Welcome, GIFT Nifty. Goodbye, SGX Nifty

On 3rd July 2023, SGX Nifty’s contracts worth 7.5 billion US Dollars migrated to India’s new financial hub, Gujarat International Finance Tec-City, or ‘GIFT’ in short. Not only that, but it also changed its name. Investors now call it GIFT Nifty instead of SGX Nifty.

But what exactly is SGX Nifty or GIFT Nifty? Is there any difference, or is it just a regular name change? Will it have a positive or negative impact on retail investors?

If you also need clarification about this change and are seeking answers, read on as we discuss the history of SGX Nifty and its usage and learn what is GIFT Nifty.

Brief History of Nifty and SGX Nifty

Even if you are not well-versed in the stock market, you will have heard these terms: Nifty and Sensex. But what does it mean?

To put things simply, both of these are stock market indexes. Nifty, also known as Nifty 50, shows the weighted average of India's top 50 largest companies registered in the NSE or the National Stock Exchange. Similarly, Sensex is the weighted average of the top 30 financially sound companies listed in the BSE or the Bombay Stock Exchange.

Indian investors and traders can trade in the Nifty 50 derivative. However, NSE felt that foreign investors were missing out on this chance. Hence, they collaborated with the Singapore Stock Exchange in the early 2000s and came to a settlement. The Singapore Stock Exchange agreed to trade the futures contract of the Nifty 50 derivative; this is how SGX Nifty was born. 

What is SGX Nifty?

Agreed, SGX Nifty was initiated to help foreign investors trade in the Nifty Index without using the Indian currency, but that still does not entirely explain what SGX Nifty is. To find that out, let us dive deeper into the topic. 

Future is a financial contract that enables an investor to buy a particular stock or index derivative at a specific price for a future date. These contracts have a particular price depending on the contract size. For instance, consider it to be Rs.100 per point. To buy the contract, you will not have to pay the total price but a smaller amount, known as the initial margin.

Suppose you bought the August future contract of the Nifty 50 derivative while trading at Rs. 19000; this would mean that you are predicting the price of the Nifty 50 derivative to be above that price by the end of August.

If Nifty 50 rose by 100 points by the end of August, your profits will be Rs. 100 x 100, or Rs. 10,000. Similarly, if the Nifty 50 fell by 100 points, you would lose Rs. 10,000. This is how the future derivative works.

The SGX Nifty is the future contract of the Nifty 50 that trades in the Singapore stock exchange. Since Indians can trade futures in the Indian stock market, the SGX Nifty allows foreign investors to trade in Nifty futures without any currency exchange and trading in US Dollars.

How did Indian traders use SGX Nifty?

Although Indian investors and traders did not use the SGX Nifty for trading activities, it served a different purpose.

The SGX Nifty is operational for 16 hours, 6:30 AM to 10:30 PM - Indian Standard Time (IST), whereas Nifty 50 was open for only 6 hours and 15 minutes, 9:15 AM to 3:30 PM. Indian traders and investors utilised this difference in operational time to determine the pre-market price of the market.

Especially for Indian traders who buy or sell securities and options for one day, this pre-market price would also convey the market's sentiments, helping them decide whether to take a bullish or bearish trade.

Rise of the GIFT Nifty

The year was 2018; the SGX Nifty had gained immense popularity and became a derivative with the second-most volume on the Singapore Stock Exchange. The Singapore Stock Exchange also wanted to introduce individual stock’s future derivatives in their market. However, NSE was not happy with how everything unfolded.

The NSE was unhappy that the SGX Nifty saw five times more trading volumes than the original Nifty 50 futures. It felt that the recognition and funds India deserved were being utilised in Singapore, affecting the growth of Indian markets. The feud became so heated that it almost entered a legal battle.

Thankfully, this feud finally ended in 2023, with both parties agreeing to transfer contracts from SGX Nifty to the NSE IFSC Nifty, located in the GIFT City of Gujarat.

What is GIFT Nifty?

In simple terms, the GIFT Nifty is a rebranded term for the SGX Nifty. The main objective of this change is to create a bigger pool of investors for the Nifty 50 futures, where all foreign contracts and local contracts from IFSC brokers will be considered. 

It is a big step for India as global investors can directly engage in GIFT Nifty trading using the GIFT Nifty Index. Foreign investors' direct engagement and participation will boost Nifty’s liquidity and attract foreign funds to the National Stock Exchange. It is also important to note that this will be a joint partnership, as NSE and SGX look to split the revenue 50-50.

Moreover, the operational hours of the GIFT Nifty Index have also gone through a change. Instead of 16 hours, the GIFT Nifty trading hours have been increased to 21, operational from 4 AM to 2 AM.

Furthermore, the rise in popularity of the GIFT Nifty will also boost the popularity of the new project of GIFT City in Gujarat. Since the government wants to portray it as a free-trade zone to attract global business, a thriving stock exchange can spread the word far and wide, attracting the global investment the city seeks.

For Indian traders, however, things have hardly changed. It still serves the purpose of assessing the pre-market value of the Indian markets and taking trade decisions based on those sentiments. The only thing that changed was the name, from SGX Nifty to GIFT Nifty.

Parting thoughts

The initiation of GIFT Nifty on 3rd July 2023 will be a significant milestone in the history of the Indian stock markets. With the government planning on introducing futures of other derivatives and creating an umbrella of all four prominent NSE derivatives, the popularity of the GIFT Nifty Index is bound to grow amongst international investors.

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