Nifty turns global hot property

Nifty-based ETFs already available on eight exchanges; CME alliance to push volumes exponentially.

The Nifty has gained popularity across time zones, with exchange-traded funds (ETFs) based on it being traded on eight stock exchanges across the globe. This even as the futures and options of the National Stock Exchange’s benchmark index are set to be traded on the Chicago Mercantile Exchange (CME).

ETFs based on Nifty, owned by NSE’s subsidiary India Index Services, are available on Nasdaq, Swiss Exchange, Borsa Italiana, NYSE Euronext Paris, London Stock Exchange, Singapore Stock Exchange (SGX), Tokyo Stock Exchange and Deutsche Borse. Further, futures based on the Nifty are available on SGX. According to Bloomberg, the market value of Nifty-based ETFs is in excess of $2 billion.

Index licensing, in which owners allow introduction of products based on their indices on other stock exchanges, is a big business globally.

According to Standard & Poor’s (S&P), it “maintains more than 550 licence agreements with major financial institutions around the world by offering global licences that encompass all Standard & Poor’s index offerings by an institution, as well as licences for single transactions”.

Experts say ETFs are the best way to play the Indian market. “ETFs are one of the most efficient ways to take exposure to India, particularly as the country controls foreign investments so heavily,” said Tom Lydon, president, Global Trends & ETF Trends, a US-based research group dedicated to ETFs. “The average retail investor will not be able to get this kind of an exposure to India otherwise,” said Lydon.

The view is shared by entities that have been involved in management of ETFs globally. “Nifty-based ETFs are one of the most convenient and cost-effective products to bet on India. Several institutions can use Nifty futures to hedge the ETFs they provide,” said Pankaj Vaish, managing director and head of equities, Nomura Financial Advisory & Securities (India). Nomura Asset Management manages the Nifty ETF in Japan.

The recent addition to globally available Nifty-based ETFs is Next Funds S&P CNX Nifty Linked ETF that made its debut on the Tokyo Stock Exchange in November last year. The current market value of the fund, according to Bloomberg, is $40.43 million. iShares S&P CNX India Nifty 50 Fund made its debut in November 2009 on Nasdaq. The fund, managed by Blackrock Fund Advisors, is trading near its all-time high and has a market value of $39.81 million.

ETFs, which can be traded just like shares and give the benefits of mirroring an index, have gained immense popularity globally. This is corroborated by the fact that the world's most popular ETF, Spider, which tracks the S&P500, has a market capitalisation of nearly $75 billion. It was launched in December 1993.

Lydon, however, says that one should start looking at sector-based ETFs “that play to India’s strengths as an economy”.

“We’re hitting the point where there are a lot of broad India ETFs and it may be time to begin drilling down into sector ETFs,” he said. India is very much a developing market and so funds that focus on the country's small-cap companies may be of interest to investors, he adds.