What is SGX Nifty?

SGX is the Singapore Exchange. SGX Nifty is a futures contract based on the Nifty index, which tracks the top 50 Indian companies.
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What is SGX Nifty?
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3 mins read
17-October-2024

Key takeaways

  • SGX Nifty is a futures contract that is traded on the Singapore Exchange (SGX).
  • SGX Nifty is traded in Singapore dollars, but it is closely correlated to the Nifty index, which is traded in Indian rupees.
  • This makes SGX Nifty a popular instrument for investors who want to trade the Indian stock market without having to physically go to India.

What is Nifty?

The term 'NIFTY' refers to the Nifty 50, which is a stock market index. The Nifty 50 is one of the major stock market indices in India and is used as a benchmark to track the performance of the overall Indian stock market. It is managed and operated by the National Stock Exchange of India (NSE).

What is SGX Nifty?

SGX Nifty is quoted on the Singapore Stock Exchange (SGX) and is an offshore derivative instrument that enables foreign investors to take a chance on the performance of the Indian stock markets without investing in India.

The trading hours of SGX Nifty are from 6:30 AM to 11:30 PM IST, which is much longer than the trading hours of the Indian stock markets. This extended trading period allows investors to trade the Indian equity markets at a time which is more convenient for them, resulting in increased liquidity and price discovery. Additionally, since SGX Nifty is traded in Singapore Dollars (SGD), investors can also use it to hedge against foreign currency risks.

One of the significant advantages of SGX Nifty is that it provides an early indication of the direction in which the Indian stock markets are likely to move. This is possible because of the time zone difference between Singapore and India. The SGX Nifty is highly correlated with the Indian Nifty index, which means that movements in the SGX Nifty can be used as a proxy for movements in the Indian stock markets. This correlation makes SGX Nifty a crucial instrument for market participants who want to react quickly to overnight developments in global markets.

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How is SGX Nifty different from Indian Nifty?

Let us explore some key differences between SGX Nifty and Indian Nifty:

Aspect

SGX Nifty

Indian Nifty

Trading Exchange

Singapore Stock Exchange

National Stock Exchange (NSE)

Nature

Futures contract based on Nifty

Benchmark index of top 50 Indian companies

Trading Hours

6:30 AM to 11:30 PM IST

9:15 AM to 3:30 PM IST

Denomination

Singapore Dollars (SGD)

Indian Rupees (INR)

Influencing Factors

Global market sentiment

Indian economy, policies, earnings

Market Information

Provides a future direction

Real-time market movements


How does SGX Nifty impact the Indian market?

Explore how does SGX Nifty impact the Indian market:

1. Time difference and early indication:

  • The time difference between the opening of the Singapore market and the Indian market provides a valuable early indication of market sentiment. Singapore markets open about two and a half hours before the Indian market.
  • Investors and traders use the SGX Nifty as a leading indicator to gauge the potential direction of the Indian market when it opens. Fluctuations in the SGX Nifty can provide insights into how the Indian Nifty might behave later in the day.

2. Pre-market trading and reaction to global cues:

  • SGX Nifty allows for pre-market trading, providing an avenue for investors to react to global cues and news that may impact the Indian market.
  • As global events and economic factors affect financial markets worldwide, including India, the SGX Nifty can reflect how international developments may influence investor sentiment in the Indian market.

3. Risk management and hedging:

  • Investors, especially those skeptical about the Indian market, may use SGX Nifty as a tool for risk management and hedging strategies. They can take positions in the SGX Nifty to offset potential risks in the Indian market.
  • It provides a way for investors to participate in the Nifty movement without directly engaging in the Indian market, offering a level of flexibility and risk mitigation.

4. Global economic structure differences:

  • The reference content rightly points out that India and Singapore have different economic structures. Economic events and policies in both countries can impact their respective markets differently.
  • Investors need to consider the broader economic factors in both nations when interpreting SGX Nifty movements and making decisions based on them.

5. Interconnected behaviour of Nifty and SGX Nifty:

  • The behaviour of the Indian Nifty and SGX Nifty is interconnected. Movements in one market can influence the other, creating a symbiotic relationship between the two.

Traders and investors cannot overlook either market when analysing market behaviour and making investment decisions.

Advantages

Global exposure: International investors who are interested in gaining exposure to the Indian stock market can do so through SGX Nifty without needing direct access to Indian exchanges. This offers a convenient way to diversify portfolios across different markets.

Risk management: SGX Nifty futures enable investors to hedge their exposure to Indian equities. By taking positions on the SGX Nifty, investors can offset potential losses from their holdings in the Indian markets, thereby reducing overall risk.

Disadvantages

Limited accuracy: While SGX Nifty movements are often used as an indicator of the Indian market's direction, it's not always a precise predictor. Factors like news developments, global sentiment, and after-hours trading can influence the opening direction of the Indian markets differently from the SGX Nifty.

Regulatory risks: Changes in regulations or trading policies in either the Indian or Singaporean markets can impact the trading of SGX Nifty. Investors need to stay informed about any regulatory changes that might affect their ability to trade these futures contracts.

Market manipulation concerns: There have been instances where discrepancies between SGX Nifty and Indian market movements have raised concerns about potential market manipulation. This can create uncertainty and affect traders' ability to make informed decisions.

It is important to note that the advantages and disadvantages of SGX Nifty can vary based on individual investors' goals, strategies, and risk tolerances. As with any financial instrument, careful research and consideration of personal circumstances are essential before engaging in trading or investing in SGX Nifty.

Conclusion

The availability of SGX Nifty provides an avenue for international investors to gain exposure to Indian equities without needing direct access to the Indian stock market. It is worth mentioning that regulatory changes and market dynamics can impact the trading of SGX Nifty, so investors should stay informed about any relevant updates.

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Frequently asked questions

What is SGX Nifty?

SGX Nifty is a Nifty index derivative, traded on the Singapore stock exchange, that assists in predicting and monitoring the performance of the Indian Nifty index.

In which currency the trades are performed in SGX Nifty?

Trades on SGX Nifty are usually done in Singapore dollars.

What is the trade time of SGX Nifty (GIFT Nifty)?

The trading hours of SGX Nifty are from 6:30 AM to 11:30 PM IST, which is longer than the trading hours of the Indian stock markets.

What is the difference between Nifty and SGX Nifty?

The Nifty 50 is a stock market index that tracks the top 50 companies in India, while SGX Nifty is a futures contract traded in Singapore that reflects the future value of the Nifty. Nifty trades on the National Stock Exchange of India, while SGX Nifty trades on the Singapore Exchange.

Can Indians trade in SGX Nifty?

Yes, Indians can trade SGX Nifty through brokers registered with the Singapore Exchange. However, currency fluctuations and regulations add complexity. It is advisable to understand the risks involved before trading.

Why does SGX Nifty affect the Indian market?

Since SGX Nifty reflects the anticipated performance of the Nifty, its movement can influence investor sentiment in India. A rising SGX Nifty might indicate a positive opening for the Indian market, and vice versa. However, other global factors can also impact the Indian market.

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