SGX Nifty Shows The Sentiments Of Foreign Investors Too

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.