NSE to go live with top 50 US stocks in first phase at GIFT City

The National Stock Exchange (NSE) plans to launch trading in top 50 US stocks in the first phase at GIFT City, an international financial services centre (IFSC).

The move will allow domestic investors to gain direct exposure to the world’s biggest companies, such as Apple (market cap of $2.4 trillion), Microsoft ($2.2 trillion), Alphabet ($1.8 trillion), Amazon ($1.7 trillion), and Facebook ($1 trillion) — which are all listed in the US. The exchange’s arm NSE International Exchange (NSE IFSC) is setting up a platform that will allow domestic investors to transact in US stocks at GIFT City, which is created on the lines of global financial centres in Dubai and Singapore.

Domestic investors will have to use the liberalised remittance scheme (LRS) limits of up to $250,000 (Rs 1.86 crore) each financial year as prescribed by the Reserve Bank of India (RBI).

Ravi Varanasi, president and chief business development officer, NSE, said the work in most areas is nearing completion and the exchange is targeting to launch the platform in two-three months. “We will launch the biggest 50 stocks which will cover most sectors, such as technology, banks, pharma, and FMCG. The list can be expanded later,” he said.

Lower costs, more transparency

At present, domestic investors can get exposure to foreign stocks through a broker who has a tie-up with an international broker. Under this, shares are held in the omnibus account of the international broker. Varanasi said under the proposed platform, all depository receipts (DRs) will be held in the demat account of the customer. He said the process of onboarding and transacting will be a lot easier than under the current setup. “The platform will be transparent, cheap and easy to use,” said Varanasi.

Fractional ownership

The NSE IFSC will allow investors to buy shares through fractional ownership. This will help investors get exposure to stocks, such as Alphabet and Tesla, which have high absolute costs. For instance, one Class A share of Alphabet, the parent company of Google, currently quotes at $2,738 (over Rs 2 lakh) and that of Tesla quotes at $714 (over Rs 50,000).

“Most prices of the DR will be in the range of $3 and $5 per unit. Someone looking to invest $500 can create a diversified portfolio,” said Varanasi. All the trades at GIFT City are dollar-denominated as it is treated as an offshore trading destination. Varanasi said the exchange will put in place a market-making mechanism initially to ensure that the buy and sell spreads are reasonable. Top international market makers have agreed to participate on the proposed platform, he said.

Taxation

The government provides for several benefits, such as exemption from capital gains, securities transaction tax (STT), and stamp duty on trades coming from GIFT. All these benefits will also be extended to domestic investors transacting in GIFT City. However, investors will have to pay taxes on profits that get repatriated from the GIFT City account to the onshore or regulator bank account. 

Transacting at GIFT City will require the opening of a separate bank and demat account with an intermediary registered at GIFT City. The proposed platform will be regulated by the IFSC Authority, a unified regulatory body for all entities operating out of GIFT City.