July 2023 marked a new era in the Indian stock markets with the introduction of GIFT Nifty, generating considerable excitement around this pivotal development and the GIFT city in Gujarat. GIFT Nifty aims to enhance global investor participation in the Indian markets and boost liquidity. But what does this mean for retail investors in India? Can they also tap into this remarkable opportunity? Discover the answers to these questions and more in our comprehensive blog on GIFT Nifty.
What is GIFT Nifty?
GIFT Nifty is a benchmark index that represents the performance of the Indian stock market through a trading mechanism located in the GIFT City (Gujarat International Finance Tec-City). GIFT City, an ambitious financial hub near Ahmedabad, was developed to attract global financial institutions, providing a business-friendly environment with modern infrastructure and regulations.
The ‘Nifty’ part of GIFT Nifty refers to the Nifty 50, which is the primary index on the NSE and tracks the top 50 companies listed on the exchange and GIFT Nifty is the derivative contract of Nifty 50. GIFT Nifty was formerly known as SGX Nifty traded on the Singapore Stock Exchange.
GIFT Nifty was created to allow international investors to trade the Nifty 50 index futures in a time zone that aligns better with global markets, especially in the morning hours of Indian Standard Time (IST). This was made possible by the establishment of GIFT City, which offers tax breaks, less stringent regulations, and a conducive environment for trading financial instruments.
GIFT Nifty represents an opportunity for investors to trade global market futures with a focus on Indian stocks. It also helps them hedge their positions or take positions based on the Nifty 50 index in a way that is more aligned with global trading hours. Furthermore, it makes India an attractive destination for foreign investors, as they can now trade Indian stocks more easily in the global marketplace, potentially boosting liquidity and market access.
What was the need for GIFT Nifty?
The Need for GIFT Nifty arose from the growing demand for an efficient way to trade India stock market indices globally, especially considering the time zone differences. Before GIFT Nifty, SGX Nifty provided an opportunity for international investors to participate in the Indian stock markets. The latter was also a derivative product that allowed international investors to trade the Nifty 50 index futures on the Singapore Exchange (SGX). While SGX Nifty was popular among global investors, it posed challenges for India, as a large portion of trading activity in Nifty futures was happening outside the country. This led to concerns about a lack of control over such trades and potential market distortions.
There was also news that the Singapore Exchange could add new products based on the Indian stock markets that could further drive the trading volume away from India while offering a platform that operated during the same hours as global markets leading to increased discrepancies in price movements between SGX Nifty and the Indian Nifty index.
To address these challenges, GIFT Nifty was introduced as a derivative contract that provides a more efficient and controlled way for global investors to trade Indian market indices. GIFT Nifty, traded on the GIFT city platform in India, operates in a time zone that aligns better with global markets, offering trading opportunities when Indian markets are closed.
This not only allows investors to hedge positions or take positions based on the Nifty 50 index in real-time but also brings the trading of Indian stock market derivatives back onshore, under India’s regulatory framework. With this transition, the SGX Nifty ceased to exist on June 30, 2023, and GIFT Nifty started to trade on GIFT CITY/ NSE IFSC on July 3rd 2023. Furthermore, all US Dollar denomination Nifty derivatives will now be exclusively traded on NSE IFSC.
What are the Trading Hours for GIFT Nifty?
The trading hours for GIFT Nifty are aligned with global trading hours, making it more accessible for global participants. Here are further details on GIFT Nifty trading hours and participants.
- GIFT Nifty operates for 21 hours a day, divided into two trading sessions.
- The first session runs from 6.30 AM to 3.40 PM IST and the second session from 4.35 PM to 2.45 AM IST the next morning. This extended trading window enables participation during key market hours across Asia, Europe, and the U.S.
- Eligible participants for GIFT Nifty include Non-Resident Indians (NRIs), Foreign Portfolio Investors (FPIs), and Eligible Foreign Investors (EFIs), who can trade through brokers that are members of the NSE International Exchange (NSE IX) in GIFT City.
- However, retail investors in India are not permitted to trade in GIFT Nifty. This is on account of the regulations set by the Reserve Bank of India (RBI) where retail Indian investors are restricted from using the liberalised remittance scheme (LRS) to trade in leveraged products like futures and options, including those offered by GIFT Nifty.
Thus, the platform is primarily designed for international and institutional investors rather than individual retail traders from India.
How to Trade GIFT Nifty?
Here are the key steps to trade GIFT Nifty:
- Open an Account: Sign up with a broker who is a member of the NSE International Exchange (NSE IX) located in GIFT City.
- Check Eligibility: Confirm your eligibility to trade GIFT Nifty. Only certain participants, such as NRIs, FPIs, and EFIs, are allowed to trade. Due to RBI restrictions, Indian retail investors are not permitted to trade in GIFT Nifty.
- Fund Your Account: Deposit funds into your trading account according to the broker’s guidelines.
- Access the Trading Platform: Log in to the broker’s platform to trade GIFT Nifty contracts.
- Select a Contract: Choose the GIFT Nifty futures contract that aligns with your investment strategy.
- Place Orders: Execute buy or sell orders based on your trading plan.
- Monitor and Adjust: Keep an eye on market movements and manage your positions as needed.
- Settlement: All trades are settled in U.S. dollars, so be sure to understand how currency fluctuations may impact your trades.
Conclusion
GIFT Nifty marks a major milestone in connecting India’s financial markets with the global economy. With extended trading hours, it allows international and institutional investors to trade Nifty 50 futures across Asian, European, and U.S. market hours. The transition from SGX Nifty to India’s regulatory framework centralises all Indian derivative products, enhancing liquidity and strengthening the Indian financial ecosystem, leading to improved price discovery. While Indian retail investors are currently restricted due to regulatory limitations, GIFT Nifty opens new doors for NRIs, FPIs, and EFIs, positioning India as a key player in the global financial markets.
This article highlights a pivotal development in India’s financial sector and explores the potential for expanding trading opportunities in the country. Share your thoughts or questions on this topic, and we’ll be happy to address them!
