Swaps the way to go!!

Equity swaps seems to be the preffered route for those foreign investors, who prefer to stay away from the regulatory glare, tapping other routes for investment in the local market. In the past few months, these investors, including global hedge funds, have been increasingly using the equity swap — an unregulated over-the-counter (OTC) derivative contract — to take exposure to the Indian market.

Hedge funds have been using this route, especially to gain exposure to India’s futures and options market, where trading through participatory notes have been completely banned since last October.An equity swap is an arrangement where a series of future cash flows are made by two counterparties to each other. The pre-determined set of payments, which is based on a notional principal amount, may be determined by returns on stocks or indices or a fixed or floating rate.