What is Gift Nifty and How Does It Work?

The global financial landscape is continually changing, with India quickly becoming a major player. GIFT Nifty is integral to this shift and has transformed the experience of international investors in India's stock markets. But what is Gift Nifty, and how does it work? This guide explains this important derivative, how it functions, and its significance in the Indian financial market.

What Is Gift Nifty?

GIFT Nifty (Gujarat International Finance Tec-City Nifty) is a derivative contract that is in US dollars that behaves like the Nifty 50 index. It trades on the NSE International Exchange (NSE IX) located in GIFT City, Gujarat, India's International Financial Services Centre (IFSC) that is rapidly emerging as an important financial hub between India and the rest of the world.

Gift Nifty was conceived as a way to bring offshore trading of Nifty derivatives back onshore to India. Previously, SGX Nifty, or Singapore Exchange Nifty, had been the offshore trading platform used for that purpose. Once the SGX Nifty transitioned to NSE IX in July 2023, all US dollar-denominated Nifty derivative contracts were traded at NSE IX, and GIFT Nifty leverages this transition as the only offshore platform for Nifty derivatives. This transition is an important milestone in India's ambition to be a global financial hub, since it puts liquidity and regulation back under Indian jurisdiction.

How Does Gift Nifty Work?

Understanding the mechanics of Gift Nifty is key to appreciating its significance.

Underlying Asset

The GIFT Nifty is based on the Nifty 50 index, which is a weighted average of 50 of the largest and most liquid Indian companies listed on the National Stock Exchange (NSE).

Trading Platform

Gift Nifty trading contracts are traded exclusively on the NSE International Exchange (NSE IX) in GIFT City.

Currency Denomination

Gift Nifty contracts are all denominated in US dollars (USD), which means that international investors do not have to worry about currency conversion risks when trading in USD.

Extended Trading Hours

One of the unique features of Gift Nifty is its extended trading window to accommodate global market participants. The Gift Nifty trades almost 21 hours a day, and comprises two trading sessions (Trading hours are in Indian Standard Time - IST):

• Session 1: 6:30 AM to 3:40 PM IST (overlapping with Asian markets)

• Break: 3:40 PM to 4:35 PM IST

• Session 2: 4:35 PM to 2:45 AM (next day) IST (overlapping with European and US markets)

  
  

With these extended Gift Nifty hours, investors can react to global news and events in real time, while the onshore Indian stock market (Nifty 50) is closed.

Regulation

The International Financial Services Centres Authority (IFSCA) is the single regulator for financial institutions, services, and products in GIFT City. It will create a strong and well-defined regulatory structure for Gift Nifty.

Contract Types

GIFT Nifty 50 Futures are the first type of Nifty contract launched on NSE IX, but there are more types of Gift Nifty contracts provided, such as Gift Nifty Bank, Gift Nifty Financial Services, and Gift Nifty IT, allowing broader access to different sectors of the Indian financial market.

Gift Nifty vs. SGX Nifty vs. Nifty 50

To fully grasp the unique position of Gift Nifty, it's essential to understand its relationship and differences with its predecessors and the underlying index.

SGX Nifty (Historical Context)

The SGX Nifty was a futures contract on the Nifty 50 index that traded on the Singapore Exchange, and it was a popular offshore vehicle for international investors to gain exposure in the Indian equity market. However, fragmentation of liquidity and regulation concerns grew in importance and resulted in a historic agreement between NSE and SGX to migrate all SGX Nifty contracts onto NSE IX in GIFT City. This effectively replaced the SGX Nifty with the Gift Nifty and consolidated the offshore liquidity of Nifty derivatives back to India.

Gift Nifty versus Nifty 50

It is important to clarify that Gift Nifty, based on Nifty 50, is a derivative contract (not an index). Nifty 50 trades during the Indian market hours from 9:15 AM to 3:30 PM IST and in INR, while Gift Nifty trades for a much longer duration and in USD. The Gift Nifty price is typically tracked by traders and analysts looking for directional indication of how the Nifty 50 (and thus, the Indian market) will open the next day.

How to Trade Gift Nifty?

If you are looking for a way to trade in Gift Nifty, there are some unique possibilities open to you, specifically international market participants. Indian retail investors typically would not be able to trade directly due to the restrictions on trading leveraged products through the RBI's Liberalised Remittance Scheme (LRS), but could trade Gift Nifty via the exchange market, as the Gift Nifty is open to:

• Foreign Portfolio Investors (FPIs)

• Non-Resident Indians (NRIs)

• Eligible Foreign Investors (EFIs)

If you belong to one of these segments, here is a general process to get started trading Gift Nifty:

• Choose an NSE IFSC-registered broker: Your first step is to select a brokerage that is registered with the NSE IFSC Exchange and is licensed to offer trading in Gift Nifty.

• Open a Trading Account: You need to open a trading account specifically for Gift Nifty at the NSE IFSC Exchange. This is typically a simple process where you must complete KYC (Know Your Customer) requirements, and submit documentation that includes: proof of identity (ex., passport), proof of address (ex., utility bill), and bank account information.

• Fund Your Account: You will need to deposit money (in most cases, USD) into your trading account. Once again, you have to comply with your broker's KYC and trading platform terms, along with maintaining proper margin money (which is usually a percentage of the contract value) to cover any margin call or losses, and adequate funds to leverage positions.

• Understand Contract Specifications: Familiarize yourself with the lot size, tick size, settlement cycles (T+1), and margin requirements for Gift Nifty futures and options contracts.

• Learn the Trading Platform: Give yourself a chance to learn your broker's trading platform, in order to understand how to place the following order types (market orders, limit orders, stop-loss orders), and how to access live data and charting tools.

• Develop a Trading Strategy: Develop a clear trading plan that outlines your entry and exit points, profit targets, and strict risk management rules after performing your fundamental analysis of the market.

• Monitor and Manage Your Positions: Monitoring global equity markets and understanding their impact on Gift Nifty requires strong analytical acumen. For those aspiring to develop comprehensive market research capabilities, our Research Analyst Certificate Course offers in-depth training.

Conclusion

GIFT Nifty represents India's growing stature and recognition in the international finance arena. Since it is a USD-derived derivative product and can be traded at extended trading hours, it gives global investors unparalleled access to the vibrant Indian financial market. Transitioning successfully from SGX Nifty is another pivotal milestone in the process of consolidating liquidity and creating GIFT City as an international financial destination. For eligible investors, Gift Nifty can provide a strong opportunity to hedge, speculate, and be exposed to one of the fastest-growing economies in the world. As the economy continues to grow, GIFT Nifty will play a bigger role in aligning global capital with Indian opportunities.