8 US equities has commenced trading on the NSE IFSC in GIFT City; All information about how to start trading through IFSC and should you put money in US stocks ?
A retail investor in India or even a High Net Worth Individual’s dream of owning a piece of Berkshire Hathaway, Apple, or Netflix for a retail investor has come true. The National Stock Exchange (NSE) International Exchange (NSE IFSC), a wholly-owned subsidiary of the NSE, has made it possible to make investment in equities traded in the United States.
While investing in foreign shares was authorized under the Reserve Bank of India’s (RBI) Liberalized Remittance Scheme (LRS), which allows for a limit on annual investment of $250,000.
The National Stock Exchange’s (NSE) International Financial Services Center (IFSC) platform in Gujarat’s GIFT City has begun trading eight US stocks on March 3. Some other equities are planning to launch on the NSE IFSC platform, with a trading date to be determined soon. Berkshire Hathaway, Mastercard, JP Morgan Chase, Morgan Stanley, Nike, Paypal, Pepsico, Pfizer, and Intel are included in the stocks mentioned.
GIFT City Gujarat
Gujarat, India’s GIFT City, is a planned economic district. It is a new business location that gives financial services and technology-related businesses a competitive advantage. GIFT City is a 62 million square foot integrated development on 886 acres of land that contains office spaces, housing apartments, schools, hospitals, hotels, clubs, retail, and many recreational amenities, making it a true “Walk to Work” city. A suitable Multi-Service SEZ (Special Economic Zone) and an exclusive National region form up GIFT City.
This city is a vertical city, meaning it will maximize the amount of land available for development. The city is located on the banks of the Sabarmati River, which connects the State Capital (Ahmedabad) with the political capital (Gandhinagar) of Gujarat, India’s Growth Engine.GIFT City is India’s next global financial and technology gateway.
What is the nature of this Exchange?
The NSE IFSC (National International Exchange ) was founded on November 29, 2016, and is a wholly-owned subsidiary of the National Stock Exchange of India Limited (NSE). Stock Exchanges in GIFT City are allowed to provide securities trading in all currencies other than the Indian rupee. As a result, the NSE IFSC, which began trading on June 5, 2017, provides USD denominated trading in a variety of things.
Index derivatives, stock derivatives, currency derivatives, commodity derivatives, and debt securities are included in the instruments traded at the NSE IFSC.
The NSE IFSC has been granted permission to trade 50 US-based stocks receipts. Initially, Alphabet Inc, Amazon Inc, Tesla Inc, Meta, Microsoft, Netflix, Apple, and Walmart will be traded on the market, with the 50 biggest US entities to follow.
Some other equities are planning to launch on the NSE IFSC platform, with a trading date to be determined soon. Berkshire Hathaway, Mastercard, JP Morgan Chase, Morgan Stanley, Nike, Paypal, Pepsico, Pfizer, and Intel are included in the stocks mentioned.
This does not inevitably suggest that US stocks will be listed in India.
According to the NSE circular, market makers will instead buy shares in the US and release Unsponsored Depositary Receipts against them. The IFSC Authority, GIFT City, shall be the exclusive regulator for this.
Retail investors can buy these equities on the IFSC platform under the Reserve Bank of India’s (RBI) liberalized remittance scheme (LRS) restrictions, which are at present fixed at $2,50,000 each financial year.
In order to file income tax returns, domestic investors must register a Demat Account at the IFSC, and stock income will be considered a Foreign Assets. This entails a slab rate of 20% with indexation for profits gained within two years of purchase and a 20% rate with indexation for gains achieved beyond two years.
The India Foreign Exchange (India-INX), which is controlled by the BSE, sells international equities to Indian investors through IFSC. For overseas brokers, BSE operates like an introducing broker.
When compared to the underlying shares traded on the New York Stock Exchange, the NSE IFSC business model will not only provide more investment opportunities for Indian investors, but it will make the entire investing process simple and low-cost. Traders will be able to trade Fractional amounts and values.
The proposed framework will make US shares affordable to Indian regular investors, according to a report published by the NSE last year.
Should you make investment in NSE IFSC equities like Amazon, Tesla, and Netflix?
As Indians get access to offshore investment, a look at how the process works and is it acceptable for all types of investors is in order.
From March 3, between 8 p.m. and 2.45 a.m., Indians will be able to trade shares of eight US businesses on the NSE’s International Financial Service Centre (IFSC).
Trading in the stocks of Amazon, Apple, Alphabet (Google), Tesla, Meta Platforms (Facebook), Microsoft, Netflix, and Walmart will be authorized at first. Investors who made investment in the shares of these global entities will get Depository Receipts (DRs) from the NSE IFSC.
While most foreign mutual funds are unable to engage in global markets due to restrictions on abroad investment that is to be elevated, the NSE IFSC provides investors with another way to diversify their portfolios.
Trade hours The trading will begin at 8:30 p.m. on the first day and end at 2:30 p.m. the following day. Trading in US stock receipts will take place across two day period, with the first day starting at 20:00 p.m. and the second day ending at 2.30 p.m. A single business day will be considered a trading cycle of this period.
Is this option suitable for all types of investors? What is the system for investing in overseas equities through the NSE IFSC?
What are the requirements to make investment in US stocks?
Investors must register a Demat Account with GIFT City, Gujarat’s Depository. They should find out if their broker is a Depository Participant. The NSE IFSC is where large retail brokerages begin their business.
The NSE, BSE, Multi Commodity Exchange of India, National Securities Depository Ltd., and Central Depository Services (India) Ltd. collectively own the only Depository in Gift City at the moment.
Investors must create a Trading Account with an NSE IFSC member broker in addition.
Investors will get DRs in Exchange for their investments, which will be stored in their Demat Accounts, rather than shares in US corporations.
Any corporate action taken by these entities, like dividends, will be credited to their Accounts up to the value of their DR holdings. Investors, on the other hand, will not have voting rights.
Due to the US stock market’s decade-long bull run and the desire to minimize single-country risk, investing in global equities has grown in appeal in recent years.
Indian investors can at present buy US stocks through acknowledged virtual brokers who have been licensed by Indian and US regulators.
“It’s the appropriate moment to buy an innovative product,” said Tapan Ray, managing director, and group chief executive officer of GIFT City.
What distinguishes this service from that of a broker?
The shares are kept by a third-party custodian in the broker’s’street name,’ rather than in the name of the investor, in foreign investing services supplied by domestic brokers. Investors will have to seek the US Securities and Exchange Commission to reclaim their monies if the broker defaults.
Domestic brokers may get insurance to protect themselves from broker partner defaults. Check to see if your broker has this type of insurance or not.
The NSE IFSC is a Securities and Exchange Board of India-Regulated Organization, and the DRs will be held in the investor’s name. All trades performed on the NSE IFSC platform will be covered by the NSE IFSC Clearing Corporation’s settlement ensured. At the NSE IFSC, all transactions will be protected under the Investor safeguarding framework.
What is the bare minimum that must be provided?
The NSE IFSC is aiming for a Range of $5 to $15 per DR, which works out to Rs 375 per DR at the low end. One DR usually represents a little fraction of the original share. An investor does not demand you to pay for the full share when purchasing a DR. Investors can begin by purchasing a fraction of the underlying share’s value and gradually add to their holdings.
One Apple share is at present trading at around $166, or Rs 12,500, which is similar to 200 DRs of NSE IFSC receipts.
To reduce the effect of Foreign Exchange Volatility, HDFC Bank, the custodian bank that owns the shares underlying the DRs, will aim to provide investors with good Foreign Exchange Rates.
Will investors be allowed to buy and sell shares in more US entities?
Depending on investor interest, the NSE IFSC may add shares of more entities for trading in the next three to four days, bringing the total number of companies available for trade to 50 from the present eight. The top 300 equities – or a bigger number – from US Exchanges can be added later. It can even bring inequities from other countries’ Stock Exchanges.
Because the corporations aren’t participating, the DRs would have to be created in collaboration with a custodial bank and a Market Maker.
What is the maximum amount of money that can be put?
The Reserve Bank of India has stated that DR investments on the NSE IFSC be made under the Liberalised Remittance Scheme, that states implies that the amount put in a financial year cannot exceed $250,000 (Rs 1.9 crore).
What is an IFSC Receipt from the NSE?
It’s a tradable Financial Instrument in the form of an Unsponsored ‘Depository Receipt,’ which means it’s a derivative product that allows investors to trade these eight stocks directly without going through a regulated online broker.
When compared to the underlying securities traded on the US markets, investors have the option of trading in fractional quantities. You may now buy shares in the..US and issue receipts against them, which will be known as NSE IFSC Receipts, just like you can buy shares in the US.
Un-sponsored Depository Receipts (UDRs)
Un-sponsored Depository Receipts (UDRs) are a type of unsponsored depositary receipt.
To obtain money from overseas stock markets, Indian corporations issue American Depositary Receipts (ADRs) and Global Depository Receipts (GDRs).
A bank is enlisted to issue the DRs in Exchange for the underlying shares it owns. Because the corporation is participating in the process, these DRs are known as sponsored depository receipts.
The NSE IFSC will collaborate with HDFC Bank to convert shares of multinational corporations into NSE IFSC receipts, which are DRs. Unsponsored depositary receipts are so-called since the corporations aren’t participating in the procedure.
How do DRs come to be?
The NSE IFSC has hired a market maker to purchase shares on the international market and deposit them with HDFC Bank in New York. It will issue DRs in Gift City and credit the market maker’s account against the shares placed with HDFC Bank.
What are the options for investors?
Financial experts believe mutual funds are still a superior alternative for clients who are just starting to diversify their investments geographically.
What is the benefit?
It’s all about accessibility. Investing in US equities is a time-consuming and expensive procedure at the moment. However, it will be much easier and more economical today. “This opens up a new investment possibility for Indian investors, with a straightforward investment process and low prices.
You will be able to trade in fractional amount value as compared to the underlying shares traded on US exchanges. Investors will be able to store the depository receipts in their own GIFT City Demat accounts and receive corporate action advantages on the underlying shares,’ said Likhita Chepa, Senior Research Analyst at Capital through Global Research.
What are the Potential risks for an investor?
Investing in NSE IFSC Receipts is fraught with danger. The following are some of the major dangers:
1. Price and volatility risk in general.
2. There is a risk of illiquidity.
3. The Risk of Underlying Shares
4.Risk of NSE IFSC Receipt Cancellation and Termination
5. There are tax implications.
6. Other risks include force majeure, legal changes, settlement, trade, and so on.
According to Vishal Dhawan, founder of Plan Ahead Wealth Advisors, “not all investors would have enough bandwidth to analyze which equities they should buy and expose to and which they should avoid.” “Index funds and exchange-traded funds (ETFs) may thus be a better approach to diversify for such investors.
Mutual funds investing in ETFs listed in other countries are still allowed to make investment in overseas, he added. For the time being, investors might evaluate these options until additional clarity on international mutual fund investing limitations emerges, according to Dhawan.
Those with a better understanding of global entities and marketplaces might consider investing through the NSE IFSC.
“This would help integrate Indian capital markets, especially the IFSC, to the global economy and identify the IFSC’s potential being a developing international financial center,” said Yashesh Ashar, a partner at Bhuta Shah & Co. The success of the IFSC’s sandbox pilot should pave the way for further innovation.”
However, a few minor challenges remain. It’s unclear if DRs may be considered like shares for tax purposes in India. This will have an impact on how earnings from the sale of DRs are taxed.
For Indian tax purposes, if an Indian resident buys US shares directly and sells them after two years, the proceeds from the sale will be categorized as “long-term capital gains.”
Given that the two-year holding period applies solely to shares of firms not listed on an Indian stock market, it is unclear whether the two-year holding period may be utilized to assess the nature of earnings for Indian tax purposes if a person buys in US equities through DRs.
Residents of India are forbidden from retaining monies in their IFSC bank account for more than 15 days after receiving them since any cash left in the account for more than 15 days must be repatriated to a domestic INR account.
The first day of trading in US stock receipts will begin at 20:00 p.m., while the second day will finish at 2.30 p.m. A trading cycle of this length will be defined as a single business day.
There will be no fixed pricing range for these contracts. However, the Exchange will use a dynamic price band mechanism to prevent orders for execution from being approved if they are placed outside of the Exchange’s price limits.
If there is a market trend in any direction during the day, the dynamic pricing band will be relaxed in that direction. The dynamic pricing band will be created using 10% of the base price.
edited and proofread by nikita sharma