Business OpportunitiesSingapore exchange may lose edge in Nifty futures
The share of SGX Nifty has risen from 2% in March to 5.9%.
- Sebi okays longer trading hours - Nifty may see a gap-down opening - Nifty likely to fall below 4,910 - Excellent carryover patterns - Foreign investors see a fresh bull run - Use close to money spreads
The growth rate of India’s premium benchmark stock index, Nifty, on the Singapore Stock Exchange (SGX) will be appreciably less as a result of extension of trading hours in domestic markets.
The Securities and Exchange Board of India (Sebi) had last week permitted stock exchanges to begin the day as early as 9 am and keep the market open for trading till 5 pm.
However, traders believe the move is unlikely to spell an end to Nifty trading outside the country.
The volumes of SGX Nifty futures had recorded a whopping 762 per cent growth in 2008, while those for other Asian indices grew a mere 16-24 per cent. According to the SGX data, Nifty futures generated 20 per cent volume on the exchange out 62 million contracts of all major Asian indices traded on it last year.
On an average, 12.43 million contracts of Nifty futures were traded in 2008 on SGX, compared to 1.44 million contracts in 2007. The Nifty index covers 23 sectors of the economy and over 60 per cent of the total market capitalisation of the underlying bourse, the National Stock Exchange (NSE).
Even in 2009, the market share of SGX Nifty has surged from 2 per cent in March to 5.9 per cent in October so far. The reason could be partly the gap in trade timings. SGX futures trading starts at 6.30 am and closes at 6 pm (IST).
These factors, sources said, could have forced NSE to advocate extension of trading hours in the domestic market.
“The swift rise in the volume of SGX Nifty was worrying NSE. In fact, the recent trend was such that while options trades were rising on NSE, the exchange was losing some Nifty futures’ share to SGX,” said a top official of a leading domestic stock exchange.
However, experts said while the pace at which the Nifty futures’ volume on SGX was growing would come down, the extended hours would not curb trading of Nifty on SGX unless NSE called off its agreement to list Nifty.
Nifty futures’ volumes picked up steam on SGX during late 2007, when investment in the country though participatory notes (PNs) were banned.
PNs, the off-shore derivative instruments, are mainly used by hedge funds or billionaires who want to park their funds discreetly in stock markets.
Therefore, when PNs were banned, hedge funds and punters started taking positions in the SGX Nifty. The ban, however, was lifted in October 2008 after markets touched historic lows and foreign funds dried up. Short-selling of Nifty futures on SGX was high in 2008 and traders decided the market trend there. Even now, Sebi has warned about lending of PNs overseas to short-sell Indian markets and traders are more comfortable in Singapore due to easier disclosure norms there.
“There is always a threat of sudden regulatory change in India and investments through PNs could again become a sensitive issue due to the swift rise in the value of the rupee against the dollar. Moreover, when an alternative is available now, those who do not want to bring their money into India will always prefer SGX over NSE to trade in Nifty,” said a Singapore-based hedge fund manager.
Further, most hedge funds do not want to bring their money to India as Singapore is a tax haven for foreign funds. Some top market operators from India who have already parked their funds overseas prefer to take a position in Singapore to avoid disclosing their incomes. The low rate of personal and corporate income tax, only 20 per cent in Singapore, is a further sweetener for unregulated entities to trade in Nifty there.
Transaction costs in the Indian markets also continue to be high side due to statutory fees like securities transaction tax and stamp duty. In Singapore, the transaction costs are only two-three basis points.