Gift Nifty

(GIFTNIFTY)

What Is GIFT Nifty?

GIFT Nifty is a futures contract traded on the NSE International Exchange (NSE IX) in Gujarat International Finance Tec-City (GIFT City) , Gujarat. It closely mirrors the Nifty 50 index, offering foreign investors an opportunity to trade in India’s leading stock market index during global trading hours.

A futures contract is an agreement to buy or sell an asset at a specific price on a future date. So, if an investor believes a stock’s price will rise, they can buy a futures contract today. If the stock’s price goes up, they can sell it for a profit.

So, the GIFT Nifty allows foreign investors to get exposure to the Indian market and trade derivatives on a special index linked to NIFTY 50 that is accessible to them outside standard domestic trading hours. 

What Are GIFT Nifty Timings?

Investors can trade on GIFT Nifty in two sessions:

1st Session: 6:30 AM to 3:40 PM (IST)
2nd Session: 4:35 PM to 2:45 AM (IST)

GIFT Nifty is open for trading for up to 21 hours a day. This flexibility allows global investors to trade during their local time zones.

How To Trade In GIFT Nifty?

To trade in GIFT Nifty, Foreign Portfolio Investors (FPIs) and Non-Resident Indians (NRIs) can use brokers registered with the NSE International Exchange, operating from GIFT City 

GIFT City is a Special Economic Zone (SEZ), a designated area set up to promote international investment by offering tax benefits. Therefore, taxes like Securities Transaction Tax (STT), Goods & Services Tax (GST) and Commodity Transaction Tax (CTT) are waived off for global investors.

Let’s understand how investors trade in GIFT Nifty with two scenarios.

Scenario 1: Positive News

In September 2019, India announced a reduction in corporate tax rates from 30% to 22% for existing companies. On the day of this announcement, assume NIFTY 50 was trading at ₹11,270.

ABC Investments, a foreign investor, anticipated that this tax cut would reduce corporate burdens and drive economic growth, resulting in a likely rise in the NIFTY 50 index the following day. To capitalize on this expectation, they decided to buy GIFT Nifty contracts.

Here’s how their trade played out:

• ABC Investments estimated the index would climb and bought GIFT Nifty at ₹11,700.
• When the Indian market opened the next day, NIFTY 50 rose to ₹11,800.

Profit Calculation:

• Price difference: ₹100.
• Lot size: 50 units (Minimum contract size)
• Profit: ₹100 × 50 = ₹5,000.

By trading GIFT Nifty, ABC Investments locked in gains even before the Indian markets opened.

Scenario 2: Negative News

In 2024, geopolitical tensions rose when Israel launched strikes on Iran. Given the trade ties between Iran and India, ABC Investments anticipated that this conflict might slow India’s economic activity. They expected NIFTY 50 to decline and decided to sell GIFT Nifty contracts to profit from the anticipated downturn.

Here’s how their trade unfolded:

• On the day of the announcement, assume NIFTY 50 was trading at ₹25,800.
• ABC Investments predicted a drop of 1,000 points and sold GIFT Nifty at ₹24,800.
• When the Indian market opened the next day, NIFTY 50 fell to ₹24,000.

Profit Calculation:

• Price difference: ₹800
• Lot size: 50 units
• Profit: ₹800 × 50 = ₹40,000

GIFT Nifty empowers foreign investors like ABC Investments to act on global news and market trends that occur outside Indian trading hours. 

This essentially bridges the gap between India’s trading hours and global market needs and offers international investors a powerful tool to maximize their trading opportunities.

Why Is GIFT Nifty Important For Indian Traders and Investors?

Since GIFT Nifty trades in the global time zone, its price movements serve as an indicator for the possible direction of the NIFTY 50 when Indian markets open.

In simple terms, this contract provides a preview to Indian investors of how the NIFTY50 might respond to global events and the activity and sentiment of international investors towards the Indian stock market. 

For instance, if GIFT Nifty shows a significant upward or downward movement during its trading hours, Indian investors can interpret this as an early indicator of the market sentiment for NIFTY 50.

Indian traders can use this information to predict market sentiment, whether bullish or bearish, based on global investors’ activity on GIFT Nifty.

How does GIFT Nifty Impact NIFTY 50?

GIFT Nifty is a derivative of NIFTY 50, meaning GIFT Nifty closely mirrors the price of NIFTY 50. 

Foreign investors can react to market news that happens outside Indian market hours by buying and selling on GIFT Nifty during global trading hours. Their actions create a two-way effect:

1. International investors react to news by trading on GIFT Nifty. Their activity reflects on their expectations for NIFTY 50 when the Indian market opens.
2. The price movement in GIFT Nifty serves as a signal for Indian investors. It offers an anticipation of the possible demand and supply dynamics for NIFTY 50.

Why Was GIFT Nifty Created?

GIFT Nifty was introduced in July 2023 to replace SGX Nifty, which used to be traded on the Singapore Stock Exchange (SGX). The change was made to bring the trading of NIFTY50 futures back to India and benefit the Indian financial system.

When NIFTY 50 futures were launched in 2000, India’s stock market was still developing. Listing NIFTY 50 futures on SGX helped attract foreign investors and gave India more visibility globally. However, over time, a large portion of the profits from SGX Nifty trading stayed in Singapore instead of contributing to India’s financial growth.

There were other challenges too, including-

Taxes: Investors trading SGX Nifty had to pay taxes in Singapore, which made it less attractive. GIFT Nifty, on the other hand, is based in GIFT City, Gujarat - a Special Economic Zone (SEZ) - where transaction taxes are waived off for international investors.

Settlement Currency: SGX Nifty trades were settled in Singapore Dollars, whereas GIFT Nifty uses US Dollars, which is more convenient for global investors.

By moving NIFTY 50 futures trading to GIFT Nifty, India ensured that the revenue and benefits of trading stay within the country. This also helped establish GIFT City as a world-class financial hub, giving global investors access to India’s markets in a more efficient and cost-effective way.

Relationship Between GIFT Nifty and SGX

The connection between GIFT Nifty and SGX lies in their shared history. GIFT Nifty replaced SGX Nifty, which was previously traded on the Singapore Stock Exchange (SGX), as the futures contract linked to India’s Nifty 50 index. This transition in July 2023 was aimed at shifting trading activity to India’s NSE International Exchange (NSE IX) in GIFT City, Gujarat.

While SGX Nifty provided global investors access to NIFTY50 futures within limited trading hours, GIFT Nifty now offers extended trading (up to 21 hours daily), tax benefits due to its location in a Special Economic Zone (SEZ), and settlements in US Dollars. This move ensures that revenue from trading stays within India, while still serving the needs of global investors.
 

Here are the key differences between SGX Nifty and GIFT Nifty: