Tally Automation
Apr 2, 2024

The Future is Now: Why GIFT Nifty Should Be on Every Investor's Radar

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Shebi Sharma

Suvit

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In the ever-evolving world of finance, staying abreast of the latest trends and developments is crucial for both individuals and businesses.

As we belong to the accounting and finance industry, we at Suvit are committed to empowering our audience with knowledge and insights. Today, we delve into a recent shift within the Indian derivatives market - the introduction of GIFT Nifty.

For those familiar with the Nifty 50, a key benchmark index for the Indian stock market, you might also recognize SGX Nifty, a derivative contract previously traded on the Singapore Exchange. However, in July 2023, this instrument underwent a significant transformation.

Let's unpack the concept of GIFT Nifty, explore its benefits, and delve into how it impacts the landscape of Indian derivatives.

What is GIFT Nifty?

GIFT Nifty, formerly known as SGX Nifty, is a derivative contract that tracks the performance of the Nifty 50 index. This essentially means its value is tied to the movement of the 50 largest companies listed on the National Stock Exchange of India (NSE).

However, unlike its predecessor, GIFT Nifty trades on the NSE International Exchange (NSE IX) located within GIFT City, Gujarat, India.

Here's a breakdown of the key aspects of GIFT Nifty:

  • Underlying Asset: Nifty 50 index
  • Trading Venue: NSE International Exchange (NSE IX) in GIFT City
  • Settlement Currency: US Dollar (USD)

Think of GIFT Nifty as a financial instrument that allows investors to speculate on the future performance of the Indian stock market, but with the convenience of trading on an Indian exchange and using US dollars for settlement.

Benefits of GIFT Nifty

The transition from SGX Nifty to GIFT Nifty marked a significant step forward for the Indian derivatives market. This shift offers a multitude of benefits for both domestic and international investors, fostering a more accessible, liquid, and well-regulated trading environment.

Let's delve deeper into the key advantages of GIFT Nifty:

1. Enhanced Accessibility

Previously, SGX Nifty primarily catered to foreign investors due to its listing on the Singapore Exchange.

GIFT Nifty, however, bridges this gap by offering a domestic platform for international participation. This eliminates geographical barriers and simplifies the investment process for overseas entities seeking exposure to the Indian market.

Additionally, Indian investors also benefit from a familiar trading venue within the country's regulatory framework.

2. Extended Trading Window

One of the significant advantages of GIFT Nifty lies in its extended trading hours compared to the NSE.

Since GIFT City operates in a different time zone, GIFT Nifty contracts can be traded for a longer duration. This extended window provides greater flexibility for investors worldwide to participate in the market and capitalize on real-time price movements.

3. Centralized Liquidity Pool

The shift to GIFT Nifty fosters a more concentrated pool of liquidity for Nifty derivatives.

Previously, trading activity was fragmented between the SGX and NSE, potentially leading to price discrepancies. By consolidating trading onto a single platform, GIFT Nifty promotes tighter spreads and potentially more efficient price discovery.

This benefits all participants by ensuring a more accurate reflection of market sentiment.

4. Robust Regulatory Framework

Trading on the NSE IX in GIFT City subjects GIFT Nifty to the well-established regulations of the International Financial Services Centre (IFSC) authority.

This robust framework provides investors with greater confidence and transparency in their transactions. Additionally, it strengthens oversight and minimizes potential risks associated with derivatives trading.

5. Potential for Growth

The introduction of GIFT Nifty is seen as a catalyst for the growth of the Indian derivatives market. By attracting a wider pool of domestic and international investors, GIFT Nifty has the potential to increase overall trading volume and liquidity.

This, in turn, can lead to a more vibrant derivatives ecosystem in India, fostering innovation and attracting further investment.

As GIFT Nifty continues to evolve, it has the potential to play a key role in propelling the Indian derivatives market to new heights.

Comparison: GIFT Nifty vs. SGX Nifty

While GIFT Nifty carries the legacy of SGX Nifty, some key differences set them apart.

Understanding these distinctions can be crucial for investors deciding which instrument might better suit their needs:

Similarities:

  • Both GIFT Nifty and SGX Nifty are derivative contracts tracking the Nifty 50 index.
  • Both instruments offer a way to speculate on the future direction of the Indian stock market.

Differences:

FeatureSGX NiftyGIFT Nifty
Trading VenueSingapore Exchange (SGX)NSE International Exchange (NSE IX) in GIFT City
Regulatory FrameworkSingaporean regulationsIndian IFSC regulations
Settlement CurrencySingapore Dollar (SGD)US Dollar (USD)
FocusPrimarily catered to foreign investorsCaters to both domestic & international investors
AccessibilityLimited accessibility for Indian investorsEasier access for Indian investors

GIFT Nifty - Directing a New Era for Indian Derivatives

GIFT Nifty is a significant milestone for the Indian derivatives market. It offers extended trading hours, a centralized liquidity pool, and robust regulations, fostering a more efficient trading environment. This has the potential to propel the market towards greater growth and innovation.

At Suvit, we are passionate about empowering individuals with financial knowledge and insights.

We believe that staying informed about the latest trends in the market is crucial for informed decision-making.

We hope this blog has shed light on the concept of GIFT Nifty and its potential impact on the Indian financial landscape. As the market continues to evolve, we remain committed to keeping you informed about developments that shape the world of finance.

You May Find this Useful:

  1. The Rates and the Mechanism of Stamp Duty on Share Certificate and on Share Transfer

  2. The Digital Rupee - Its Effects, Implications, and Impacts

  3. NSC - A Government-Backed Scheme for Secure and Tax-Efficient Savings

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