sgx Nifty

With over 90 per cent of hedge funds now preferring to trade the Nifty Futures on the Singapore Stock Exchange (SGX), volumes on SGX Nifty are climbing fast. The trend is giving jitters to domestic investors and stock brokers, who have to change their positions overnight, depending on the opening and closing of the SGX Nifty.

The SGX Nifty is traded from 9 a.m. to 6 p.m. (IST), while the domestic markets open at 9.55 a.m. and close at 3.30 p.m. On all trading days last week, Nifty futures in the domestic market opened more or less in line with the SGX Nifty.

An analysis of last week’s open interest (OI) in both the domestic and SGX Nifty futures reveals that the built-up of positions in Singapore has come very close to that in the domestic market, and is threatening to overtake it too.

The overall OI in SGX Nifty on July 24 (there was no trading in Singapore on July 25) for the current month (July expiry) was over 31.4 million against 38.8 million in the domestic market. For the entire week, the OI gap between both the markets has been more or less the same. Analysts say the OI in SGX Nifty is touching its lifetime highs.

A significant increase in the number of contracts at SGX Nifty could also be one of the strong reasons for the lacklustre rollovers that the National Stock Exchange (NSE) Nifty has been witnessing over the past couple of months.

Most of the hedge funds do not indulge in taking naked positions and the opportunity of arbitrage between cash and futures has reached its nadir since the crash in domestic markets. On the other hand, the pick-up of SGX Nifty futures trade has given them a high arbitrage opportunity between the SGX product and the NSE Nifty.

Yogesh Radke, an analyst with Edelweiss Capital Services, said there is a strong possibility of SGX Nifty overtaking domestic volumes shortly. “With the trading volume of Nifty futures coming down on NSE, the impact cost is rising, forcing even some of the big domestic investors to take positions on SGX,” he says.

According to sources, almost all the top brokerages are setting up shops in Singapore, which would allow even domestic traders to directly take positions. The SGX product is denominated in dollars as it is a futures on Defty, not Nifty. So, the only thing domestic investors should do is to have their funds parked overseas, which top market operators have already managed.

However, for the retail investors it may not be possible to invest legitimately in SGX Nifty until capital account convertibility comes about.

K R Choksey Shares and Securities’ Managing Director Deven Choksey said apart from the reduction in the minimum contract value of the SGX Nifty from $10 to $2, a sharp depreciation in rupee over the past six months too has forced hedge funds to avoid Nifty futures in India. “The foreign portfolio or foreign direct investors directly get currency protection when they use the SGX product for hedging. In the case of Nifty futures, this foreign investor would need to combine a position on it with a position on the dollar-rupee forward market,” he adds.