17-06-2025
NRIs in UAE: How to invest in forward and options market in India
Question: Investment in the forward and option segment has become popular and is catching up with young inexperienced investors in India. Are any steps being taken to mitigate the risks to which inexperienced investors may be exposed?
ANSWER: The market regulator has proposed a set of new rules which would put a limit on the value of open positions in index options. This would strengthen risk monitoring measures and make derivatives trading safer. According to the Securities & Exchange Board of India, the derivatives market plays a crucial role as it enables efficient price discovery, enhances market liquidity and permits investors to manage the risks. The new rules, which are to be rolled out from July 1 this year, will link total positions in the derivatives market to the cash market.
This will lead to disclosure of risks in the futures and options (F&O) segment and provide better oversight in respect of possibility of concentration or manipulation risks in index options. In case of any breach of rules, participants will be given an opportunity to correct the same. Stock exchanges are empowered to levy additional surveillance margins, monitor entity-level concentration and implement safeguards to protect the interest of investors. Further, there will be intraday monitoring of market-wide positions in single stock derivative trades. To ensure due compliance with the rules, stock exchanges and clearing corporations are jointly preparing standard operating procedures.
Question: The IPO market in India has been sluggish and many startups are in a bind. Is there any way for new entrepreneurs to get enough funding until they are ripe to make a public offering?
ANSWER: You are right in saying that the IPO market is currently muted and startups are therefore finding it difficult to raise funds from the public. However, private credit funds are accessible to promising startups and they provide bridge finance to new entrepreneurs until their companies are ready for the initial public offering. First generation entrepreneurs have raised funds from venture capital and private equity companies, though such funds come at a fairly high cost of 14-18 per cent annually. It has recently been noted that traditional banks are losing ground to agile, tech driven private credit funds.
The growth of the fintech sector is based on modern technology stacks and front-to-back digitised operating models. Startups are therefore securing funds from non-bank companies which have scalable platforms, lean cost structures, and a digital-first approach. Many entrepreneurs are offering their personal holdings as collateral for a structured credit deal which is generally of a three-year tenor. Startups are structuring their deals with convertible instruments, but at a high coupon rate, until they are ready to enter the IPO pipeline.
Question: There is a lot of hype in India about data centres multiplying not only in metros but also in smaller cities of India. Are the prospects as rosy as they look?
ANSWER: The data centre industry in India is poised for phenomenal growth in the next five years and is expected to attract around $25 billion in fresh investments. From just 307 MW in 2018, the data centre capacity has shot up to 1.26 GW in March this year, which is a four-fold increase in seven years. The industry has entered a transformative phase with hyper scale expansion to Tier 2 and Tier 3 cities, though Mumbai, Hyderabad and Chennai continue to dominate the landscape by having almost two-thirds of the total capacity. The market is expanding to cover edge data centres driven by the demand from OTT platforms and CDN providers for low latency, high performance content delivery. According to experts, this growth is triggered by rapid adoption of cloud computing, AI, IoT, and accelerated digitalisation.
A major factor responsible for this growth is the drastic reduction in communication costs, reflected by the fact that the price of 1 GB of data has fallen to Rs.9 from Rs.287 eleven years ago. Thus, India's data cost of 11 cents per GB is less than 5 per cent of the world's average of $2.5 per GB. According to the Minister in charge of the department, India is now globally recognised as a digital-first economy led by advancements in the telecom sector as a result of growth in connectivity with mobile subscribers increasing to 1.2 billion.
