The Indian stock market is now recognized as one of the strongholds of Global Finance. In the past, the vast majority of International investors utilised the Singapore Exchange (SGX) for access to Indian Derivatives via an Offshore Trading method. There has now been a tremendous development and significant change from this method of an Offshore Exchange to a more localised approach to Global Trading, with the introduction of the GIFT Nifty Indices.
It is paramount that, as an investor or trader (or simply someone interested in understanding what causes the Open Bell for the NSE), you gain an understanding of the GIFT Nifty indices, as they now represent the Global Sentiment of all Nifty equities and provide a benchmark for these sentiments.
We shall begin with a brief explanation of the GIFT Nifty Indices; we will provide an overview of the features and benefits of the GIFT Nifty Indices to the Global Financial system.
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What is GIFT Nifty? (Full Form & Meaning)
The GIFT Nifty is the name for the contract that allows Global investors to Trade Derivatives based on India's Nifty 50 Index.
A. Full Name & Origin
The GIFT Nifty stands for: Gujarat International Finance Tec-City Nifty.
This is a Futures Contract that trades on NSE IX (NSE International Exchange, located in GIFT City, the first International Financial Services Centre in Gujarat).
B. The Core Concept
The GIFT Nifty is USD-based and has futures contracts based on the performance of the Nifty 50 index. It is an overseas version of the Nifty 50 derivatives traded on the NSE in India (Mumbai).
Underlying Index = Nifty 50
Trading Venue = NSE IX (NSE's subsidiary).
Settlement Currency = USD.
Regulatory Agency = IFSCA.
SGX Nifty Transition.
C. The SGX Nifty Transition
The GIFT Nifty effectively replaces the long-standing SGX Nifty (SGX Nifty). The transfer was part of the NSE IX-SGX Connect initiative to return the liquidity of all Nifty derivatives trades to India via GIFT City. This initiative will enhance India's position as a global financial center.
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Key Features and Working of GIFT Nifty
Additionally, GIFT Nifty's operational structure offers a unique opportunity to operate 24 hours - this is important for providing a complete global view of the market.
A. Extended Trading Hours: The 21-Hour Window
One of the most defining aspects of the GIFT Nifty is its close-to-21-hour trading cycle. This enables global participants to quickly react to global macroeconomic events.
GIFT Nifty has a trading window which is separated into two sessions as follows:
First Session - 8:00 a.m.- 4:30 p.m. IST, and
Second Session - 1:00 p.m.- 3:00 a.m. IST
This format offers advantages in terms of pricing because GIFT Nifty prices can be influenced by substantial Economic Events that occur in the US, Europe, or Asia. These events are accounted for as soon as GIFT Nifty is priced and do not require waiting on the Domestic Markets to open before US, European, or Asian Economic Events are priced.
B. USD-Denominated Contracts
Foreign Portfolio Investors (FPIs) can now Trade/Settle USD-denominated Contracts; this will be much more straightforward than having to make complicated Currency Conversions, making it much easier to hedge and invest in Indian Equity Markets.
C. Enhanced Liquidity and Price Discovery
The consolidation of offshore Exchange trading that was previously carried out on Many different Exchanges into a single trading platform - NSE IX - offers multiple benefits.
Deeper Liquidity - more buyers & sellers interact with one trading venue.
More Accurate Price Discovery - the price reflects more accurately a Global Consensus on the value of the Nifty 50 Index or the Stock Market.
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Benefits of Trading and Tracking GIFT Nifty
The GIFT Nifty has the potential to create Great benefits to numerous Global Investors (FPIs/NRIs) and Domestic Investors.
A. For Global Investors (FPIs/NRIs)
Attractive Tax Regime - By executing Trades on NSE IX, investors benefit from favorable Incentives in IFSC, including exemption from Taxes such as the Securities Transaction Tax (STT) or Commodities Transaction Tax (CTT).
Hedging a Global Perspective - The GIFT Nifty provides global investors with the ability to hedge their positions regarding India from anywhere in the world, even if it is outside of the normal trading hours of the Indian Exchange. This is particularly important when considering how to protect against overnight exposure that may occur when an Indian company releases earnings or important economic news during the night for United States investors.
B. For Domestic Traders (The Early Indicator)
For domestic traders in India, one of the most significant benefits of following the GIFT Nifty Index is that it provides domestic traders with some of the best early indicators of what will happen in the Indian markets.
Predicting Market Open: Domestic traders can monitor the price of the GIFT Nifty Index between the hours of 6:30 AM and 9:00 AM IST and use this information to accurately predict how the Domestic Nifty 50 will open (i.e., whether it will gap up or gap down). Domestic traders use the GIFT Nifty as the basis for making plans for their intraday trades.
Global Market Sentiment Gauge: The general market sentiment surrounding India is impacted by global news (e.g., U.S. Inflation Data / European Central Bank Decisions) which can be seen in the price movements on the GIFT Nifty and subsequently provides a way for the trader to incorporate into their trading strategies the effect of such news via tools like the Top Technical Analysis Tools and through the Understanding Open Interest in Derivatives.
GIFT Nifty vs. Nifty 50
Although there is a direct correlation between the GIFT Nifty and the underlying index of the Nifty 50, it is important to understand the difference between the two.
Understanding the fundamentals is essential for anyone interested in trading the futures contracts that are being created based on this index. (Internal Link: A Guide to Getting Started Trading in Derivative Markets in India).
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Conclusion
The introduction of the GIFT Nifty Index and the success of migrating its previous domestic contracts overseas mark a significant milestone for finance in India. The availability of around-the-clock trading with foreign currency-denominated GIFT Nifty contracts linked to the GIFT Nifty Index will facilitate the process of bringing previously displaced offshore institutional and retail investor liquidity back to India.
The GIFT Nifty is more than just another domestic futures contract; it is a tangible sign of the growing internationalization of Indian equity markets. From the perspective of a large foreign institutional investor (FII) who wants to get the maximum benefit from the derivatives market for risk management purposes through hedging with efficient instruments, to the retail trader who wants to have a sense of how the market will open in the morning, the GIFT Nifty is an influential barometer to monitor and utilize.
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