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Informist, Thursday, Oct. 17, 2024

 

--Dealers: FX traders caught off guard as Hyundai Motor IPO underwhelms

--Dealers:Foreign bks did sell/buy swaps in near-term fwds before Hyundai IPO

--Dealers: Bks over-deployed dlrs in sell-buy swaps before Hyundai Motor IPO

--Dealers: Near-term fwds fell as Hyundai Motor IPO response seemed lukewarm

--Dlr/rupee cash-tom weighted avg dropped to 1-month low of 0.29 paise Tue

 

By Pratiksha

 

NEW DELHI – Traders in the dollar/rupee forwards market were caught off guard when they realised that the much-awaited initial public offering of Hyundai Motors India Ltd. was drawing a lukewarm response, causing heightened volatility in the near-term segment, dealers said. The IPO had opened on Tuesday and was subscribed just 42% as of Wednesday end.

 

"The volatility (in near forwards) has happened due to the front-running of positions by foreign banks," said a senior treasury official at a big state-owned bank. "Forwards were overpaid, and now they are consolidating."

 

Foreign banks had entered into dollar-rupee sell/buy swaps in near-term segments of the forwards market ahead of India's biggest ever IPO, with the car manufacturer looking to raise more than $3 billion. It was expected that foreign investor participation in the IPO would lead to a spike in dollar availability--as is often the case with big-ticket share offerings.

 

Near-term sell/buy swaps, which entail selling dollars for immediate delivery and buying them back at a future date, are a means of deploying dollars for short durations. However, the underwhelming initial response to Hyundai Motors India’s share sale--subscription was only at 42% as at the end of Wednesday, or the second day of the issue--has pushed foreign banks to reconsider their bets.

 

"There was heavy positioning ahead of the IPO and the paying impact was coming through. There was a lot of dollar liquidity in the market suddenly," said a dealer at a foreign bank. "But after the IPO opened and people saw there was less money coming than anticipated, the exuberance faded."

 

The overnight cost of deploying dollars had risen as high as 0.99 paise, or 1.43%, on Oct. 4, before crashing to 0.10 paise, or 0.43%, on Oct. 10. Meanwhile, the dollar/rupee tom-spot also rose as high as 1.55 paise, or 1.68%, on Oct. 10 before cooling to 0.20 paise, or 0.87%, on Monday, as per data from Clearing Corporation of India Ltd. In fact, the cash-tom weighted average had dropped to a one-month low of 0.29 paise on the first day of the IPO.

 

Hyundai Motor India's IPO only opened on Tuesday. According to market participants, the sharp movement in forward premiums well in advance of the IPO was likely due to feedback given by foreign investors to the custodians of their flows, or foreign banks. With the IPO underwhelming, banks rushed to close their bets as they realised they had over-deployed dollars in the sell-buy swaps. This quick turnaround caused the volatility in near-term dollar/rupee forward premiums.

 

Most currency traders expect the cash-tom and tom-spot to consolidate around current levels in the coming days. However, if interest in Hyundai Motors India’s IPO suddenly turns positive on Thursday--which is the last day of offering--the market may see some more volatility.  End

 

US$1 = INR 84.00

 

Edited by Akul Nishant Akhoury

 

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