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One of Asia’s biggest trades took place on Monday, albeit without real money changing hands. Equity derivative contracts worth about $7.5bn in open interest, a measure of investment exposure, shifted from Singapore to India. It is a milestone in India’s campaign to compete with Singapore and Dubai as a key hub for Asian finance.
The SGX Nifty, a popular futures series on India’s key equity index, has been renamed Gift Nifty. The new name promotes Gift City, the financial hub the government hopes to develop in Gujarat, home state of Prime Minister Narendra Modi. The Mumbai-based National Stock Exchange has set up a derivatives offshoot there.
The timing could not be better. Investors had feared the move would reduce liquidity. But India’s key indices, the Nifty 50 and Sensex, continued a record-breaking run to fresh all-time highs on Monday.
The rally has made India the fourth-largest equity market in the world. The influx of foreign investment should support demand for futures contracts.
SGX Nifty futures had a daily average turnover of about $3.9bn notional last year. Average open interest was two and a half times that. The futures accounted for the second-largest chunk of the Singapore Exchange’s equity derivative volumes, after the SGX FTSE China A50 Index futures.
Large volumes of orders from Singapore will now be routed into India. SGX and NSE will split costs and revenues roughly equally. Fees and profits for the Indian exchange and local brokers should rise.
India wants to become a bigger presence in global markets. The local financial sector has been growing faster than expected. New listings hit a record last year.
The finance sector is supported by a growing population. A headcount of 1.4bn people means India has overtaken China to become the world’s most populous nation. Economic growth of 5.9 per cent is forecast for the current fiscal year. That is ahead of China, which is struggling with record youth unemployment and tensions with the US.
India will have to work hard to win a reputation as a financial hub on a par with Singapore or Hong Kong before the latter was partially absorbed by China. It has failed to live up to bullish expectations in the past. Bringing its main equity derivatives contract onshore gives politicians and market bosses something to live up to.
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