Foreign retail investors, NRIs allowed to invest in GIFT City bourses

IFSC business set to multiply with these investments: Experts

Foreign retail investors, as well as non-resident Indians (NRIs), have been allowed to invest in stock exchanges in Gujarat International Finance Tec-City (GIFT City).
 
So far, only overseas institutional players were allowed in the capital market segment.
 
Since foreign individuals are not permitted to open bank accounts in international financial services centres (IFSCs) under the existing Reserve Bank of India (RBI) guidelines, they were not able to participate in exchanges in GIFT City, an IFSC. There was lack of clarity about the participation of NRIs.
 
Siddharth Shah, partner, Khaitan & Co, said: “The RBI has now clarified there will be no restriction on intermediaries/brokers in GIFT IFSC exchanges for making such individuals clients and allowing them to trade through the intermediary’s client trading account.”
 
The move is seen as a huge business opportunity for exchanges in GIFT City.
 

The daily trading volume on the India International Exchange (IFSC), or India INX, set up by the BSE in 2017, touched $2.96 billion on Friday, while late entrant NSE IFSC International Exchange also achieved nearly a $1 billion turnover.
 
Now even Central Depository Services (India), a depository, has received approval. Exchanges have around 140 products, including index futures, Indian stock futures, and commodities and currency derivatives. Even these exchanges have listed bonds worth $46 billion to date.
 
Shah added: “This clarity presents a huge opportunity for foreign nationals, including NRIs, to freely trade in securities listed on the GIFT exchanges. Considering that these exchanges are in deemed foreign territory, they would not be subjected to any other requirements under the Foreign Exchange Management Act as applied to NRIs.”
 
Initially regulators started with allowing institutional businesses because it is easy to attract portfolio investors.
               
But now, Dipesh Shah, head, IFSC, GIFT City, said: “Allowing foreign retail participation is an important enabler for international finance centres as the participation of the foreign individual business would multiply the IFSC business and generate a large number of jobs.”
 
Around 100 brokers have applied to operate in exchanges at GIFT IFSC. Of those, 47 have been approved and 30 have started doing business, while 53 applications are in various stages of approval.
 
V Balasubramaniam, managing director and chief executive officer, India INX, explained the mechanism by which overseas retail investors would be able to participate.
 
He said: “Eligible participants, including foreign participants and NRIs on IFSC exchanges, as allowed by the Securities and Exchange Board of India, would be able to transfer funds to our members’ bank accounts in IFSC banking units, directly thus enabling this additional participant base to also participate on our exchange.”
 
The India INX has emerged as the dominant exchange in the IFSC, with a market share of close to 80 per cent as of March 2019, he added.
 
The GIFT City IFSC has been operational with 12 large banks having business transactions of $18 billion, around 17 insurance firms carrying out the reinsurance business, and two international exchanges, with around 100 intermediaries, having set up shop. The IFSC exchanges have been doing an average daily trading volume of $1.8 billion.
 
The institutional business in the GIFT IFSC has been growing rapidly from approval for five units in 2016 to 170 approvals in 2019 and exports of services growing from Rs 350 crore to Rs 3,500 crore during the same period.