"Once this (interest rate futures) is introduced, it will pave the way for more instruments and derivatives will soon emerge in the form of options and swaps. Strips, which involve separation of coupon and principal flows, will also become popular over time," he noted.

In this context, he pointed out that the Mumbai Inter-bank Offer Rate (Mibor) and Mumbai Inter-Bank Bid Rate (Mibid) developed by NSE served as reference rates but were "too volatile and yet to become popular."

According to Subramanyam, the absence of a stable money market was hindering the development of a stable forward market. "A more stable money market will see the active use of risk management tools such as options and swaps in theIndian markets," he said.

The daily business in forex forwards and options was very small at $1 billion compared with that in the global market, the size of which is $50 trillion, according to a survey done by BIS in 1995, he added.

Interest rate futures, Subramanyam said, would also trigger the development of derivatives on securities issued by financial institutions and public sector undertakings and "gradually extend to paper issued by good quality corporates."

With enlargement in the scope and activity of rupee-dollar derivatives, Subramanyam said, securities with combinations of rupee debt and foreign currency would gain prominence. "Even today, an Indian issuer can structure a unique product for the NRI investors. The issuer would issue a dollar-denominated bond, with capital guaranteed in dollar terms and interest paid in rupee terms to beneficiaries in India," he observed.

Speaking on the state of the secondary markets, Subramanyam said that the Indian markets had not fallen below 2,700-2,800point levels despite a "string of adverse events and persistent hammering of stock prices by speculators and selling by international investors."

He added that sectors like consumer goods, pharmaceuticals and information technology had recorded high increases even in bear market conditions. Besides, several smaller stocks had grown over the last one year, suggesting that the "broad market had not really moved down as much as the recent decline in leading indices indicate," he maintained.

The decline in indices, Subramanyam said, was due to the underperformance of commodity stocks such as cement, steel and paper, among others. "This is due to the fact that the expected demand-led growth has not taken place while the planned capacity creation has taken place. It is also due to recessionary winds blowing across the globe," he explained.