GIFT to investors

| Updated on August 13, 2021

The IFSCA should turn its attention towards increasing the pool of investors in GIFT City

The recent announcement by the NSE International Exchange and India INX that they will enable trading in global stocks on their platforms in the International Financial Services Centre is a welcome move. It expands the array of products available to investors in the offshore centre. While the NSE IFSC is planning to make available select US stocks which will be offered in the form of unsponsored depository receipts, India INX plans to offer stocks from other advanced economies as well. Given the uneven growth witnessed across countries during the pandemic, domestic investors can use this facility to diversify risk in their equity portfolios. Investors have so far been relying on overseas broking firms to directly buy or sell global stocks. Investing in these securities in the GIFT (Gujarat International Finance Tech-city) exchanges will be more secure as the transactions will be overseen by IFSCA, the regulator in the GIFT City, and will be secured by the risk-management process in the exchanges in the offshore centre.

The announcements by NSE and IndiaINX need to be seen in conjunction with the recent move by RBI permitting resident individuals to send money to banking units in the IFSC under the Liberalised Remittance Scheme for purchasing securities issued by non-resident entities in the GIFT City. While this cleared one of the significant hurdles to improving participation in the Indian offshore centre, investors are not allowed to deploy the LRS money to trade in derivatives on overseas exchanges. Given that exchanges in the GIFT City primarily offer futures and options as of now, RBI’s relaxation did not mean much either for GIFT City or investors. With depository receipts of global stocks now available through NSE and India INX, investors can use the LRS route to trade in them. The IFSCA is also paving the way for primary equity offers by domestic and foreign companies on the GIFT exchanges, which are also eligible investments under the LRS. Besides the tax benefits provided on transactions on the GIFT City exchanges, the Budget this year had given other sops such as allowing tax neutral relocation of foreign funds to the GIFT IFSC, making it easier for offshore fund managers to get a safe harbour to protect their global income from Indian tax authorities.

The basic building blocks are in place, with a number of banks and brokers already establishing subsidiaries in the IFSC. Primary bond issuances in the offshore centre have elicited good response. The IFSCA must try to increase awareness about the products on the GIFT exchanges among domestic investors so that they can begin transacting there. Participation of domestic investors will provide critical mass for a vibrant trading ecosystem on the GIFT exchanges.

Published on August 13, 2021

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