Indian Asset Managers Turn To I-Rate Market
Indian asset managers, including Reliance Capital Asset Management, are planning to execute their first interest-rate derivatives transactions following last Monday's rate cut that brought interest rates to lows not seen since the 1970s. Rajiv Baruah, co-head of Indian global markets at Deutsche Bank in Mumbai, said the rate cut to 6.5% could double the notional size of the market by the second quarter. He estimated notional daily volume is USD20-40 million. Asset managers account for 5-10% of the volumes at the moment but Baruah expects that to increase to 25-30%.
Reliance Capital Asset Management, with INR8 billion (USD166 million) of funds under management, is considering pulling the trigger on its first interest-rate derivative. Jitendra Jain, fund manager in Mumbai, said it is looking to hedge 40% of its portfolio and plans to enter a swap within the next month to convert floating-rate corporate paper into fixed. "We're now preparing the ISDA [master agreements]," noted Jain. He continued that he will pay floating-rate MIBOR and receive fixed. An interest-rate derivatives strategist in India said asset managers want to convert floating-rate assets into fixed because they expect further rate cuts. The strategist predicted Indian bank rates would fall another 100 basis points over the next year.
The swaps will have maturities up to one-year, because those are the only liquid contracts in India.