INSUBCONTINENT EXCLUSIVE:
By DK Aggarwal There was a time when morning trade on Nifty futures on Singapore Exchange used to show the day ahead for Dalal Street
In recent times, that has become more of an exception than a norm.
More often than not, Nifty has looked totally disconnected with SGX Nifty
futures, reflecting a certain decoupling between the two.
The difference between NSE and SGX (Singapore Exchange) is now well known to
everyone on Dalal Street, and it has become an issue also for the foreign market players, mainly the hedge funds, trying to get exposure to
Indian stock market.
Earlier many hedge funds, which did not want to register directly in India, used to trade in SGX Nifty for India
That’s because India has a lot of compliance norms, tough tax rules and other roadblocks
Singapore is a hub of offshore trading for not only India, but many markets, including China, Japan and Indonesia.
Now, with most of SGX’s
India-focused products being halted, investors may either come to India directly or move to other emerging economies
The chances of the first option is better if India continues to attract investors, in which case these FIIs may be ready to bear the
additional expenses and compliance costs to either seek direct registration or move to Gujarat International Finance-Tec (GIFT) City, a
district in Gujarat state positioned by the Indian government as a global financial hub.
What went wrong? It all started with NSE announcing
its withdrawal from a long-term agreement with SGX in line with a coordinated decision among the Indian bourses to pull back overseas
futures on Indian indices.
SGX tried to fill the gap by launching a replica of Nifty futures, bypassing NSE
That led to a conflict and a 16-year-old mutually beneficial relationship soured drastically, with NSE dragging SGX to court.
The Bombay
High Court has extended the arbitration deadline till December 31, 2020, for settling the dispute between NSE and SGX over the trading of
To note, Nifty50 futures remain the third most actively traded derivative contracts on SGX after the FTSE China A50 Index futures and the
MSCI Taiwan Index futures.
Now, market participants have taken sides in the wake of these developments
Even though NSE's existing licence has been extended, investors are unlikely to wait till the last moment to look for substitutes
That's because India has a roughly 8.5 per cent weightage in the MSCI Emerging Markets Index, while China has 32 per cent, which is four
times that of India’s.
India has to increase its clout in the MSCI EM index and at the same time has to work tightly to attract foreign
investors by providing benefits such as exemption from capital gains, securities transaction tax (STT) and stamp duty on trades coming
If NSE wins the game and government eases some of its complicated norms for registering foreign players, then GIFT has the potential to
bring back billions of dollars of business, which India has been losing to rival global financial hubs.
At another level, it also signals
growing clout of domestic institutional investors amid a surge in flow of retail savings into financial assets
That also suggests growing maturity of Indian capital markets, which will be contributing more and more to the economy’s growth dynamics
