As SGX Nifty
futures volumes jumped in the last few days, many market experts commented that
this jump reflects the return of confidence of foreign investors in Indian
equities which is in contrast to the numbers seen domestically. Open interest
on the Nifty futures in the Singapore Exchange (SGX) has surged. These have
risen to more than double the total OI in the domestic Nifty futures markets,
traded on the National Stock Exchange (NSE). The Nifty is the NSE's benchmark
index. Open interest is the number of derivative contracts yet to be settled.
Increasing confidence about growth prospects of the Indian
equity market among foreign investors has led to the resurgence of interest for
the Nifty index futures in the Singapore market, said participants. The rising
gap is being fuelled by these new investors, who have preferred to trade on the
SGX rather than in India, according to experts. Since past few months, Indian
markets have risen significantly as investors pumped money into the equity
markets ahead of the elections.
Traders of Nifty futures in the Singapore market are mainly
foreign investors who prefer to trade in the dollar-denominated SGX
Nifty Futures than the rupee-denominated NSE nifty futures. SGX Nifty futures are preferred by
foreign traders on the back of ease of trading, easier reporting standards and
its being dollar denominated, which reduces the currency volatility.
Domestically, the open interest in NSE Nifty futures has declined and leverage
bets have increased via stock futures. Apart from the dollar denomination
advantage, the tax paid for trading in the Singapore market is almost a fourth
of that in the Indian market, as no statutory levies are applicable there.
At present, SGX
Nifty futures contribute to about 70 per cent of the total value of the
contracts but is responsible for generating only 25 per cent of the volumes.
This is because of the difference between the value of each contract in the
domestic Nifty futures and the SGX Nifty
futures. At $2 a contract and assuming Rs 60 to a dollar, the total value of a
contract in the SGX Nifty amounts to
Rs 120 multiplied by the Nifty value for the day. In the domestic market, the
value of a contract is Rs 50 multiplied by the Nifty value for the day. By this
calculation alone, the SGX Nifty
generates far more value on a low volume base as compared to the Indian market.