The Indian capital market is gradually opening up to include increased number of venues for investments by domestic investors.
At first, the SEBI allowed listing of gold exchange traded funds (ETFs) on the stock exchanges. This enabled a great deal of convenience for small retail traders and investors who could bet their money without concerns about the purity of the yellow shining metal as they were traded in the paper form.
Subsequently, it was realized that ETFs are gaining in popularity over other financial products. India has already seen traction in ETFs and it has brought a kink in the curve as it is much more representative of what investors want in their portfolios.
This gave way to first international ETF in India, Benchmark Mutual Fund’s “Hang Seng BeES” representing the popular Hong Kong SE, to being listed on the NSE in mid-2010. It offered Indian investors a way to diversify geographically in an easy and convenient manner.
In latest, the capital market regulator SEBI has permitted stock exchanges to introduce derivative contracts of 24 foreign stock indices in a bid to allow Indian investors to diversify their allocation across global asset classes in a controlled environment.
With this giant move, Indian investors can now trade in popular indices of US, Europe and Asia among others, subject to a market capitalization of at least $100 billion and a minimum of 10 constituent stocks. Further, no single constituent stock should have more than 25% of the weight, computed in terms of free float m-cap, in the index.
Currently, the NSE has exclusive rights for trading in the S&P 500 and the Dow Jones Industrial Average rupee-denominated future contracts for trading in India. NSE is also in talks with the London Stock Exchange for getting the FTSE 100 in India.
The SEBI circular provides that the absolute numerical value of the underlying foreign stock index shall be denominated in Indian rupees and the derivative contract would be denominated, traded and settled in INR.
In a nutshell, domestic investors can now plough their funds into racier overseas markets, including the US and the UK, which hold out the promise of higher risk and greater rewards.
So, are you ready to trade in an index packed with high-profile stocks such as Apple, Google and Microsoft?