the sidelines of the opening bell of these futures contract.

How will BRICSmart work?

Trading in BRICSmart will work exactly the way trading in Indian futures work. BRICSmart will have different expiry periods just like we have. Obviously the expiry cycles on these products will be based on the settlement cycles in their home markets. For example, if there is a Chinese New Year holiday, the Hang Seng Index Future will not trade and we will ensure that our settlement for that particular product doesn't take place on that day.

In a way, the settlement of BRICSmart futures products is aligned with the settlement in their home stock markets.

That's the only difference and from all other perspective these futures contracts will work exactly the same way. You can buy and settle it on the Bombay Stock Exchange platform and traders will be able to settle it in rupee terms.

What's in it for Indian investors? How will they benefit?

The BRICSmart futures contract will give Indian investors access to quality international financial products without having to bother about currency convertibility issues.

Let me give you an example: Say 20 years back if you wanted to buy a car - we had only Maruti at that time - and if you wanted to buy a sedan you would have had to import it. That was a very difficult way to buy a car.

Later, many foreign car manufacturers set up base in India, started manufacturing those cars in India and Indians could buy those cars without hassles and start enjoying the benefits of superior technology and comfort.

Similarly, today say somebody wants to invest in Brazil or in Russia they do not have a mechanism where they can take exposure to the economic growth in these countries.

We don't have capital account convertibility in place. What we are doing (to get around this hurdle) is importing the product, manufacturing it here and making it available to local investors in their local currency (Indian rupees).

The trading in BRICSMart futures contracts through brokers on the Bombay Stock Exchange will follow all the rules and regulations mandated by Indian law, be under the watch of the Securities and Exchange Board of India.

Any sense on how big the trading in BRICSmart market could be?

That is something for the market to decide but we are trying to tap the demand for such products. We have only begun today to trade in these futures contracts available in Brazil, Russia, China and South Africa. Our investors probably even won't know the full form of these Indices.

But given the fact that the economies of these five nations are getting increasingly interconnected we expect the demand to rise further as we progress with these products.

 Obviously, it will take some time for the liquidity to be built in these products.

Image: V Balasubramaniam, chief business officer, Bombay Stock Exchange.