Every morning when a trader starts off with the predictions to make a daily trading plan, the one thing they see for sure is the SGX Nifty opening status that day. Markets in Singapore opened before India and hence people are able to analyse its opening. But, a lot of such traders have none to little idea of what SGX Nifty is, why it exists and how it affects the markets in India. To clarify all such doubts, this article will explain in the most simple language to add to your ever-expanding knowledge.
What is SGX Nifty?
SGX stands for Singapore Exchange, and Nifty is our very own Nifty50. SGX Nifty is in the simplest words the Nifty future contracts that are being traded in Singapore Exchange.
The question that arises here is why does it exist? And why not just trade in Nifty 50 directly in India rather than SGX Nifty?
All such questions will be discussed below –
Who can invest in SGX Nifty?
As per rules and regulations, it is almost impossible to trade in any derivatives based outside of the country, and hence SGX Nifty provides such an opportunity to trade for other investors to invest.
There are two kinds of people who can trade in SGX Nifty –
People outside India
People who are living outside of India and wish to invest in India, but are unable to do so in accordance with international rules and regulations can invest in SGX Nifty in line with the regulations of their country.
There are many foreign institutions that invest in India since it is a growing economy. These investors include Investment Firms, Mutual Funds and other Asset Management Companies. Such companies in order to safeguard themselves from any mishap and any sudden unfavourable movement in the market, create a hedging position for themselves in the SGX Nifty to hedge their position in the Indian market and avoid any losses.
The clear conclusion here is that an Indian Resident cannot trade in SGX Nifty, but rather any derivative outside India. In the case of a Non-Resident Indian (NRI), it depends on the rules in the country in which the person is residing.
How is the SGX Nifty’s Value calculated or derived?
Just like the prices for any stock, the value of SGX Nifty is also based on the demand and supply of the contract. This is simple economics. When the demand for the contract is high in the market, the prices are high, and when the demand is less and there are more sellers in the market, the prices go down.
Unlike Indian Market, SGX opens in two slots. The first slot is called T-Session which starts at 6.30 AM in the morning and closes at 3.40 PM as per Indian Standard Time. The second session called T+1 starts its operations at 4.45 PM and closes at 2.45 AM.
Difference between SGX Nifty and Indian Nifty
The main difference between SGX Nifty and Indian Nifty is that SGX Nifty is a futures trading platform and the prices here are predetermined as in any futures contract to avoid any risk, whereas Nifty in India trades only in the Indian market, National Stock Exchange.
SGX Nifty has a large number of customers and trading activities being the only platform that operates for more than 16 hours a day. For Indian Nifty, this is not the situation. The National Stock Exchange is just an exchange platform where trading takes place from 9.15 AM to 3.30 PM.
Another major difference between these two is the contract size. For anyone trading in the NSE, as a rule, there must be a minimum of 75 shares being traded between the seller and the buyer. This is not the case with SGX Nifty. This implies that SGX Nifty does not have a contract with such predecided numbers.
How does the SGX Nifty affect the Indian Market?
Since it is clear that Indian residents cannot trade in SGX Nifty, the point here is how does it affect the Indian Markets and why as a trader should you keep a track of its status?
The SGX Nifty starts operations about two and a half hours before the Indian Market. This gives time for the investors to keep an eye on the SGX Nifty and to analyse it before the Indian Market opens. The SGX Nifty helps to get an idea and predict the Nifty’s behaviour in India. This helps to predict any major fluctuations and make a decision on the daily trading plan. The investor can hence be aware of the market in India will open with positive or negative results. Therefore, keeping a track of SGX Nifty helps the investor to be prepared in advance for the market opening in India.
As per the latest developments, NSE and SGX entered into an agreement to start the operations of NSE IFSC-SGX Connect in India. The initiative would bring the participants of Gujarat International Finance Tec-City (GIFT City), in Gujarat and other International participants together for the Nifty products.
Single stock futures are also being planned to be introduced by SGX, and SEBI wants to take action to prevent the possibility of foreign exchanges taking on the role of a price-setting mechanism.
It should also be noted that many traders have observed that SGX Nifty and Nifty do not always behave the same way. There are days when SGX Nifty may open very high, however, the Nifty in India does not make an opening as high on the same day. Hence, it is always advised not to blindly depend on the SGX Nifty parameters and just analyse it as a guide to how the market in India may open.