Ground Report

Seven Asian emerging market currencies like China, India, Indonesia, Malaysia, South Korea, Taiwan and Thailand and seven other emerging market currencies like Brazil, Hungary, Mexico, Poland, Russia, South Africa and Turkey were selected, for developing MMI out of the BIS data compiled in 2007.

The MMI enables a more tailored way of looking at different elements of maturity and can assist central banks by providing direction to deregulation.

While Russia and South Africa remained in the top five using this measure, India performed quite badly in 2007, ranking only 7 th and quite far behind the leaders, the study said.

Of course, as we are anecdotally aware, the Indian market has developed quite considerably since 2007, both in liquidity and sophistication. In parallel, its risk management index has also improved. In 2008-09, when risk management has been particularly difficult in all markets, including the fully developed FX markets, like EUR and USD, India ranked 1st of all the emerging markets in the study, said the report by Mecklai Financial.

The study also said that despite the continuing constraints on the capital account, the Indian market has matured in several other ways. There is increasing breadth of participation, and a substantial increase in the volume of options and other derivatives being traded; the offshore non-deliverable forwards (NDF) market has also grown in liquidity and depth. Most importantly, two-way movements in the price of the rupee are now a matter of course, confirming that the domestic FX market is certainly coming of age.

More important, however, is the fact that India’s score on the investor activity sub-index was extremely low indeed it was the second lowest to Thailand of all 14 markets.

While this activity has also most certainly picked up, this exercise indicates that RBI needs to do more to increase market access for the investment community, the study said by indiaforex.com  Again, India’s score on the globalisation sub-index is also relatively low it ranks sixth from the bottom ahead only of China, Brazil, South Korea, Malaysia and Thailand.

This may well have to do with the conservative approach of the banking regulator that limited the cross-border activity of domestic banks, which, given the trauma of the past couple of years, may not be such a bad thing, added the report. On the flip side, India scored second highest to Russia on the real sector subindex, confirming considerable anecdotal evidence that Indian companies are extremely savvy and pro-active in hedging their risk.

At the same time, South Africa, Taiwan and South Korea, all markets that had seemed reasonably mature in 2007, performed extremely poorly from a risk management perspective in 2009 when market conditions became more severe.

On the other hand, four markets, other than India – Brazil, Malaysia, Turkey and Poland – improved their risk management index score quite substantially by 2009, suggesting that these markets would likely also have seen an improvement in their MMI.