Nifty futures trading shifting back to India

Share of Nifty futures open interest on Singapore Exchange falls as the government of India softens stance on GAAR

Foreign investors, who had shifted their trading positions to Singapore due to taxation-related concerns, have started returning to Indian shores.

The Nifty Futures open interest (OI), or the number of active trading positions, in July was just five per cent higher on the Singapore Exchange (SGX) compared to that on the National Stock Exchange (NSE). Average Nifty Futures OI for the last month on SGX was 47 per cent more than at NSE, data compiled by the BS Research Bureau show.

The government softening it’s stance on the General Anti-Avoidance Rules (GAAR) has helped calm the nerves of anxious foreign investors, say experts. The Centre has decided to defer the implementation of GAAR to the next financial year and has also decided to set up an expert committee to lay down a road map for its implementation.
 

HOMEWARD BOUND Nifty Futures open interest in July was just 5% higher on SGX
Avg for	Nifty Futures open interest (OI)

SGXNSEDifference (in %) April534,025429,22624 May651,230528,81023 June606,941413,33047 July553,292525,2905 Note: SGX and NSE contract size adjusted for comparison
Compiled by BS Research Bureau                                              Source: Bloomberg 

“Open interest on NSE in July saw a sharp rebound from the previous month, when it had hit a seven-year low, as GAAR related concerns have abated. Open interest on SGX has not come off sharply but domestic positions have gone up,” said Yogesh Radke, head of quantitative research at Edelweiss.

“Ideally, foreign investors prefer taking positions domestically as NSE provides deeper liquidity and diversified classes of investors, which gives more opportunities for trading. But some FIIs were forced to bet through Singapore due to tax concerns,” said a derivatives head with a foreign brokerage, who did not want to be named.

After the controversial Budget proposal on retrospective taxation and GAAR, foreign institutional investors (FIIs) had increasingly started betting on the Indian markets from Singapore.

As a result, Nifty Futures OI, or the number of open trading positions, on SGX was nearly 50 per cent higher than that on Nifty in June. On some days, the total built-up positions on the Singapore bourse was as much as 80 per cent higher than on the NSE.

For the sake of comparison, the contract sizes on both exchanges were adjusted for value. One Nifty futures contract on SGX is worth $2 multiplied by the index value, while that on the NSE is worth 50 multiplied by the index value.

The contracts of India’s bellwether Nifty Futures index along with the NSE are traded on the SGX in Singapore and the Chicago Mercantile Exchange in USA. The contracts traded on the SGX are popular among FIIs due to lower transaction costs and tax, along with favourable long trading hours.

The SGX is used by FIIs more for positional bets than actual and less of intra-day trading. This reflects in the low trading turnover. Though the SGX has high OI, the actual trading turnover is only a fraction of that on the NSE.

However, Nifty futures trading on the SGX will continue to remain in demand as it has its own advantages, say experts.

“SGX Nifty Futures will have its fair share of trades from FIIs on the back of its inherit benefits like lower transaction costs, dollar denominated contracts and lower taxes,” said Radke.