GIFT Nifty & Its Impact on Indian Markets

Part 1: Background & Origin of GIFT Nifty
What is GIFT City?

GIFT City (Gujarat International Finance Tec-City) is India’s first International Financial Services Centre (IFSC).

Located near Gandhinagar, Gujarat, it was conceptualized to create a world-class financial hub in India to compete with global centers like Singapore, Dubai, and Hong Kong.

GIFT City offers tax incentives, relaxed regulatory norms, and state-of-the-art infrastructure for global financial institutions to operate.

What is SGX Nifty?

The SGX Nifty was a derivative contract based on the Nifty 50 index, traded on the Singapore Exchange (SGX).

It allowed international investors to take exposure to Indian equities without registering in India.

For years, SGX Nifty acted as a barometer for Indian markets, especially because it traded during hours when Indian markets were closed.

Traders in India would often look at SGX Nifty early morning to predict the likely opening of the Indian stock market.

The Dispute & Transition

In 2018, NSE (National Stock Exchange of India) announced it would stop licensing its Nifty index to foreign exchanges like SGX.

The decision led to arbitration between NSE and SGX, as SGX Nifty had become very popular among global investors.

Finally, a compromise was reached: SGX Nifty contracts would be migrated to GIFT City under NSE IFSC.

On July 3, 2023, SGX Nifty officially rebranded as GIFT Nifty and trading began on NSE IFSC.

Part 2: Structure & Features of GIFT Nifty
Key Features

Underlying Index: Nifty 50 (India’s flagship index).

Contract Type: Futures contracts (similar to SGX Nifty).

Trading Venue: NSE International Exchange (NSE IX) at GIFT City IFSC.

Currency: Denominated in US Dollars instead of Indian Rupees.

Trading Hours: Nearly 21 hours (from 6:30 AM to 2:45 AM IST) — allowing overlap with Asian, European, and US markets.

Participants: International investors, Foreign Portfolio Investors (FPIs), NRIs, and eligible domestic investors.

Types of GIFT Nifty Contracts

Currently, NSE IFSC offers futures contracts on:

GIFT Nifty 50

GIFT Nifty Bank

GIFT Nifty Financial Services

GIFT Nifty IT

This expands the scope beyond just the Nifty 50 index, giving investors wider access to Indian sectoral indices.

Why Dollar Denominated?

International investors prefer USD-denominated contracts as it eliminates INR currency risk.

It makes Indian markets more accessible globally without forcing traders to manage currency exposure.

Part 3: Importance of GIFT Nifty
1. A Gateway for Global Investors

Earlier, SGX Nifty allowed foreign investors to participate in Indian markets indirectly. With GIFT Nifty, India itself now provides that gateway, strengthening its own financial ecosystem.

2. Deepening Market Liquidity

By concentrating derivatives trading within India, NSE IFSC attracts liquidity that was earlier routed abroad.

This boosts India’s derivatives market depth, transparency, and volumes.

3. Enhancing India’s Global Financial Standing

Shifting trading from Singapore to India signals that India is ready to host global investors on its own platform.

This strengthens India’s ambition of making GIFT City a financial hub like Dubai or Singapore.

4. Longer Trading Hours

Indian stock exchanges (NSE & BSE) operate from 9:15 AM to 3:30 PM IST.

GIFT Nifty trades for 21 hours, giving almost round-the-clock access to Indian equity exposure.

This aligns India with global markets, reduces overnight risks, and improves price discovery.

5. Price Discovery & Market Sentiment

Earlier, SGX Nifty served as an indicator of Indian market openings. Now, GIFT Nifty performs that role.

With long trading hours, it reflects global sentiment on Indian equities more effectively.

Part 4: Impact of GIFT Nifty on Indian Markets
A. Impact on Indian Exchanges (NSE & BSE)

Positive: More visibility, control, and revenue for NSE as global trading activity comes under its umbrella.

Neutral/Negative: Indian retail traders may feel disconnected since contracts are in USD and primarily targeted at international investors.

B. Impact on Market Liquidity

Migration of volumes from SGX to GIFT increases liquidity within Indian jurisdiction.

Higher liquidity means tighter spreads, better efficiency, and more robust risk management for investors.

C. Impact on Global Investors

Easier access to Indian markets without worrying about Indian regulations.

Extended trading hours make Indian assets more attractive for hedging and speculative purposes.

Dollar-denominated contracts align with global trading practices.

D. Impact on Domestic Investors

Initially limited, since GIFT Nifty is mainly designed for FPIs and international traders.

However, over time, domestic institutions (like mutual funds and banks) may benefit by using it for hedging foreign flows.

E. Impact on Indian Rupee (INR)

Since contracts are in USD, demand for Indian equities could indirectly influence INR movements.

GIFT City also has potential to become a hub for INR trading in future.

F. Impact on India’s Financial Image

Positions India as a serious global financial player.

Increases foreign confidence in Indian regulatory and market structures.

Part 5: Comparison – GIFT Nifty vs SGX Nifty
Aspect SGX Nifty GIFT Nifty
Location Singapore Exchange NSE IFSC (GIFT City, India)
Currency USD USD
Trading Hours 16 hours 21 hours
Regulator MAS (Singapore) IFSCA (India)
Ownership of Revenues SGX NSE
Underlying Index Nifty 50 Nifty 50, Bank, IT, Financial Services
Role in Price Discovery Yes Yes (now the official one)

The shift essentially moves control and revenues from Singapore to India.

Part 6: Opportunities Created by GIFT Nifty

Boost for GIFT City – The success of GIFT Nifty can attract other asset classes like global bonds, currencies, and commodities.

Increased FPI Flows – Easier access encourages more foreign portfolio investment into India.

Derivatives Ecosystem Expansion – Potential to introduce options, ETFs, and structured products linked to Indian indices.

Cross-Border Collaboration – GIFT Nifty opens avenues for India to collaborate with global exchanges in other products.

Risk Management for Global Investors – Long trading hours provide effective hedging tools.

Part 7: Challenges & Concerns

Liquidity Migration – Will all volumes shift smoothly from SGX to GIFT Nifty? Some traders may prefer Singapore due to familiarity.

Regulatory Environment – Global investors need confidence in IFSCA’s regulatory robustness.

Dollar Contracts Disconnect – Indian retail traders may feel left out since contracts are not INR-based.

Competition from Other Hubs – Dubai, Singapore, and Hong Kong remain strong competitors as global finance centers.

Infrastructure Readiness – GIFT City must maintain world-class standards to handle high-frequency global trades.

Part 8: Long-Term Implications

Strengthening NSE’s Global Role

NSE may emerge as a global exchange platform beyond Indian borders.

Growth of GIFT City

Success of GIFT Nifty sets the tone for making GIFT City India’s Wall Street.

Integration with Global Finance

Longer trading hours and dollar-denomination bring Indian equities closer to global investors.

Increased FPI Confidence

Consistent performance of GIFT Nifty could increase foreign flows into India’s cash equity markets.

Policy Influence

If successful, it could encourage policymakers to replicate such models in bonds, currencies, and commodities.

Part 9: Case Study – First Year of GIFT Nifty

In its first year, GIFT Nifty volumes have been rising steadily.

According to exchange reports, daily average turnover crossed billions of dollars within months.

Many global institutional investors have already shifted positions from SGX.

This indicates strong acceptance and confidence in India’s financial infrastructure.

Conclusion

The launch of GIFT Nifty is a historic milestone in India’s journey toward becoming a global financial powerhouse. By bringing offshore trading of Indian equity derivatives back to Indian soil, it strengthens the domestic ecosystem, enhances liquidity, and improves price discovery.

For global investors, GIFT Nifty provides almost round-the-clock access to Indian markets in a familiar USD-denominated format. For India, it symbolizes financial sovereignty, global competitiveness, and the ambition of positioning GIFT City as an international financial hub.

While challenges remain—such as building liquidity, ensuring robust regulation, and competing with established hubs—GIFT Nifty has already made a significant impact on how the world interacts with Indian equities. Over the next decade, its success could pave the way for India’s deeper integration into global capital markets, making it a win-win for investors, exchanges, and the Indian economy alike.