This article delves into the recent development in India’s financial sector that allows local investors to purchase select U.S stocks via NSE International Exchange (NSE IFSC). As a fully-owned subsidiary of National Stock Exchange of India Limited (NSE), NSE IFSC has been given approval by the Intercontinental Financial Services Authority (IFSCA).
NSE IFSC: An Overview
Founded on November 29, 2016, NSE IFSC serves as an integral part of the National Stock Exchange of India Limited. Based in the Gujarat International Finance Tech City (GIFT City), this stock exchange can offer trading in securities in any currency other than Indian Rupee. Launched on June 5th, 2017, NSE IFSC facilitates USD denominated trading in a variety of products such as index derivatives, stock derivatives, currency derivatives, commodity derivatives, and debt securities.
Understanding the NSE IFSC Receipts
The NSE IFSC receipt is a negotiable financial tool, closely resembling the derivative product ‘depository receipt’. This allows investors to directly trade stocks without needing the services of registered online brokers. These receipts mirror shares bought in the US market, thereby facilitating familiarity for investors used to domestic trade.
Benefits of the NSE IFSC Model
One of the main advantages of NSE IFSC’s model is its ability to offer Indian investors alternative investment opportunities. Compared to underlying shares traded in U.S markets, investors can trade in fractional quantity value through NSE IFSC. Furthermore, investors get to hold their depository receipts in their own GIFT City demat accounts, making them eligible for corporate action benefits on the underlying stock.
Eligibility for Investment
The list of eligible investors includes individuals residing outside India, non-resident Indians, and residents in India who qualify under the Foreign Exchange Management Act (FEMA) to invest funds offshore. As per FEMA’s Liberalized Remittance Scheme of the Reserve Bank of India, resident individuals can remit up to USD2,50,000 per financial year for any permitted current or capital account transaction. However, this excludes U.S and Canadian residents.
Potential Risks Involved
Though attractive, investing in NSE IFSC Receipts comes with its share of risks. These include general price and volatility risk, risk of illiquidity, underlying share risk, risk of termination of the NSE IFSC receipt, tax-related risks, and some unforeseen risks like changes in law, settlement-related issues, and force majeure events.
Indian Financial Scenario: An Overview
The Indian financial landscape allows retail investors with a demat account to invest in Treasury Bills and Government of India Debt Bonds in the primary market. The “Negotiated Dealing System-Order Matching” is a trading platform for government securities offered by the Reserve Bank of India. The Central Depository Services Ltd., which is promoted by both the Reserve Bank of India and the Bombay Stock Exchange, makes it possible to hold shares and securities in an electronic format.