What is SGX Nifty and Why it affects the Indian Stock Market


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What is SGX Nifty and Why it affects the Indian Stock Market

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Today we will discuss about SGX Nifty and its connection with Indian Stock Market.

If you trade in Indian Stock Market actively then  I’m pretty sure that you must have heard of this term ‘SGX Nifty’.

It is easier to understand the terminology once we break it down. The term SGX NIFTY is comprised of two aspects: SGX : Singapore Stock Exchange and NIFTY : The benchmark index of the National Stock Exchange and is comprised of 50 of the largest companies listed on the NSE. So, if we were to add these two constituents, we can say that SGX Nifty is the Indian Nifty trading on the Singapore Stock Exchange. It is an actively traded futures contract on Singapore Exchange.

Any investor who is willing to trade in Nifty, but is not able to access Indian Markets (due to any reason), finds trading SGX Nifty very good alternative to trade. Even the big hedge funds who have big exposure in the Indian market find SGX Nifty as a good alternative to hedge their positions.

Note: An Indian citizen is not allowed to trade SGX Nifty contracts or to trade derivatives in any other country.

SGX nifty is Nifty futures contract trading in Singapore Stock Exchange but Nifty contract trades on NSE  in India. Let's find out the difference.

1) Contract Size: The contract size of SGX Nifty and Nifty is different. In India, we have 75 shares in every Nifty contract Lot whereas the SGX nifty does not have a contract with shares in it. SGX Nifty is denominated in terms of US dollars. Say, if Nifty is trading at 9000, then the contract size of SGX Nifty will be 9000*(2 USD) i.e., 18000 USD.

For example, if the Nifty moves up by 200 points for the day you So your total profit would be 200*75 = Rs 15,000. But in the case of SGX Nifty, we will be making a profit of 200*2 = 400 USD per contract.

2) Open Interest (OI): Now, In India, in the case of Nifty, we see Open Interest as the ‘number of shares’ outstanding. But in the case of SGX Nifty the Open Interest shows the ‘number of contracts’ outstanding. Both Nifty and SGX Nifty are highly liquid and a very high volume of trading happens in that.

Timings

Source: https://www.sgx.com/

In Singapore Nifty trades in two tranches. One part during the day time and it is denoted by ‘T’ (as seen in the picture above). The other half during the evening time and it is denoted by ‘T+1’. The trades happening in the evening will be considered in the next day settlement prices.

Source: https://www.sgx.com/

Singapore’s time zone is 2 hours & 30 minutes ahead of us. According to their local time. In Indian Standard time, the trading happens for 'T' session from 6:30 AM to 3:40 PM. And the Evening (T+1) session, it trades from 6:40 pm to 5:15 am Singapore Standard Time, which if converted to Indian Standard time will have timings of 4.10 pm to 2:45 am.

SGX Nifty trades for 16 hours a day and due to its long hours of trading, it is affected by the world economic cycles and global political events.

How SGX Nifty Impacts Indian Stock Market?

As per the above figure NIFTY, S&P500, Dow Jones, SSE Composite and HangSeng and correlated with each other and their trends are positively correlated but remaining four indices FTSE 100, TOPIX, NASDAQ and NYSE perform similarly.

SGX Nifty still trading way after the closure of the Indian Nifty market, we see an impact of these global news on the SGX Nifty price movement. This further directly impacts the opening pricing of Nifty, the very next day. And that is one of the reasons we see the Indian Nifty market opening at a premium or discount over the previous day’s close.

Note: Most analysts use SGX Nifty as one of the factors to predict whether the market will open higher or lower on a trading session.

Simplest way to predict If NIFTY will open in red or green:

1) If Dow Jones ends lower > SGX Nifty is expected to open lower > NIFTY50/Sensex is expected to open lower.

2) If Dow Jones ends higher > SGX Nifty is expected to open higher > NIFTY50/Sensex is expected to open higher.

Nutshell

The SGX Nifty is a perfect substitute for investors and traders looking to trade in the Indian equity market but are not able to do so. It is a perfect hedging instrument if you are already exposed to the Indian equity market. One unique advantage that SGX Nifty has the longer trading hours compared to the Indian Equity market. And all these points make it a lucrative investment and trading avenue.

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Akshay Seth
Research Analyst (SEBI Regd.)
Linkedin | akshay.equity@gmail.com

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