Mumbai, July 7: Reliance Industries led the pack of companies scrambling to hedge their foreign currency (forex) risks under the rupee options that debuted today with deals valued at more than $ 250 million.
An option enables importers and exporters to protect themselves against currency fluctuations and allows companies to buy or sell forex at a pre-set price in future.
A firm can buy a rupee call option to hedge the risk of a downside; at the same time, it can sell a rupee put option to secure a zero-cost combination.
Analysts say that this specific structure is suitable for exporters who need to sell forward dollars, and believe that the rupee will appreciate against the dollar over six months.
The Reserve Bank permitted authorised dealers to offer such options from July 7, after its prior approval. However, only plain-vanilla European options — where customers can buy or sell call/put options but where firms cannot receive premium — have been approved.
M. A. Ravikumar, regional head (India and Nepal) of Standard Chartered Bank, said he was surprised by the good response to rupee options on day one of its trading. The bank structured the first transaction, a six-month option worth $ 30 million, for Reliance. It will allow the petrochemical giant to hedge its dollar exposure.
Twenty deals were reportedly sealed in the first hour of trading, prompting many to say that the volumes are likely to remain brisk in the next few days. Ravikumar said Nicholas Piramal, Ballarpur Industries, Coal India, Virudhnagar Textiles, I-Gate Technologies and Finolex Cables were the other companies that had their options devised by StanChart. Larsen & Toubro also joined the line-up, striking a similar transaction with another foreign bank.
There is a sense in a large section of the market that the rupee will gain further, and that it will soon rise above 46 to a dollar. “There is a feeling that at the 46 level, there may be some stability,” Ravikumar said.