The Reserve Bank of India’s decision to permit Indian companies to hedge their gold price risk on recognized exchanges in the International Financial Services Centre (IFSC) will increase liquidity in bullion derivatives traded on the NSE International Financial Service Center and the India International Exchange, both of which are promoted by the BSE. Additionally, the change will lower exporters’ trading expenses and increase their ability to compete in global markets.
The move by the RBI will bring in the much-needed liquidity on the bullion markets at IFSC, according to Naveen Mathur, Director (Commodities & Currencies), Anand Rathi Share, and Stock Brokers. Considering that these contracts are in dollars, he continued, it will also be the ideal risk-mitigation instrument for exporters of jewellery. Colin Shah, Managing Director, The Reserve Bank of India’s decision to permit Indian companies to hedge their gold price risk on recognised exchanges in the International Financial Services Centre (IFSC) will increase liquidity in bullion derivatives traded on BSE-promoted India International Exchange and NSE International Financial Service Centre.
Exporters’ trading expenses will decrease as a result of the change, increasing their ability to compete in global markets. Gold importers and exporters who use the yellow metal as their major raw material for manufacturing may benefit from the RBI’s licence to hedge gold at the IFSC, according to Kama Jewellery’s Naveen Mathur, Director (Commodities & Currencies), Anand Rathi Share and Stock Brokers. This will improve the Indian jewellery industry’s ability to compete on price.
The MCX, which receives the highest volume of a bullion derivatives trade, won’t be significantly impacted by the RBI’s decision to increase liquidity at IFSC. According to an analyst, the most liquid MCX futures and options contract is ideal for jewellers looking to enter the domestic market because it takes into account the effect of customs duty because these contracts are settled through the physical delivery of goods, as opposed to cash-settled contracts in IFSC.